Your Investments

By AARON KATSMAN
August 5, 2010 23:40

Did Teva’s plunge sink your portfolio?

3 minute read.



Aaron Katsman

Aaron Katsman 58. (photo credit: Courtesy)

If one had to create a poster boy for an Israeli stock, Teva Pharmaceuticals would get the nod hands down. Teva is the world’s biggest generic-drug manufacturer and is considered by many local and international investors as the best Israeli stock to own.

As was widely reported in the media, Teva shares plunged almost 15 percent over the course of a week, as news came out that the company could potentially face a generic competitor to its highly successful Copexone drug to fight multiple sclerosis. I guess what goes around comes around.

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The fact is, it’s not just the recent drop that has worried investors; since hitting a high in April, the stock has dropped more than 25%.

This isn’t a research piece discussing the pros and cons of investing in Teva stock; it’s a wake-up call to local investors to check how their Israeli investment portfolios have been constructed.

AS GOOD AS GOLD For many local investment advisers, incorporating Teva stock into a portfolio was a “sure thing.” Teva stock will never go down, was the rallying cry from these professionals.

(Sounds eerily like the Israeli real-estate market, in which we are told it will only keep going up in value and you can’t lose money.) Don’t get me wrong, Teva has made many investors a whole lot of money over the long run. My problem is that it’s pitched by many professionals as a guaranteed way to profit in the stock market, and this is just plain wrong.

In fact, advisers who make the “guaranteed” claim are not only completely misleading their clients, they are committing multiple securities- law infractions as well. No stock can ever be classified as a guaranteed way to profit. Stocks are inherently risky, and investors need to understand that they can lose some or all of their investment.

PORTFOLIO CONSTRUCTION I can’t tell you how many times I have been shown investment portfolios crafted by local brokers that have Teva stock as the entire allocation in the stock market. There is a legitimate argument as to the merits of a fully diversified portfolio versus a more concentrated one, but no serious investment professional can tell you with a straight face to own just one stock. It’s unheard of. Well, except for in Israel, where it is quite common to say just buy Teva.

WHAT TO DO? If you have a local investment portfolio, it may pay to seek objective guidance for its construction.

There are some licensed investment advisers who are “fee-based,” whereby the client pays the adviser an hourly fee to consult about his entire investment portfolio. The adviser will analyze the stocks, bonds and mutual funds that the client is holding, get a thorough understanding of the client’s risk profile and short- and long-term goals, and give objective advice on the holdings. Because such advisers are being compensated by an hourly fee, they can be expected to have a greater degree of objectivity.

OBJECTIVE ADVICE Because fee-based advisers are being paid at an hourly rate, the primary benefit is that they can provide objective advice: They are better able to look at your entire financial situation without being swayed by any personal benefits that may come with giving certain recommendations.

For many English speakers, dealing with a Hebrew-speaking adviser is a lost cause, and they don’t even bother. They are at the complete mercy of the Israeli adviser and have little or no input into the make-up of their portfolio. By working with a fee-based adviser who understands local markets, investors can understand what is in their portfolio and retake control of their financial situation.

Don’t stay passive and fall for a “sure thing.” Take control of your local investments and make sound judgments that may benefit your portfolio in the long run.

aaron@lighthousecapital.co.il Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people open investment accounts in the US.


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