Category Archives: Finance

My Year in: Investing

The year of 2016 was the second full year I spent invested in securities. Rather than imitate the pros by starting to write publicly about my performance only when I got good, I decided to start right away and here’s the second edition.

Since these are personal figures, instead of revealing actual currencies I chose a more important measurement of the worth of money to me (and I suppose to most non-rich people): months of life in current regular living conditions.

Performance in securities was +30.02% for the year.

Overall savings change was +131.96% for the year.

Expressed in months of living expenses, my total savings at the end of 2015 are at about 2 to 3 months. That’s roughly -25% compared to last year. I have a two-year-old daughter and we have to pay for school among other things, so our cost of living grew immensely this year. Here’s hoping it stays at the current level next year.

It’s almost impossible to look at a savings addition of over one hundred percent and not think you did something really right. If you want to show great percentage improvements, I do recommend having close to nothing to begin with.

An investing gain of 30 percent is also in the range of the most brilliant minds in the history of investing. But the Ibovespa rose 39% this year, so my active engagement cost me 9 percentage points compared to just buying an index fund.

The year was full of activity in the portfolio, with 14 transactions total. Last year I did 3. I end this year holding none of the 4 companies I owned when it began. At the moment I own long positions in 3 companies.

I expect to hold the current companies for at the very least 3 years from purchase dates, which ranged from May to December.

One company in particular took me in a new path, and since it is now sold, I feel at ease to discuss it. Whirlpool Latin America owns 3 highly respected brands in household appliances: Brastemp, Consul and Kitchenaid. In early June I had analyzed the company and found a comfortable debt situation, even though looking back the liabilities were a bit high. Still, the company was selling at a PE10 of 5.2, and excluding the less profitable year of 2015, a market cap of about 3 times earnings for recent years. I bought in at R$2.35 per share. One day I woke up to see the price at over R$3.00. Whirlpool had issued a public offer to buy back all its shares for R$3.31. I sold out at R$3.25, a 38% return in 5 months. I believe Whirlpool’s management appraised the company at too low a valuation, the company easily being worth between R$4 and 5 per share. Later I learned that not enough shareholders agreed with the price, and management failed to take the company private.

More than any numeric result for this year, which is truly a consequence of the effort put in over previous years, the most fortunate development was that I was able to dedicate a lot more time to investment studies, perhaps 20 times as much as I did in any previous year. With the exception of banks and financial companies, which I am not able to analyze at the moment, I studied every Brazilian public company, a number approaching 300. I started a YouTube channel where I analyze companies’ financial statements, which I strongly encourage you to subscribe to, and now counts 55 episodes, all with (spoiler alert) investment ideas that end up being rejected. This dedication should bear fruit in the future.

My goal as we entered 2016 was to beat inflation. That was accomplished. From 2017 on, my benchmarks will be the Bovespa index and the major global indexes.

My Year in: Investing

The year of 2015 was the very first full year I spent invested in securities. Rather than imitate the pros by starting to write publicly about my performance when I get good, I decided it would be more productive to begin right away.

Since these are personal figures, instead of revealing actual money figures I chose a more important measure of the worth of money to me (and I suppose to most non-rich people): months of life in current regular living conditions.

Expressed in months of living expenses, my total savings at the end of 2015 are at about 3 to 4.

Performance in securities was -41% for the year.

Overall savings variation was -2.2% for the year. The only redeeming in overall performance when compared to securities was brought by operating profits (as they call it: working, getting paid and not spending it all).

I adhere to my ever improving version of Ben Graham’s investment philosophy, with added knowledge from numerous other people, namely Buffett, Munger, Klarman, Marks and Parisotto. Therefore it may not be surprising to learn that total number of transactions this year was three. All of the three were purchases, going long 2 different companies. No leverage was employed.

It’s hard to look at a dip of 41% and not think you’ve made mistakes. So let’s get to them: the first one was buying into a company with high debt-to-equity (0.71 at the time), Petrobras. Prudence says don’t touch anything above 0.5, even though it’s easy to spot companies at 3 and greater. I actually built the position in Petrobras in late ’14. As an unprecedented sequence of bad things was uncovered in and around the company, and the Real lost a lot of value, Petrobras’ debt-to-equity more than doubled to 1.57. Talk about ignoring a margin of safety. The price of the stock didn’t fall quite as much this year, 11%.

All the other companies in the portfolio, which also dropped in value, belong to mining or steel. None seemed too burdened by debt, and I believed I had purchased them at a low enough valuation, but their usually long cycle still had a far deeper bottom awaiting them — and that’s assuming we touched bottom at all.

When there are so many companies costing one tenth to one fifth of what they did just two years earlier, as is the case now in Brazil, opportunities are likely to arise. While staying cognizant of the opportunity cost incurred, and my limitations in selecting and analyzing stocks (working on it), I continue to see things in at least a 3-to-5-year perspective, and remain quite optimistic about the current portfolio and possible new additions next year.

Studying Equities

The financial crisis of 2007-09 was quite unforgettable. It became easy to see the connections between Wall Street and people’s livelihoods half a world apart.

Up until then, I had taken no interest in stocks or bonds. I had no money, and the investing industry seemed to me like a casino for people who cared for nothing more than piling up money, if all went well.

Well, things were going terribly, but in the middle of all that wreckage you’d hear about one man swimming against the tide while being hailed as some kind of savior. That man was Warren Buffett.

My curiosity was aroused, so I proceeded to read up on the guy. It didn’t happen overnight, but it’s fair to say he opened a vast new mental latticework for me.

Although there’s much I could write on his philosophy, this time I’ll stick with a slice of a rule of thumb we can find in the writings of Buffett’s teacher Ben Graham: when looking for companies unburdened by debt, favor the ones with a ratio between debt and net equity of less than 0.5.

It makes sense: if all a man has amassed his whole life is $100,000 but he owes $85,000 to the bank – a ratio of 0.85 –, it will likely be a long while before he’s paid his debt down and is able to comfortably grow his net worth.

So I took to looking at these numbers from several quasi-randomly chosen companies listed on the Brazilian Stock Exchange, over 10 years for each issue whenever possible.

There are many details regarding criteria for picking the right balance sheet lines to yield the total debt I don’t yet fully grasp. This spreadsheet is where I compile the numbers.