DID TEVA’S PLUNGE SINK YOUR PORTFOLIO?
If one had to create a poster boy for an Israeli stock, hands down Teva Pharmaceuticals would get the nod. Teva is the world’s biggest generic drug manufacturer, and is without question considered by many local and international investors as the Israeli stock to own. As was widely reported in the media, Teva shares plunged almost 15% 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! The fact is it’s not just the recent drop that has worried investors, but that since hitting a high in April the stock has dropped over 25%. This column is not going to be a research piece as to the pros and cons of investing in Teva stock; rather it’s a wake-up call to local investors to check how their local investment portfolios have been constructed.
As Good as Gold
For many local Israeli investment advisors, 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 ‘will only keep going up in value, you can’t lose money’.) Again, 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 advisors, who make the ‘guaranteed’ claim, are not only completely misleading their clients, but 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 has Teva stock as the entire allocation to the stock market. As I have mentioned in this column before, there is an argument as to the merits of a fully diversified portfolio as opposed to a more concentrated one, but no serious investment professional can tell you with a straight face to own just 1 stock. It’s unheard of. Well, that is 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 see objective guidance on the construction of your portfolio. There are some licensed investment advisors that are ‘Fee-based’ advisors. On a fee-based model the client pays the advisor an hourly fee to consult on his entire investment portfolio. He will analyze the stocks, bonds, and mutual funds that the client is holding and also get a thorough understanding of the client’s risk profile and short and long-term goals, and give objective advice on the holdings. Because the advisor is being compensated by an hourly fee, fee-only advisors can be expected to practice a greater degree of objectivity.
Objective Advice
Because the advisor is getting paid at an hourly rate only, the primary benefit of a fee-only advisor is that he or she 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 advisor is a lost cause, and as such, they don’t even bother. They are at the complete mercy of the Israeli advisor and have little or no input into the make-up of their portfolio. By working with a fee-based advisor who understands local markets, the investor can understand what is in the portfolio and re-take 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.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il
