He's very good at raising capital and he's a very generous dividend payer, but in his six-year reign at IDB he has yet to make even one significant investment in the real market.
By NITZAN COHENnochi dankner 88 248(photo credit: Courtesy)
Nochi Dankner got lucky. Just when a bad investment in Las Vegas threatened to destroy his entire IDB group, another risky investment, this time in the giant Swiss bank Credit Suisse, saved the day and injected a NIS 2.2 billion gain to Koor, one of the many companies under IDB's control.
Koor started to buy Credit Suisse shares last September, after the troubled bank lost more than half its value in the months before that. After several rounds of buying and selling, and after officially announcing early this year that Koor regards its investment as long term, Dankner decided to take advantage of the rally that started last March and sold most of his shares in the bank.
Dankner, who already enjoys an extremely good reputation in the Israeli business community, was upgraded to the status of God's second-in-command. The financial media headlines overflowed with flattery: "Dankner's golden touch," "The best investment ever by an Israeli company" and "Nochi - the prophet who predicted the crisis." His fans in the newspapers emphasized Dankner's personal role in making the enormous profits, and reported that the big boss himself sat in front of the trading screen, making the calls of "buy" and "sell."
The "golden touch prophet" has a reputation of someone who buys companies cheap, loads them with debt, sells their assets quickly and then milks the cash pot through fat dividends. He did so right after he took control of IDB six years ago, and he was very successful at that. He has also enjoyed great access to the credit markets: his cousin Dani was the chairman of Bank Hapoalim, and in the non-bank credit arena he made good use of his stake in Klal Insurance, which manages billions of shekels through its life insurance policies and pension fund.
IDB took over Koor three years ago. Koor was once the leading industry groups in Israel, and after practically going bankrupt in the 80s, the holding company slowly started to recover. Dankner was mainly interested in the fat cash pot of Koor's primary asset: the agro-chemistry star Makhteshim-Agan, as well as in the tax asset in the form of Koor's losses.
The new boss immediately applied his strategy to Koor: he sold its stake in ECI Telecom and in its hotel segment, raised billions of shekels in debt and started to load it on Makhteshim - which by then was Koor's only asset - and milked dividends from the daughter company's pocket. As Koor was starting to fill its coffers, no one in the local capital market really expected it to use it to increase its investment portfolio. That's not Dankner's way. He's very good at raising capital and he's a very generous dividend payer, but in his six-year reign at IDB he has yet to make even one significant investment in the real market.
The money in Koor's pocket was finally used to buy Credit Suisse stocks, and as we have seen, it was a good call. But it was a typical Dankner move: short term, nothing more. Naturally, the gains from the successful Swiss adventure were immediately used for a large dividend payment, but the company's board also had some interesting statements. It announced that Koor intends to invest billions in the French retail giant Carrefour, and that the company, which still holds 0.7% of Credit Suisse, is ready to buy more of the bank's stocks when the share price will reach an attractive level. Meaning, Dankner's proven skills as a day trader will again be used to generate those huge profits.
And that is this article's main raison d'etre. We all know how headlines can drive people to act. The headlines that followed Koor's successful move with Credit Suisse might tempt some innocent investors to jump on this wagon and partner with Dankner and his amazing financial abilities.
But I would like to advise those investors to do one small thing before putting their money on Koor's shares. Please read Nassim Taleb's book Fooled by Randomness. I won't go into the book's elegant theory about randomness in life and about the "black swan." But one of the book's bottom lines is that we often mistake randomness for ability. It also explains very well how easily we ignore the risks that are involved in a decision that is lucky enough to be proven right.
The fact that an investment manager is doing great for, let's say, six years in a row, doesn't guarantee that his next call won't be a disaster. Often, this call tends to be so bad that it eliminates all the gains from the good ones. Taleb, much like Dankner, is a trader himself and the book is full of examples of peers who miscalculated the risks and became the sad victims of randomness.
I salute Dankner for the gains he recorded in his recent moves. But expecting us to believe it has anything to do with some celestial ability to predict what will happen in the markets or to clearly identify a bottom or a peak is ridiculous.
And it's time for Dankner himself to reconsider his investment policy and maybe show the Israeli business community and public that he is not only a lucky financier, but also someone who can contribute to our economy by building another Teva or Checkpoint.
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