Investment Process

At Israel Investment Advisors, LLC we seek to capitalize on significant differences between the current market price of a company’s stock and the intrinsic or expected future investment value. Our investment decisions are based upon an analysis of the business fundamentals of the company and the broader sector in which it operates. Our philosophy is oriented toward long-term wealth creation rather than short-term trading profits.

An important determinant of the intrinsic value of a company is an assessment of its risk.  All else being equal, the greater the risk associated with a company the lower its intrinsic value.  For each potential investment in the portfolio, Israel Investment Advisors, LLC performs a risk analysis based on six major criteria:

Valuation Risk

Valuation Risk

Valuation can be considered a barometer of perception: a highly valued stock may represent unrealistically high expectations, whereas a low valuation may indicate undue pessimism. Fairly valued or undervalued securities typically present less risk of downside loss than overvalued securities.

Financial Risk

Financial Risk

Financial strength is a key indicator of risk.  The appropriate amount of financial leverage for a particular company is a function of several factors including the nature of the business, the cost of financing and the current stage of the business cycle.

Operating Risk

Operating Risk

Operating risks are the elements of a company’s business strategy or economics that could cause significant changes in revenues or earnings.  Two examples of operating risks are a high percentage of fixed costs in a company cost structure or perhaps a highly concentrated customer or product base.

Economic Risk

Economic Risk

Typically the largest economic risks faced by a company are sensitivity to the business cycle and interest rates.  Individual sectors may also exhibit cyclical behavior that is separate from the broader business cycle.  Israel Investment Advisors, LLC seeks to understand the major economic risks associated with a particular company or industry.

Technology Risk (Obsolescence Risk)

Technology Risk

Every business faces the possibility that the development of competitive technologies, products or services will be detrimental to its future prospects.  Some companies, however, face more significant risks than others. We estimate the degree and nature of technology or obsolescence risk inherent in a company’s business or products.

Legal Risk

Legal Risk

Israel Investment Advisors, LLC believes that continued legal and regulatory reform in Israel is a major source of economic growth and investment opportunity. We pay attention to legal and regulatory developments to help identify opportunities, but these same changes can also present potential risks.

We believe that diversification can help mitigate risk.  While we attempt to diversify our portfolios by economic sector as much as possible, the small size of the Israeli financial markets can make diversification difficult to achieve relative to larger, more developed markets such as the United States.  As a result, one of our long-term strategies is to look for opportunities to expand portfolio diversification by asset class and economic sector as opportunities become available in the Israeli securities markets that meet our objective for long-term growth at reasonable risk.