ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the April 2003 issue


Investment Outlook


On March 10, 2000 the technology dot.com bubble began to deflate and eventually burst. Three years later...after Nasdaq reached an all-time high...it has since then dropped by 74%. It has been as low as 78%. This loss has only been exceeded by an 89% drop in the Dow Jones Industrial Index, during the Great Depression. The Nasdaq listed biggest non financial companies have lost a combined $2.5 trillion in value.

Investors, according to stock market specialists, should not expect an early recovery for their former favorite shares. There are too many issues that require correction, even after many medium sized high-tech companies have disappeared from sight by bankruptcy or delisting. So even after three years of a down market, we were told by the Sage of Omaha, Warren Buffett, the second richest man in America, that stock prices are still too pricey and that some Chief Executive Officers are still ruling the board room members, rather than the opposite. He also said that despite three years of falling prices... he still finds only a very few stocks that even mildly interest him. While Mr. Buffett has not been buying new shares for his wildly successful Berkshire Hathaway investment company, that company earned a record $4.3 billion, up five fold from 2001. Since March 2000 the Berkshire Hathaway shares have gained 57%. It would seem that prudent investing bring excellent rewards. Yet we wonder whether Mr. Buffett's is not only prudent but wily. Instead of stocks, he has been buying junk bonds, debt instruments that provide high yields and carrying the inherent risk of the companies that issued them. According to the BH report, the investment company holds $8.3 billion worth of junk bonds.

In the past year, the Israeli experience has paralleled that of the United States. We have indicated in 2003 that shares of publicly traded companies, including those of Israeli companies on Wall Street, are too expensive and unattractive and should not interest investors. We do believe however, that private equity investments in Israeli companies, in the biotech and medical device sectors are attractive.


Reprinted from the Israel High-Tech & Investment Report April 2003

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