Brazil Value Talks: Alexandre Assaf (A40 Investment Club)
Multiplied Invested Capital by 3x in 7 Years
Today I have the pleasure of interviewing Brazilian investor Alexandre Assaf.
From December 2017 to October 2024 his historic performance will be the envy of anyone.
His portfolio returned more than 185% in the period, versus 71% for Ibovespa.
He multiplied the invested capital by 3x!
This guy knows how to generate real value.
Shall we meet him?
BS: Assaf, could you tell us a little about yourself?
AA: My name is Alexandre Assaf, I am from São Paulo and have a degree in Economics from the Catholic University of Santos. I am 53 years old and I am married to Adriana, an extraordinary person that God placed in my life. She gave me three children: Laura, Nicolas and Isabela. I learned from my parents that family is the basis of almost everything and I try to pass this on to them.
I have had about 30 years of experience in the business world, where I worked in an excellent company, with a unique culture and very special leaders. I had the opportunity to work in five countries and learn a lot about the areas of Finance, Planning and People.
On the other hand, I have always been passionate about the financial market. I have taken good care of the wealth that I have built throughout my life, through good asset allocation, in line with my goals and profile. Sometimes, I have invested more in stocks, and other times, more in fixed income. And I have always protected my portfolio, such as currencies and commodities. For example: I bought gold between 2021/22 (about 12% of my total assets) and it has appreciated by about 80% to date.
The good performance ended up catching the attention of some friends. Then I realized that there was an opportunity there, which encouraged me to redirect my career. I went through the entire process with CVM (this includes CFG and CGA certificates) to become a portfolio manager. In December-24, I completed the opening of the A40 Investment Club. I currently have 28 clients, with approximately R$32 million in assets under management.
I also have a future goal of donating time and money to help my wife with the social projects she is involved in. In addition to this, I believe that I can contribute to young people without access and resources in the area of Financial Education.
BS: What is your strategy for making money on the stock market?
AA: The goal is to provide consistent capital gains above the benchmark, through investment in companies with high potential for value generation.
The entire strategy for identifying companies is anchored in Fundamental Analysis from a bottom-up approach, with a long-term vision. It has to do with being prepared (financially and emotionally) to hold positions in long windows, as long as one sees a relevant upside in the theses. Often, the company has the right strategic direction, delivering consistent results, but for various reasons, the stock market prices do not reflect the correct value of the company. And, suddenly, they rise quickly and intensely. If we trust the theses, we have to be long. The share price follows the result in long windows, but it usually rises in steps and rarely in a “linear” manner, such as the CDI. In the short term, anything can happen; it is merely a distraction.
But I recognize that to manage third-party resources with this philosophy, it is essential to have aligned clients/shareholders (and this is the case here at the Club). This gives me peace of mind to work and not let emotions get in the way when short-term performance is not going well. Thinking from an investor's perspective, the ideal is to be able to control anxiety so as not to make a very common mistake: selling low and buying high.
Preparing scenario forecasts and managing news on a daily basis are not drivers for my investment decision-making. I do not adopt market timing as a strategy, because I understand that the future cannot be predicted, either by the news itself or by the market's interpretation/reaction to it, which is often surprising.
BS: What is your process for finding a new buy opportunity? What filters do you use?
AA: I try to identify companies that pass the following filters:
business sustainability (I like to invest in companies with structural trends in which a disruption of their business by a new technology or something similar is unlikely);
clear competitive advantages/barriers to entry;
quality people aligned with the interests of shareholders;
vectors that lead to revenue growth and profitability, especially return on invested capital;
quality of the balance sheet and economic and financial indicators.
Once the quality/potential of the companies has been determined, the next step is to assess whether or not the stock market price of the selected companies allows for investment.AA: I am very careful not to create absolute truths about something extremely complex, such as establishing the “fair price”/intrinsic value of a company. It is a difficult and sometimes abstract task (estimating perpetuity, for example). But it is obviously important to do the exercise.
For certain sectors/companies, I use Discounted Cash Flow, for others I use Multiple analysis.
I like to use multiple analysis for sectors such as Banks and Real Estate (e.g. P/B, P/L). DCF is more suitable for companies where it is possible to estimate cash flow with reasonable predictability, such as the Utilities, Insurance, Healthcare sectors, among others.
In any case, the result of this assessment should not be looked at in isolation for decision-making. It can translate into disappointing results. A good example of this are companies that are supposedly cheap, but will remain so for a long time due to the deterioration of their fundamentals and expectations about future results.
It is also important to note that I do not make allocation decisions based on a company's capitalization on the stock market. I may have large caps in my portfolio, but I understand that the greatest opportunities for appreciation lie in small caps, given the asymmetry of information due to their low coverage by analysts (whether on the buy side or sell side).
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the previous ones, …?
AA: I am very careful not to create absolute truths about something extremely complex, such as establishing the “fair price”/intrinsic value of a company. It is a difficult and sometimes abstract task (estimating perpetuity, for example). But it is obviously important to do the exercise.
For certain sectors/companies, I use Discounted Cash Flow, for others I use Multiple analysis.
I like to use multiple analysis for sectors such as Banks and Real Estate (e.g. P/B, P/L). DCF is more suitable for companies where it is possible to estimate cash flow with reasonable predictability, such as the Utilities, Insurance, Healthcare sectors, among others.
In any case, the result of this assessment should not be looked at in isolation for decision-making. It can translate into disappointing results. A good example of this are companies that are supposedly cheap, but will remain so for a long time due to the deterioration of their fundamentals and expectations about future results.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
AA: I believe it is essential to be disciplined in portfolio risk management. In my opinion, we should not analyze returns in isolation, but rather think: what type of risk did I make my client take to generate this return?
That is why I do not give up on portfolio diversification. However, it must be well calibrated and not excessively high, otherwise it will not be able to generate alpha over time.
I usually keep around 15 invested companies in my portfolio, with the weight of the first 10 usually accounting for around 80% of the total. The maximum exposure per company is 15% and for a specific sector, 25%. I also try to build the portfolio with sectors and stocks that are not correlated with each other.
BS: How often do you like to rebalance your portfolio?
AA: I usually rebalance on a daily basis, considering zeroing or reducing a position when there are significant changes in the investment thesis or when stock market prices do not incorporate a good margin of safety or when I identify better opportunities.
Rebalancing may also occur on the purchasing side, either by including new companies in the portfolio or by increasing the weight of importance of a given company in the portfolio due to an excessive drop in market prices, as long as the fundamentals have not changed significantly.
The use of stop loss will only be adopted when there is a change in the company's investment rationale/fundamentals and not due to changes in the share price.
Another important concept is the difference between risk and volatility. Management must take care of risks in order to avoid permanent loss of capital. This is quite different from the concept of volatility (a measure that indicates the intensity and frequency of price fluctuations). For a fundamentalist investor with a long-term vision, fluctuations should not be a major concern.
BS: How long on average do you hold a position in your portfolio?
AA: Considering the combined time as an individual investor and this short period as a manager of the Club, I have companies that have been in the portfolio for more than 5 years, for example. But there are cases of 6 months or 2 years. What defines the time in the portfolio is the expected return/potential for future growth of a given company.
BS: Do you believe that graphical analysis, together with fundamental analysis, can help with the buying and selling points of stocks?
AA: I rarely use graphical analysis to manage my resources. Occasionally, after making the decision to trade, I might take a look at the chart to try to optimize the buying or selling points.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
AA: I don't have favorite sectors on the stock exchange, nor would I not invest in any specific one. But there are clearly some that are riskier, such as airlines, certain retail segments, state-owned companies, etc. In this case, to make investments, I will demand a much higher risk premium than average.
Retail segments that I see as riskier: those where competition is so fierce that it leads to margin compression. In other words, companies that are unable to present a significant entry barrier. This is different from a company that has a brand that is desired by consumers who will be willing to pay for it. For example: if someone wants to buy a 50-inch Samsung TV, they can see the best conditions at several companies (whether physical or virtual stores) and buy from the one that is best for them. This is very different from a consumer who wants to buy a T-shirt from Track&Field or a pair of shoes from Arezzo.
BS: Do you use derivatives? What is your strategy?
AA: Although the Club is allowed to carry out operations in the derivatives market, I prefer to focus on the basics of the spot market at this time. I will evaluate this topic later.
BS: What is the cheapest company on the stock market today?