Brazil Value Talks: Thiago Cardoso, CNPI-T
Generated 74% alpha in 4 years
Today I have the pleasure of interviewing Brazilian investor Thiago Cardoso.
From July 2021 to April 2025 his historic performance will be the envy of anyone.
His portfolio returned more than 77.32% in the period, versus 3.17% for Ibovespa.
This guy knows how to generate real value.
Shall we meet him?
BS: Thiago, could you tell us a little about yourself?
TC: I'm from the interior of Minas Gerais. My family has always had a culture of civil service. At the age of 22, I passed a public service exam and a few years later I met an intern there who invested in the stock market. That year was the end of 2019. At the time, I was very risk-averse. All my assets were in the Selic rate. I didn't venture into it because I didn't really understand it at the time, but I was intrigued and thought about studying it at some point. Obviously, my interest in the stock market increased when the Selic rate was raised to 2% in 2021.
I bought my first shares in July 2021. They were from a recommended portfolio that this same intern (now a friend) sent me. It was a complete disaster, but since I still have a high aversion to risk, I started with very little, which didn't harm my equity. That mistake was the best thing that could have happened to me, because I knew I had done something wrong and I had to study the subject in depth. So I looked for several books/interviews to understand how to select shares well and understand how the markets work.
During this journey of daily studies, I fell in love with this market, gradually moving away from fixed income and increasing my stock market holdings. Today, I have more than 80% of my equity in Brazilian stocks.
BS: What is your strategy for making money on the stock market?
TC: I simply position myself in Brazilian companies that are very cheap in relation to their history (or the sector) and sell/reduce them when they reach a certain target that I project to be fair/expensive. If another leading company in the sector appears with better prospects than one I have in my portfolio, I make a change, but it is not something I do often. I always prioritize having a margin of safety in relation to my calculations when buying such companies, reducing the risk of being wrong.
BS: What is your process for finding a new buy opportunity? What filters do you use?
TC: The initial process is the basic multiple analysis, the initial filter is by P/L or EV/EBITDA, when the company fits what I want I continue with a more in-depth analysis, looking at the DRE, watching earnings conferences and projecting in a very conservative way the expected total return rate for this share and fwd multiples.
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the previous ones, …?
TC: I like to use multiples and, through these, calculate the total rate of return for the shareholder. After that, I calculate a safety margin and only take a position when the company is within the margin. This prevents me from paying any price and increases the profitability potential.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
TC: I limit myself to having a maximum of 10 stocks. I like to concentrate and I feel more comfortable with that. A new company only enters if another one leaves. This makes me more discerning and demanding, especially at the moment when the Brazilian stock market is at a high price, where we have a lot of cheap stuff.
I don't get too fixated on perfectly balanced positions. I buy little by little and reinvest all the dividends while the company is within the criteria. When the safety margin disappears, I focus on another part of the portfolio.
I like to have around 40-50% of my portfolio in more stable and predictable sectors, such as the financial sector and electricity. I currently don't own any electricity companies because most companies in this sector are well priced compared to the financial sector, which is crushed.
Since I understand that the market is cyclical and that in a while the financial sector may be better priced and perhaps the electricity sector may be discounted, I have all the patience in the world to wait. Currently, around 42% of the portfolio is in the financial sector, 40% in commodities and the remainder is in industrial goods and cyclical consumption.
BS: How often do you like to rebalance your portfolio?
TC: I don't have a defined frequency, I usually reduce positions that have grown a lot but are still far from my target, especially when I see other companies that are cheaper, it will depend on the market to leave a position that is dear to me or something very good and cheap comes up.
BS: How long on average do you hold a position in your portfolio?
TC: Also without a defined time, I have positions from a few months after I started investing like BBAS3 and CXSE3, which have been in my portfolio for more than 3 years, only the size of the position has changed over time.
BS: Do you believe that graphical analysis, together with fundamental analysis, can help with the buying and selling points of stocks?
TC: I believe that graphical analysis complements the analysis, especially to position new investments when a stock in the portfolio is oversold in the RSI or when it reverses its movement at some support.
I use indexing a lot to compare the American market with emerging markets/commodities to try to understand where we are in the cycle. People are simply blind and think that just because a market has risen in the last 15 years, it will continue to rise for another 15. History and indexing reveal exactly the opposite.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
TC: The financial sector is my favorite, followed by oil. In my view, these two sectors offer a good risk-return ratio and are cheap. Sectors that I avoid are retail (with some exceptions) and aviation, which are very risky and in some cases very uncertain, I prefer to stay out of them.
BS: Do you use derivatives? What is your strategy?
TC: I started using it recently, but very little, just some purchases of puts or dry calls or very situational covered call sales.
BS: What is the cheapest company on the stock market today?