Brazil Value Talks: Rafael Tomazini
Generated 30% alpha in 5 years
Today I have the pleasure of interviewing Brazilian investor Rafael Tomazini.
From January 2020 to May 2025 his historic performance will be the envy of anyone.
His portfolio returned more than 50% in the period, versus 20% for Ibovespa.
This guy knows how to generate real value.
Shall we meet him?
BS: Rafael, could you tell us a little about yourself?
RT: I am a mechanical engineer, married, and the operations director of a manufacturing company in India, where I have been living for 2 years.
I have always been a saver, but I was unaware of the financial market until I started working. In 2019, I even thought about changing careers and passed the Ancord exam to become an AAI. In the end, I changed my mind and continued in my field, but always studying and keeping up with everything that is happening in the financial market.
BS: What is your strategy for making money on the stock market?
RT: Few good companies, long-term vision, little portfolio rotation. Of course, I changed my strategy a lot over time. At first, I flipped IPOs, had more than 20 companies in my portfolio, got nervous and sold on Joesley day, among other mistakes. Today, I am an investor who is better able to absorb market volatility, something that was very difficult at first.
BS: What is your process for finding a new buy opportunity? What filters do you use?
RT: Since investing is not my core business, I don't do it alone. I subscribe to some research reports (Empiricus), but I don't follow the reports blindly. I like to make a critical analysis based on my understanding of the world, and when I understand that a sector has potential, but I lack understanding, I try to invest in an ETF. An example would be investing in nuclear energy, a thesis that I am very fond of, but since I don't have the knowledge about the companies in the sector, and in Brazil we also don't have any investable companies, I opt to invest via ETF.
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the previous ones, …?
RT: When investing in stocks, I try to follow a fundamental analysis, depending on the sector I try to use one tool more than another, but I try not to fall into value traps. I have bought a lot of things that were considered cheap, for example OIBR3, but I have learned that there is always a reason for something to be cheap. Today I believe more in buying good companies. I prefer to buy expensive WEG than cheap OI.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
RT: When I first started, I diversified a lot. I had over 20 stocks in my portfolio, one in each sector, with almost the same weight between the sectors and I rebalanced excessively. Today, I have fewer companies, currently 6. I still diversify between sectors, but I let the winners “run” more.
BS: How often do you like to rebalance your portfolio?
RT: I don't have a set frequency, because this is a strategy I've been adopting for the last few years. If you have a winning horse, let him run. If you prune the winners, you'll end up with a portfolio of embarrassing horses and you'll never get your 10-baggers. Here's an example from my portfolio:
Even though it has already done well, I don't intend to sell now, as I still believe in the potential for appreciation. I have learned to embrace volatility.
BS: How long on average do you hold a position in your portfolio?
RT: I don't have a definition for this either, but I certainly hold more than most investors. Equatorial and Eneva have been in my portfolio since 2018, BTG since 2019.
BS: Do you believe that graphical analysis, together with fundamental analysis, can help with the buying and selling points of stocks?
RT: "I don't believe in witches, but if there are, there are." It's hard to draw a Fibonacci regression and not be amazed at the resistances and supports. I don't use them, but I find some tools interesting.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
RT: Gosto do setor elétrico, bancos e saneamento, dado a sua previsibilidade. Não gosto do setor aéreo e empresas públicas, pelo exato oposto, falta de previsibilidade e cisnes negros pousando ao monte nesses setores.
BS: Do you use stop? Where do you usually place it?
RT: I don't use it.
BS: Do you use derivatives? What is your strategy?
RT: I have bought puts as protection, but I found them to be very expensive. Two things have made me a better investor in my opinion: I have learned to embrace volatility and today fluctuations in my portfolio no longer hurt me as they used to. Another thing is the size of each position or strategy. When I started out as an investor, variable income made up 80% of my portfolio, which meant that any negative variation was very hurtful. Over time, I began to understand the size that each sector should have in order for me to feel comfortable.
BS: What is the cheapest company on the stock market today?