Money used to be a dirty word so financial education is in its infancy

Money used to be a dirty word so financial education is in its infancy

In light of our new partnership with IBI Investment House, we wanted to take an in-depth look at Israeli stock trading.

Amit Gurion, 43, is the Vice President of Independent Trading at IBI. He is closing in on his 17th year with the company. His first days at the company started back when he was a student. 

For most of the first few years at IBI, Amit was a trader in the trading room and traded Israeli stocks for foreign institutional clients. After a while, he felt that his time had come for a more significant challenge in his professional life, and so he was given the position of managing the retail trading department, which at the time was a relatively small department. 

In the last four years, the department has evolved, especially due to the outbreak of the coronavirus, which contributed to a significant acceleration in activity.

"We experienced a crazy boost and today we provide service to tens of thousands of customers, most of them Israeli and private," says Amit. "We of course provide service to corporations and companies, but mainly to individual customers. They can be your mother, your uncle, his neighbor and his son. We give our all every day to provide a service and a platform for anyone who wants to invest in Israel or the rest of the world in the best and most pleasant way.

On one foot, how would you summarize the history of trading in the capital market in Israel?

When you compare Israel to the rest of the world, it’s worth it and interesting to compare Israel and the United States specifically. Here financial education is in its infancy. People reach the age of 20 or 30 without even knowing the capital markets, like how to invest, what an option is, and even what a share is. Financial education here lags far behind the United States. In the U.S., for example, it is very customary to bequeath shares in a family member. Grandparents can bequest to grandchildren or give as a gift to grandchildren some shares of Disney or Tesla. It is even acceptable and common because they know the importance of knowing this world from an early age. 

In Israel, doing that is very rare. Most don’t even know that there is such an option. This is in part because, in practice, most people still manage their investments via their bank. When a person reaches the age of 16 or 18, they open a bank account as a student or soldier. So all we know is that you have a bank account, and that is where the salary comes in, from where the checks are cashed and from there credit cards are charged. We usually don’t know about any other tools beyond that. So, when you want to trade on the stock exchange, you do it at the bank. In fact, statistics today indicate that 80% of households still make investments through the bank alone. This is what they know - the bank. The problem with this thing is that the banks take advantage of the customers' lack of knowledge and charge fees that are many times higher than ‘non-bank stock exchange members’ or as the majority of the public knows them - investment houses.

It seems that those people prefer to pay a higher "premium" for security and trust. The banks are perceived as more reliable and free of any potential for fraud or hacking.

Or they don't even know how much they're overpaying. A lot of people don't know how much they pay for each transaction. Often the banks' communication on the subject is not very clear. Or they, as you said, clients know how they are paying more but still prefer to invest via the bank for reasons that are not necessarily rational. A bank is perceived as a safe place where their money is protected. Or people prefer their existing situation and fear change. So it is important to emphasize that a stock market member is supervised both by the Securities Exchange and by the Securities Authority. IBI is a public company that is traded on the local stock exchange. It has existed for more than 50 years, has more than 500 employees, and manages a huge range of activities, including portfolio management with a cumulative value of tens of billions of shekels. 

Fortunately, Covid-19 brought a very significant change in people’s familiarity with investment houses, which has positively contributed to their confidence in such entities. While in general, more people are starting to invest in the stock market, more people are also making the transition from the banks to non-bank stock exchange members in order to reduce the high costs they would otherwise pay to the banks.

How is the Israeli mentality different from that the Americans? primarily from the perspective of historical politics or national psychological

Very different cultures. Israel was founded and ruled by political movements based on socialist ideology for many years. Money and capitalism used to be dirty words. It's an ideology that has been rooted in the entire institutional consciousness, and in the education system in particular. We see this reflected in the media and in general in society - people or entities that generate capital are perceived as pigs and there is resentment towards them. Those concepts castrate entrepreneurship, investments, and the development of businesses as well as personal development. 

In the United States, of course, it's the opposite. The U.S. was founded on the foundations of capitalism, entrepreneurship, and the free market. In recent years, the situation has changed, of course, but we still have a long way to go in order to reach the level of financial literacy at the level that I think exists in a Western country.

The problem is that financial education is a rather expensive act that needs to be done in a thorough, in-depth, and lateral way. It must start from the early grades of school. In my view, this is something that should be a top priority for the decision-makers here.

I actually see that the change has come in both countries. If Israel is increasingly adopting capitalism as a positive thing, in the United States the trend is the opposite. More and more voices, mostly from the progressive left, are calling for restrictions to be imposed on corporations and financiers.

As with any pendulum movement, in the United States, the government and regulatory bodies keep an eye on ultra-wealthy people like Warren Buffett and Elon Musk, mainly because of the taxation aspects and thoughts of dividing the cake in a different way. It is natural that the rest of the population seeks to benefit from the insane growth of recent decades. But it is important to compare apples to apples and see that in the end, Americans have benefited significantly from the tremendous growth over the past 50 years and the investments of private individuals in the capital market have contributed to this without any doubt.

What is unique to us in Israel in the context of independent trading? You mentioned the negative aspect but what about the positive?

One of the most essential steps we have taken at IBI is to develop and dramatically improve the technological aspects, where one eye is constantly looking at what is happening in the U.S. At IBI we make great efforts to maintain the technological standards of the world. As part of this effort, we established a technology company that sits within the stock exchange member. We also developed an in-house trading app that allows us to move quickly forward with any development or improvement that comes from the field, both for customers and traders. Basically, we offer our customers a variety of technological tools before everyone else. 

For example, we have implemented the technology of Deshe Analytics, a young and strategic fintech that runs at our pace of innovation. What they offer is something that did not exist a few years ago and is significant technological news. 

Most of the technology stack that stock exchange members rely on and use is relatively lagging. We are the only ones who have established a technology company that provides professional services for stock exchange members. That means that we are not dependent on external suppliers almost at all. Anything our customers love and want,  we bring to them, like Deshe, and several other services and surprises that we are implementing, all in order to reduce the technological and quality gap that our customers receive compared to what they receive from competitors.

How do you see the future in trading and what would you like to happen?

I see two main trends:

1. More and more people will leave the banks and join non-bank stock exchange members.

2. There will be a technological arms race, bringing healthy competition between me and my competitors in Israel. It will lead to everyone wanting to offer better technological products. We assume that great service is a basic thing we need to offer our customers, so the added value we must offer is technology. This means giving the customer more and more value and giving him a much more pleasant and good trading experience.

Let’s talk about the negative aspects: We see, on the one hand, that there are more people who are willing to take responsibility for their money and enter the world of trading. On the other hand, we are witnessing a phenomenon in which people enter the field without knowledge, especially young people, thinking that they will make quick and easy money.

There is a really important point here. People are constantly surrounded by lots and lots of information without being able to filter out what's real and what’s fake. Like charlatans who offer courses or advice for getting rich quickly or who claim to have created a "method" of creating fast and safe capital. These are financial toxins that must be cleaned from the system. 

I will be careful to say that this is a relatively marginal phenomenon. However, it is very unpleasant to hear a story about someone who paid 5,000 shekels for a seminar full of superficial or misleading information. Meanwhile, they could have received education from us for free once they opened an account with actually helpful and accurate information. Again, these are relatively infrequent phenomena that do not indicate the rule. 

All in all, people know how to do their homework quite well. There is no shortage of quality knowledge and in Hebrew. Let's take for example the Israeli blog of "The Solid" ("Ha solidit") which in my opinion is excellent and gives tools to those who want to take their first steps in the capital market. 

By the way, there is an excellent post about financial poisons that points out how to identify crooks or false promises. This is one of the reasons why one should not be tempted to act through a small and dubious body but with official and supervised stock market members. It's the way to know you're in a good and accountable place where no one will cheat you and no one will steal from you.

What would you like to see among your customers?

What I have seen in the past two years is a positive trend of maturing among investors, who are making more patient and informed choices. They read more, learn more, and research well before making a decision. It is no longer enough for them to get only buy or sell recommendations, people want to know what is behind the recommendation because they are long-term investors. They don't wear out quickly and know that the capital market is a long-distance run. After all, the capital market is a place for people with patience. Hence, new technologies such as that of Deshe and others allow people to make much more informed decisions. 

I would like the existing investors to spread the word to their aunts, neighbors, and friends. We offer incentives for investors who bring a friend to open an account with us, both for the existing client and for the friend who joins. In addition, they will also receive an offer for the service and the tools we have to offer.

I understand that the United States is the country that inspires you as a standard for the investment industry. But I would also like to know what are some disadvantages within this field that you see there?

A significant disadvantage in the US is a material lack of transparency like we saw in the famous case of "Robinhood". Always remember that if the service is free, the product is you. In the case of Robinhood, they ostensibly offer clients transactions without commission. But in practice, the investor does not really save money. The hidden commission is embodied in the final price that the customer sees through a less favorable execution price. It's tricky and elusive and not everyone understands it and what they take advantage of. 

I will try to explain: If Apple's stock was listed at $100 and I asked to buy it, Robinhood will make the purchase for me for $102 USD and they will say it's a no-commission deal. What is happening behind the scenes is that my instruction will join millions of other customers who wanted to buy Apple and this information will be passed on to third-parties (usually, sophisticated hedge funds that know how to use this know-how to their advantage) and thus, I will not get the optimal price that the market has to offer. In the US, this is a practice that is still legal at the moment, but it is an issue that has reached the point of discussion in the US Senate. It carries the potential for massive fines for Robinhood around this issue. 

In my view, this is misleading of the public and a lack of transparency. There is no such thing as a transaction without commissions. The price will somehow be included somewhere, either in the commission or in the final share price. This is an activity that is illegal in Israel, but, as noted, in the United States it is permitted for the time being. I hope that this is a phenomenon that will not reach Israel and that the ban will remain. I'm all for transparency and our customers know how much they pay.

In the end, these are the practices that contribute to the stigmas against the issue of investments and the perception that money is bad. What positive and negative phenomena do you see among brokerages, not only in Israel?

Impulsive investors who do not look at the long term. Bad investments in my view are those that are made impulsively when you are very frightened by market fluctuations and rush to make a decision or try to time the market. During the Covid-19 period, we saw a lot of panic from investors who rushed to sell. Those who were smart and calm actually bought. The war between Russia and Ukraine also led to panic that led people to rush and sell, but also led more investors to identify quite a few opportunities. As a general rule, I would say that any attempt to time the market will end up failing. I can attest to this myself personally, who has been "living the screens" for 17 years. I learned in a painful way that it is impossible to time the market and there is no real substitute for an orderly and patient investment method, month after month, year after year. By the way, not long ago a fascinating data chart by Bank of America was published that proves this.

Do you notice in the data of the users a distribution between gender, demographic and correlation characteristics and trading patterns?

Two trends can be noted in these contexts: One, not surprisingly, the audience that has joined in recent years is younger. It seems that most of the financial literacy in the networks appeals more to young people than to adults. So naturally, there is a significant influx among this age segment. Also because we have a dedicated trading app, this naturally is attracting more young people than our competitors I guess.

Regarding gender, I can say that a little more than a third of our accounts are of women (assuming we put aside the joint accounts of spouses) and this is a trend that is on the rise. Specifically, at IBI, we have the "Invest in Yourself" initiative designed for women who invest or are thinking of investing, which includes mentorship and courses.

I can quote a well-known study that proves beyond any doubt that women invest better than men. There are personality-mental components in women that make them better investors than men. They are more patient, less impulsive, more considerate, and activate much less ego. They are more cautious and methodical and this obviously relates to the previous question.

Do you think there is a connection between the increase in the number of women joining and the initiative/campaign?

Of course there is a connection, but it is unfortunately just a drop in the ocean. As I already mentioned, the basis of any necessary revolution is financial literacy starting from a very young age. The gap between women and men should be closed already in early as childhood. We need to stop all attempts at gender discrimination and be aware to make sure we don’t do it to our children. Teachers, educators and parents need to make sure we speak to boys and girls with the same attitude. That is why one single initiative cannot solve a deep-rooted problem in society. We need to do this much earlier, with the girls and the boys.

It is possible that from a marketing point of view there has been an impact on women happening in this space as a result of speaking to them directly. It’s no longer entering a men's club, even if the door is open. It is still difficult to operate freely in a club surrounded by men, both in terms of the discourse that takes place and in terms of your ability to express yourself.

However, in the competitive arena, this can be an added and differentiating value vis-à-vis competitors, with reference to going after a market segment on a demographic basis (which is large, it should be noted).

What tools will you recommend to investors when they come to trade? Here, I opened an account and I began. What will you offer me to use?

Decision-support tools. There are two of these tools that are currently within our app. One is Deshe Analytics, which in my view offers amazing accessibility to financial statement analysis. A world that is quite complex at its core and we make it accessible easily and in Hebrew. This is not something that is taken for granted by the average investor. 

Our second tool is TipRanks, which ranks the rankings of analysts. It is a service that allows you to select analysts based on the quality of their buying and selling recommendations. 

As mentioned, we are working on constantly expanding the app and adding more and more features that will help investors make investment decisions.

Why both Deshe Analytics and TipRanks? Aren’t they competing with each other?

On the contrary, they are complementary tools. Deshe is an analyst tool that gives the economic aspect of analyzing quarterly reports. By contrast, TipRanks looks at the ranking of analysts who prepare a variety of different types of reports whether quarterly or at the level of overview of the entire investment. Both are complementary products that together give an overview of each stock they cover.

The way IBI differentiates itself is via its mobile trading activity. It is the first in the Israeli market to be a mobile-native platform. All the energy we invest in improving the product comes through a mobile-first approach. We're seeing an insane increase in newcomers, which has taught us how much the investor audience has been thirsty for a good applicative solution. The data surprised even us.

Is there something we didn’t touch on?

Yes, credit (margin/leverage). Do not be afraid of credit. Today, when people hear about leverage, they get scared. Of course, there are certain risks in credit that need to be recognized, but it is important to also recognize that it is easy to get credit facilities that allow leveraged trading in the market. 

The architecture of this element in accounts managed by an Israeli stock exchange member allows for low-risk leverage, for the most part. It requires collateral in the account, of course, but you don't pay for setting up an account facility like in a bank but only for utilizing the actual credit. These aren't the 1:20 leverages that people sometimes know from the worlds of Forex or CFDs. Taking advantage of a credit facility in an informed and calm way in an independent trading account is something you should know well.


If you work at a trading platform/brokerage firm, do you think the market and tech in Israel are similar to yours? How is it different and in what ways is it similar?













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