Brazil Value Talks: Rafael Nogueira Pinto (MHT Private)
Multiplied Invested Capital by 12x in 7 Years
Today I have the pleasure of interviewing Brazilian investor Rafael Nogueira Pinto.
From May 2017 to October 2024 his historic performance will be the envy of anyone.
His portfolio returned more than 1116.77% in the period, versus 118.28% for Ibovespa.
He multiplied the invested capital by 12x!
This guy knows how to generate real value.
Shall we meet him?
BS: Rafael, could you tell us a little about yourself?
RP: My name is Rafael Nogueira Pinto, I live in Campinas/SP and I have a degree in Social Communication from Universidade Paulista. I am 41 years old, many of which have been dedicated to the financial market and entrepreneurship. I have always believed that entrepreneurship is an excellent basis for investing in the stock market, after all, these shares represent small pieces of real enterprises. Since I was young, I have always been fascinated by tycoon-type games, in which you build anything from a burger joint to an entire city, and I believe that this passion for creation and management prepared me to take risks and set up my own businesses.
My journey in the financial market began early: at the age of 16, I read an article in Veja magazine about SOCOPA, a brokerage firm in São Paulo, and the stock exchange. This sparked my curiosity, and I asked my mother to help me open an account with a brokerage firm. That was how, in 1998, I began a journey that continues to this day.
After graduating, I spent some time as an exchange student in the US to improve my English, and when I returned, I was able to get an internship opportunity through my ex-father-in-law Ronaldo Fussi at a small Independent Investment Agent office in 2006 – at a time when few people knew about this profession. In that environment, I was surprised to realize that the owners of the office invested little in advertising and that many Brazilians were unaware of the potential of investing in stocks. After a year, I realized that if I set up my own office and promoted the market through lectures and events, I would have a good chance of success.
Together with my partner Bruno Chizzotti Arrabal, we founded Manhattan Investimentos, which became one of the largest independent agent offices affiliated with XP, with over R$4.5 billion under custody. At the same time, I tried my hand at entrepreneurship in several sectors: real estate, parking networks, currency exchange startups (one of which was recently acquired by Nomad), automotive aesthetics networks, companies that offer courses and lectures, among other initiatives that contributed to my understanding of the economy, companies and the best investment opportunities.
After more than 15 years, Manhattan went through a split process. I decided, together with Bruno and some other partners, to migrate to the private market, founding MHT PRIVATE, also affiliated with XP, and joining as a partner at SOHO Capital, an asset management firm, where the goal is to replicate, through a highly experienced manager, the success I had as an individual investor.
Since August 2016, I have also worked as a manager outside of Brazil, where I had the opportunity to generate more than 550% gains in a portfolio of shares 100% composed of Brazilian ADRs against the EWZ, which remained practically stable in the same period.
BS: What is your strategy for making money on the stock market?
RP: I strongly believe that the market is not efficient, and that the emotions that lead people to act impulsively create opportunities to buy good companies — especially profitable and dividend-paying ones — at discounted prices and to sell these assets when they reach or exceed their fair value. This concept may seem simple, but following this approach requires a huge mental effort from investors, because when we buy cheap, there is usually a reason or narrative for the asset to be down. And yes, it can even fall further before showing any reaction. In addition, this type of approach keeps you always outside of any speculative bubble in which everyone is investing and enjoying — except you (laughs)!
This approach represents a constant fight against FOMO (fear of missing out) and the challenge of resisting the temptation to sell an asset when it does not appreciate quickly and is forgotten for long periods. However, by focusing on companies with low debt, or even some that are net cash, have consistent profitability and, preferably, pay dividends, we can at least be rewarded (dividends) while we wait for the price to move to fair value.
Of course, I've done everything in the market, from trading futures and assets of all possible types to perfecting a graphical analysis model to help me identify a possible start of a trend or its loss to hedge. But, still, nothing beats buying low and waiting, in addition to avoiding the latest fad — which I would say is even more difficult. I always remember that, in a bull market, I'm always the "annoying" one who has to keep saying that I would never buy this or that company. In the end, it almost always ends the same: thousands of people with a bad asset, who paid an unrealistic price, which generates a capital destruction that will be difficult to recover.
Therefore, I would like to emphasize that controlling emotions and building a fundamentalist basis to determine the fair value of an asset, even if it is not 100% perfect, helps to maintain focus in extreme moments, both high and low. I believe that this continues to be an important key to success. People are often more influenced by what they hear than by what they actually observe, and this can be a major obstacle to a long-term strategy focused on value. A great investor who paid close attention to these aspects that I greatly admire was John Templeton.
BS: What is your process for finding a new buy opportunity? What filters do you use?
RP: I usually import general market data and access several websites that compile it reliably. I used to use the Bloomberg platform and many others, but I believe that today, at least in my opinion, it is not necessary to invest so much in a platform like Bloomberg. There are several platforms and websites that do a very good job for a much lower cost. After importing, I apply general filters, such as John Neff's formula, Peter Lynch's model, the magic formula, and, through these filters, I narrow down the opportunities that I consider most interesting to study, investigate and follow. In the end, the work of an investor is almost like that of a detective, but the most important thing is to know how reliable the data is so as not to base yourself on incorrect information. I am also an avid reader of investment books, a podcast listener, and I follow platforms like X. Whenever I hear about a thesis that I consider reasonable, I put it on my radar and validate it with my own means.
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the previous ones, …?
RP: I try to find the fair price using all possible models. The first filter is based on multiples; after that, I move on to assets for which it is possible to do a decent DCF, an analysis using the Gordon model if the company distributes dividends, and also using the implicit IRR, as in the case of utilities. But the basics of everything are: is the sector necessary? In other words, are the companies that comprise it essential to the economy? In a time of crisis, can the product or service of this company be dispensed with or is it essential? I think that, by applying some filters like Barsi does, Décio Bazin did and many international investors do too, you don't necessarily need to arrive at the exact fair value, but you can see large discrepancies. That's what I look for. When I see a utility asset operating with an IRR of 15%, knowing that an NTN-B at these levels would bankrupt the country, I see incredible potential, where often, in less than five years, it is possible to obtain a real gain of 100% by investing in this company.
The stock market in Brazil is so distorted that it is possible to buy consolidated companies that have been around for over 100 years, have been making profits and distributing dividends for decades, generating a higher rate of return than investing in your own business — and without having to manage it and deal with all the risk aspects. Some opportunities that arise here are simply surreal. A model that I like to use to filter assets and then research them in depth is the one that John B. Neff used, and I still believe it is very useful today.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
RP: What I believe in usually ends up being different from what I do (laughs). I think it's important not to concentrate too much risk, that is, to have at least 10 to 15 assets, but in the end I always end up concentrating when I see a very discrepant opportunity. In times when the market is extremely discounted, like what we're seeing now, I try to have more assets in the portfolio, because there are so many opportunities that it's hard to choose which one could have the greatest appreciation. So, I end up building a position in some small caps with the potential to multiply capital, especially after severe crises in certain sectors, as we've seen in recent years. For larger positions, I continue to believe in the model I mentioned earlier: solid, profitable companies with attractive IRR and, often, good dividends. In these cases, I've had up to 30% of the portfolio in a single stock.
BS: How often do you like to rebalance your portfolio?
RP: I rebalance different portfolios in different ways. I rarely rebalance the companies in which I invest through ADRs outside Brazil for my own purposes, almost once every six months. This is because the main reason for rebalancing would be a significant appreciation of one of these investments, which would lead to a reduction in the % allocated and reallocation to other assets that are still discounted. In other words, there is no specific date for this; the process depends much more on market movements.
In small caps here in Brazil, whenever I have the availability to invest, I end up buying, but I only get rid of them or rebalance if the price finds a fair value. For example, if I'm not mistaken, in 2022, I bought Oceanpact Serviços Marítimos (OPCT3) at around R$2.70 and continued buying as it fell, because I believed it was worth more than R$7.00. I think it fell to R$1.70. In 2023, it almost reached R$7.00 per share and, today, given everything the company has achieved, I believe it is worth even more. What I did was sell it partially, guaranteeing all the invested capital with a nice rate of return, and I still kept a % invested in it, which today is close to R$6.40 per share. The money I obtained from the partial sale was reinvested in other assets that had not yet risen, so that the process can be repeated whenever possible.
In the portfolio in which I act as a manager outside Brazil, I operate practically weekly, and I end up using a graphic model that I created in a much more active way to rebalance and set up a hedge, despite also keeping part of the portfolio unchanged due to fundamentalist factors.
BS: How long on average do you hold a position in your portfolio?
RP: The time needed is until it finds fair value, there is a change in the company's fundamentals or an even better opportunity appears. I've had assets that stayed for a week and others that have been with me for 10 years.
BS: Do you believe that graphical analysis, together with fundamental analysis, can help with the buying and selling points of stocks?
RP: Yes, I believe that a combination of both is possible. However, in my opinion, at least based on my experience, fundamental analysis does 95% of the work. But I am always looking to improve my way of looking at charts, and, in them, I always prefer strategies that look for trends based on weekly candles.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
RP: Sectors like the ones Barsi also likes, the famous BEEST, but I try to analyze all of them. I avoid the airline sector, because I believe they are difficult to operate, with margins that fluctuate a lot and, if we look at history, many have already ceased to exist.
BS: Do you use derivatives? What is your strategy?
RP: I have used it a lot in the past, mainly by selling PUTs on assets that I believed could rise, but always without leverage. Currently, I hedge by selling ETFs such as EWZ and, in Brazil, BOVA11, SMAL11, among others, when my weekly graphic strategy gives me a signal of a possible market decline.
BS: What is the cheapest company on the stock market today?