Brazil Value Talks: Gabriel Negraes
Multiplied Invested Capital by 16x in 4 Years
Today I have the pleasure of interviewing Brazilian investor Gabriel Negraes.
From January 2020 to March 2024 his historic performance will be the envy of anyone.
His portfolio returned more than 1558.58% in the period, versus 8.04% for Ibovespa.
He multiplied the invested capital by 16x!
This guy knows how to generate real value.
Shall we meet him?
BS: Gabriel, could you tell us a little about yourself?
GN: I come from an extremely conservative and regional family in the world of investments from Goiás.
Everything that ran away from land, cattle and crops was frowned upon.
Despite the unfavorable context, there was a major turning point for the financial market.
As soon as I entered Law School, I began to come into contact with business legislation.
At the time, I was following the repercussions of major cases such as: the Parmalat bankruptcy case in Brazil; reactivation of the Telebrás system; the Eike Batista saga and companies X; Gradiente versus Apple and the registration of the iPhone brand; Varig's bankruptcy estate; among dozens of others.
The extremely volatile movement that occurred with the price of these assets always caught my attention.
I kept trying to understand why this happened.
When I actually became a lawyer, I started to understand the rationale better.
The dynamics of this type of thesis have become much more palpable.
It was the moment when I started to gain confidence and purchasing power.
I pedaled, fell, got up...
Perfecting my modus operandi over time.
BS: What is your strategy for making money on the stock market?
GN: I operate by triggers / events.
I seek, through my legal/speculative vision, to try to anticipate/identify events that will generate flow to price some value.
Be it: assemblies; splits; exit from judicial recovery; OPA; actions involving relevant values; important dates; sale of assets; balance sheet expectations; bidding; auction; legislative change; between others.
Historically, there is an intrinsic predictability of buyer volume in these events.
And, the more distorted the price is in relation to the expected fact, the greater the asymmetric premium that is embedded.
The saddled horse always passes. Even if in a short and sudden movement.
Those who have the feeling to position themselves earlier are usually rewarded with the value added by the subsequent flow.
BS: What type of event for you usually gives the highest return on investment made?
GN: Without a doubt the court decision to exit judicial recovery.
Just pull up the chart history.
I cite several cases such as: Lupatech; Inepar; Gradient; Sansuy; OSX Brazil; Former GPC (Dexp); Wetzel; Heringer fertilizers, among others.
The closure of the special recovery regime is a very clear signal to the market that the company has done its homework and the turnaround is coming to fruition.
Through procedural consultation it is possible to predict whether this event is close or distant.
This event or its proximity usually generates very relevant profitability (+ 100%).
Every final phase of Brazilian Chapter 11 involves a standard legal context such as payment of classes of creditors; favorable report from the judicial administrator; compliance with the obligations of the approved plan provided for in the biennium; between others.
Given the situation presented in the case, it is possible to carry out a technical predictability examination as to whether the favorable requirements are being met by trying to anticipate the closure trigger in the short term.
Often, this same technical examination can be used to avoid exposure to extreme risks, as occurred in the bankruptcy of MMX Mineração, a company belonging to the Eike Batista group.
The imminent corporate collapse caused by non-compliance with the creditors' payment plan signaled a terrible outcome, which materialized with the blocking of the negotiation of securities.
BS: What were your biggest mistakes in your investment strategy and what did you learn from them?
GN: I would list some such as: acting emotionally; buy stock recommended by third parties; day trade and venture into assets whose fundamentals I don't know.
All these “falls” are necessary to outline a winning strategy over time.
Today I try to maintain maximum coolness and calculation; do not buy any type of recommendation and avoid day trading as much as possible.
It’s a learning process that takes time, money and energy…
As these errors are corrected, accumulated profitability will be positively impacted.
BS: What type of event has a high return and does not need to understand so much about the legal world to be able to execute it?
GN: The splitting of a stock.
Just check the history of the companies that would advertise.
It is a completely different idea from the reverse split of shares.
In the split, the stock is valued and becoming scarce. The event will take place to generate more liquidity.
As the set date approaches, appreciation usually happens in turbo mode.
BS: What is your process for finding a new buy opportunity? What filters do you use?
GN: I'm very proactive in looking for the next trigger.
This is a business of turning over rocks and seeing what's underneath.
Whoever turns the most wins.
These are part of my routine:
Monitoring of various judicial/administrative processes that directly impact certain actions.
Presence in as many groups, discussion forums and social networks as possible, measuring feedback/engagement in relation to some assets.
Exchange insights with a wide network of investors exposed to the most different types of theses.
Reading the companies’ publications at the CVM (Rad CVM) with a “miner” perspective.
Legal communications with the IR sector of several S/A.
Protocols made through the Access to Information Law when some government fact impacts the market.
Legislative monitoring of some agendas that directly affect certain companies.
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the above, …?
GN: I have a deeply speculative view.
I don't buy companies for their own sake.
I am a buyer of asymmetric events that have an activating trigger on the radar.
Whether these events will happen in companies with good or terrible multiples is irrelevant.
I have already contributed a considerable % of my assets to companies that were on the verge of bankruptcy.
The most profitable cases I've ever had on the stock market, if I were to do some kind of valuation, I would probably have been left out.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
GN: One case at a time.
It doesn't matter the sector.
My history is marked by a high concentration of firms in judicial recovery, penny stocks, underdogs, turnarounds…
Investors who do not want to “get their hands dirty” with off-the-radar assets are doomed to have average returns.
BS: How often do you like to rebalance your portfolio?
GN: On average, from a week to a maximum of 3 months.
“Get into the rumor mill. Come to the fact.”
I take advantage of the moment while some perspective has not yet been properly valued/disclosed.
In an extremely dynamic world, with an accelerated flow of information, this period is generally quite short.
When the market perception for a certain type of event starts to become too broad, it is time to close the operation.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
GN: I escape the herd effect.
I want sectors that are undergoing some type of restructuring.
Sectors that the market has probably already “weighed its hand” and made an exaggerated depreciation.
This is the moment when any positive “smoke” has a very favorable impact on the price.
Buy pessimism to sell hope.
That's the rationale.
BS: Which under-the-radar court decision in the case of an Brazilian Chapter 11 is the biggest trigger for the appreciation of a share, but is not known to non-lawyers?
GN: They are:
Approval of the judicial recovery plan (shielding)
Sale of assets through auction (unlocking value)
Tax refis with accounting write-off of liabilities
Favorable opinion from the judicial administrator and Public Prosecutor's Office for leaving Brazilian Chapter 11 (signaling imminent termination)
Extension of the stay period
Settlement of relevant portions of debts in the class of creditors.
Events that generate value and favorable prospects for the asset. Consequently, they are objects of strong speculative flow when they become notorious.
BS: Do you use derivatives? What is your strategy?
GN: Zero.
I only operate what I have technical knowledge of.
BS: In your history since 2020, which cases did you get right and what approximate return did you get in each one?
GN: I will highlight the main ones in terms of year/profitability.
Inepar (2020 / 2021): ~1000% (tenbagger)
Dommo (2022): ~250%
Gradient (2023): ~400%
Hi (Jan-Feb/2024): ~100%
I have a public record of several others in my Twitter history (X).
BS: What is the cheapest company on the stock market today?