Brazil Value Talks: Fernando Marx
Multiplied Invested Capital by 13x in 4 Years
Today I have the pleasure of interviewing Brazilian investor Fernando Marx.
From December 2019 to May 2024 his historic performance will be the envy of anyone.
His portfolio returned more than 1200% in the period, versus 30% for Ibovespa.
He multiplied the invested capital by 13x!
This guy knows how to generate real value.
Shall we meet him?
BS: Fernando, could you tell us a little about yourself?
FM: With pleasure, let's go! I graduated from Ibmec and always wanted to go into business process mapping. In college, I was a junior company president. and soon after I joined the business consultancy arm of TOTVS. I worked on projects at Globo, Rede D’Or and Estácio, it was a great experience. My entire intern salary went to NTN-B, I did this during 2014 and 2015 where we had a premium of 8% above inflation. At the end of 2015, very encouraged by my teacher and mentor to this day, Alexandre Espírito Santo, I made my first contribution to the scholarship, R$4,000 - my salary as a consultant at TOTVS at the time. During 2016-2017, I migrated all of NTN-B to the stock exchange, the profit from the operation exceeded 100% and I felt prepared to take more risk in the Market.
Soon after, on Joesley Day, as I was always riding with a lot of leverage, I fell by approximately 70% on the day - that was my first experience of pain. At the time, as my mother was still alive, she lent me money to leave it as collateral and not be liquidated - yes, I held on to everything. Today I see how crazy it was and I was lucky enough to have a flash crash, in a few weeks everything was back and I gave the money back to my mother and paid for dinner lol.
Outside the market, also in mid-2016-2017, I was called by one of TOTVS' clients to undertake a new Family Office with him. I had 5% of the company and would be responsible for managing the operation. Naturally, I became more involved in the financial market until I was invited to work directly for an American bank called StateTrust, where I worked as an advisor and trained a large team of advisors across Brazil - and also had some training abroad.
An important detail, and my wife knows very well, I have always been very responsible and concerned about money. I lost my father at 20, soon after my mother developed cancer and I lost her at 25 (2019), so on this journey, I was always very concerned about the future and financial independence - and I think I will always think that way. I had the immense luck and happiness to have my wife by my side, at this time she was still my girlfriend and her support was a very important foundation for me. When my mother got worse, I had to stop working in person for more than 6 months to take care of her. Naturally, my income dropped significantly and I started dedicating myself much more to the financial market.
Another very lucky thing in my life was to have met TC and fantastic people like Albuquerque and Massa. I think only my boss knows how therapy TC was for me in 2019-2020, even before they invited me to be a contributor. People know the rest of the story, I stay at TC 24/7, in good times and bad.
BS: What is your strategy for making money on the stock market?
FM: There are two Fernandos. Fernando until 2019-2020 and the current Fernando. At the time, I had the habit of running much more leveraged when I had conviction. I never cared about volatility, I know how to lose very well. But to know how to lose, you have to know how to win.
My vol is still quite high, but I'm more cautious. I like to have few theses and every now and then I have some leverage with the difference of having a lower limit and knowing when to recognize what went wrong and stop. Today I divide my portfolio into 60% variable income and 40% fixed income, it's a hedge against myself.
I really like stocks, without a doubt. But the macro feeling is what made me perform the most. Macro feeling is basically seeing asymmetry where the current narrative says not to. For example, today we see an interest curve talking about an increase in the Selic in 2025 and a 12% Selic between 2026-2027. For several reasons I doubt this, so I have a position in interest and leave my portfolio more concentrated in domestic loans.
As I said before, I accept vol. But, for those who accept being beaten, they have to know when to surf, otherwise the bill won't add up.
BS: What is your process for finding a new buy opportunity? What filters do you use?
FM: Lots of reading and exchanging information. I read about companies 24 hours a day and talk to a lot of people, individual investors, managers, analysts. Everything is input to make a decision.
It's not difficult for me to think that I should buy, but I recognize when it's time to leave, almost always, quickly. But not always. Sometimes, I'm more stubborn and keep the thesis running against time, that's part of it. I need to create anchorage to carry some position, so I need to rationally convince myself that the asymmetry is in my favor.
A cool example is Banco Macro in Argentina, which I have been carrying since March 2023 and has already surpassed 300% performance. A not so good example is Cogna, which I've had with me for almost 10 months and I've lost ~23% of my average.
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the previous ones, …?
FM: Although I recognize that I understand fundamentals well, I am light years behind Malek (TC analyst) and other investors, for example. So, I always like to exchange stickers, come up with the thesis to see if the anchor I want to create makes sense.
But overall, what I like to do is efficient. I look, at least, at the last 3-4 reports from the company. To understand its moment, I compare it with a historical multiple and with sectoral peers. This is the quantitative part that provides the basis for creating a possible exit multiple and thinking about a “target price”.
But I confess that the part I like most is the qualitative one, comparing market projections with what the RI eventually tells you or with your "hunch" based on surveys with other investors, readings, etc. This opens up space for a lot of tactical trading, swing flips, events, I think this is where most of my alpha has been coming from recently.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
FM: I like to have between 4-8 shares, less than that I think the tail risk goes up and more than that I feel lost and have a headache. Under normal conditions, I like to do a barbell - which is basically having a natural decorrelation in the portfolio between sectors that don't talk to each other.
Example: JBS and Guararapes. Both may have relevant upside, but, naturally, they are completely different and uncorrelated risks. The potential upside of your portfolio doesn't fall but the risk falls, it's wonderful.
And there are situations like today where I see so many domestic companies at bargain prices that I end up making this basket of 5-8 shares just in them.
BS: How often do you like to rebalance your portfolio?
FM: As I said, I leave it balanced at 60% RV and 40% RF. Rebalancing is done to reframe myself. If my stock portfolio drops a lot and loses this ratio against RF, I will withdraw from RF and invest in RV. And vice versa. And yes, since 2020 both examples have happened. This strategy is sensational. I mark the top of the market when I reduce RV and the bottom of the market when I increase RV, it makes a lot of difference, especially for those with high vol.
I always notify the TC when I make any of these movements. In general, every 6 months is when I evaluate.
BS: How long on average do you hold a position in your portfolio?
FM: There is no rule, see BMA with 13-14 months and 300% performance and Cogna with 10 months and ~-20% performance to tactical trades that can last a few days or a few weeks. Naturally, I really like making shorter trades but I think that spinning too much becomes crazy gambling. We don't always have good windows but they do appear.
I think I do 2 to 4 trades a week, from daytrading to shorter tactical trades. It generates a high alpha and I never put pressure on myself to have to keep spinning to “generate alpha”.
BS: Do you believe that graphical analysis, together with fundamental analysis, can help with the buying and selling points of stocks?
FM: I believe and it helps to make decisions, obviously there are scenarios in which we know that the falling knife loses a little meaning due to technical bias and positioning. But my primary indicators are Macro and then fundamentals. And Macro is not trivial, especially because the market changes its narrative all the time.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
FM: I don't have favorites, but I've had it all. I think it's important to have an open mind. For example, mining and cellulose tend to provide very good opportunities for reflation trades, so it is always important to monitor China.
Fried foods and petrochemicals have a business cycle that is completely independent from the rest and can also represent off-the-radar opportunities.
Today, in particular, I think educational ones are the biggest bargain on the stock market. Real estate and retail also have great opportunities, but they have to be filtered and the cycle, in theory, should be favorable.
What I avoid: unlike many, I like to avoid very complex cases, especially in RJ. I recognize that there is a lot of trigger and opportunity, but it doesn't catch my attention and it requires a lot more work than usual.
BS: Do you use derivatives? What is your strategy?
FM: I like long structures, but I don't always use them. There was an emblematic Seagull trade in Embraer in 2021, which gave 2500%. Today I have a Cogna Seagull. Seagull is a bullish lock funded by a put or put lock.
When I want to leverage in tactical windows, depending on the role, I sell put ITM (in the money), whose convexity is greater to buy call ATM (at the money). It's retarded, don't do that.
BS: What is the cheapest company on the stock market today?