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From upstart nation to ‘Start-Up Nation’

The case for Israeli stocks

 
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Isn’t investing in Israeli stocks too risky?

That’s one of two questions people tend to ask Cliff Goldstein, 53, president of the Amidex35 Israel Mutual Fund in Valley Forge, Pa.

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Cliff Goldstein

Goldstein, a lawyer, answers that in an age when former true-blue-chip stocks like AIG and GM have fallen off a cliff, “the concept of risk needs to be modified.” Israel, meanwhile, has “thrived despite government turnover, no peace agreements with its neighbors, and actual wars. The Tel Aviv Stock Exchange has vastly outperformed the Standard & Poor’s 500.” The Tel Aviv Index has climbed 60 percent over the past five years, the S&P 500 is down 4 percent.

The second question he’s asked: Why not just continue buying Israeli bonds? Bonds, he replies, are just loans — and when Israel was an exclusively socialist country, it badly needed bonds. “But now some of the world’s leading companies are headquartered in Israel, and investors have an opportunity to share in their growth.”

An example he gives: Teva, the pharmaceutical company, is the leading seller of generic drugs in the United States — and the leading seller of antibiotics throughout the world.

Goldstein launched Amidex35 in 1998. “I come from a long line of Zionists,” he says, “and I found that there was no way to invest in an Israeli mutual fund.” He talked with members of the Israeli Economic Mission, then they — joined by a few philanthropists, business leaders, and Zionists — started Amidex35. (The term comes from words meaning “friend” and “index.”) They also started the first combined index of Israeli stocks traded on Wall Street with the Israeli stocks traded on the Tel Aviv Exchange.

He’s thumbed through the new book “Start-Up Nation.” So, what’s his answer to the question, why has Israel been so innovative?

“Necessity,” he says. “Because Israel was so isolated, it had to become self-sufficient. Militarily, technologically.”

Some people think “there’s something in the blood,” Goldstein goes on. “The emphasis on education, on innovation. But lately, high-tech has become the national sport. Years ago, the second generation kvelled when someone went to medical school. Now they kvell when someone has a high-tech start-up. It’s a craze.”

Besides, he adds, “Because everyone does military service, they become a bit more mature, and learn teamwork and courageous thinking.”

Also, the government invests a ton of money in research and development, and a lot of money from other countries has been flowing into Israel as venture capital.

But why hasn’t the standard of living in Israel kept pace with its economic growth? “The rich have gotten richer,” he replies, “and the poor — not so much. Where once you saw rickety old cars in Israel, now you see BMWs and Mercedes — and apartments in Tel Aviv selling for $20 million. Several Israelis are on the Forbes list of billionaires.

“In Israel, the two groups, the rich and the not-so-rich, are in stark contrast — like the difference between people living in Newark, New Jersey, and in Alpine.”

 

More on: From upstart nation to ‘Start-Up Nation’

 
 
 

The value of the First Israel Fund (ISL) — a stock traded on the New York Stock Exchange — has climbed almost 50 percent this year.

Meanwhile, iShares Israel (EIS), an Exchange Traded Fund, has climbed 61 percent.

iShares Israel, an index fund traded as a stock, follows the Morgan Stanley Israel Capped Investable Market Index. Recent price: $53.24. It was launched in March 2008.

Both iShares Israel and First Israel were called bargains by SmartMoney magazine in November. iShares Israel has lower expenses, 0.63 percent versus 1.7 percent, but Don Dion, an analyst, claims that iShares Israel “struggles” with diversification problems. Recently it had 22 percent of its portfolio in just one stock, Teva. For information, call (800) 474-2737.

 
 

It’s rated only three stars (for “average”) by Morningstar Mutual Funds over 10 years, but its performance more recently has been superb. Its three-year and five-year ratings are five stars, tops. And this year, the fund has risen 50 percent.

The Amidex35 Israel Mutual Fund has handily outperformed its most similar index — by 5.08 percent over three years, by 10.54 percent over five years. Unfortunately, it began life 10 years ago, just as the dot.com bubble was about to burst. That hurt its record, but it’s still in the top half of world stock funds over 10 years.

 
 

A scary interview with the lead author

Dan Senor, lead author of “Start-Up Nation,” is worried about Iran and Afghanistan. He was interviewed by telephone on Monday, from Boca Raton, Fla.

JS: What are you predicting for the next 25 years in the Middle East?

Senor: I’ll tell you about the next 25 months. The year 2010 will be traumatic. Iran will have a breakout in its nuclear program, and sanctions won’t work. The United States or Israel might go to war against Iran.

 
 

Start-Up Nation: The Story of Israel’s Economic Miracle” is one heck of a fine book — which helps explain why it’s now No. 6 on The New York Times Business best-seller list.

You might expect that a book dealing with economics and technology, and about a foreign country yet, would be one great big sleeping pill. But “Start-Up Nation” happens to be lively, surprising, and fun to read.

A key reason: The authors heeded the advice of their publisher, Twelve Books, and emphasized story-telling. The book is chockfull of short, punchy narratives — such as one about Yossi Klein, a 20-year-old helicopter pilot serving in Lebanon during the war.

 
 
 
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