Brazil Value Talks: Victor Kietzmann Jr.
Multiplied Invested Capital by 264x in 6 Years
Today I have the pleasure of interviewing Brazilian investor Victor Kietzmann Jr.
Victor currently manages his own stock portfolio, in addition to being a partner at Portal Small Caps, a Collaborative Portal focused on investments, especially Brazilian Small Caps.
In 6 years, from 2018 to 2023, Victor's portfolio yielded an incredible 26,281%, that is, he multiplied the invested capital by 264x!
Annual Return:
2018: 275%
2019: 233%
2020: 400%
2021: 0%
2022: -10%
2023: 369%
TOTAL: 26,281%
It’s an absurdly high performance!
So high that he asked to include the following note:
"I don't believe it is a fair performance to be used in any type of comparison, as, on many occasions, I used excessive leverage and concentrations (many of them irresponsible)"
It is a value generating machine.
BS: Victor, could you tell us a little about yourself?
VK: I am 46 years old, I have 2 children (my greatest assets) and I am an economist trained at University of São Paulo. I have always loved investments, but due to career management errors, I ended up working in areas far from my profile. I also ventured out as an entrepreneur, which created a gap in my investments (I only started investing again in 2018). I disciplined myself a lot in personal finances seeking financial freedom, expected to arrive in 15 years. Fortunately, it happened last year. Mix of bull market luck and a bolder profile, in addition to all the dedication and studies.
BS: What is your strategy for making money on the stock market?
VK: I'm a fundamentalist, but I never label myself. I only seek to earn as much as possible, according to the risk that I consider ideal for each moment of life. Because I see greater asymmetry, I end up focusing a lot on small caps. I believe that, for every 10 “bets”, I will usually win at least 7 or 8. This is enough for an above average performance.
Regarding analyses, I go a lot micro, trying to talk to the company (IR and any employee I can find), competitors and other investors. I talk and read a lot. I'm lucky enough to genuinely enjoy investments, so I tend to study even on holidays and weekends.
BS: Could you explain in detail how your derivatives strategy works?
VK: There are some investments where I realize there is a large upside, but I identify that my studies do not give me the necessary security for a possible buy & hold strategy. When this happens, I consider buying via call, financing part with a put (selling close to the money and buying one further away). By doing so, I limit my loss and maintain unlimited gain potential.
In moments when I am more pessimistic about the market, I tend to use call and put sales in order to increase my monthly profitability.
Call selling: when I have an asset that I would accept to sell in 1 month if it rose above 10%, I sell a call for the same with a strike 10% above the current price. I usually receive 0.5% to 3% for the operation.
Selling put: when I have % of the portfolio in fixed income waiting for opportunities to return, I take the opportunity to sell put, a parameter similar to 10% below the current price. If it is exercised, I buy the asset that I would have bought anyway if it fell to this level, and I also pocket the prize.
I usually do it on the market when I'm looking for that "extra income". I research the options on the Opções.Net.Br website. I use the broker's trading desk only to carry out structured operations, with maturities that are not yet liquid.
BS: What is your process for finding a new purchasing opportunity? What filters do you use?
VK: I don't have a formal process, it changes a lot. I use the Fundamentus website a lot to filter assets, such as EV/EBIT, P/VP, P/L, PSR, etc. This only serves to draw attention to certain assets. I never buy just for the multiples. After identifying the opportunity, I start by reading the latest available release. If it continues to look like a good opportunity, I listen to the call for this result, read other releases, look for interviews with the company, talk to other investors.
Currently, as I already follow a wide range of companies, I basically read most of the results that Brazilian companies release. When I see something different from what was expected, I take a deeper look in order to evaluate the investment.
BS: How do you value a share: DCF, Multiples, implied IRR, a mix of the above, …?
VK: I understand that learning DCF is essential for investing, but on a daily basis, projection of future multiples with a touch of feeling about the multiple that the market will pay is what I end up using most. Furthermore, at each moment, there are aspects that I prioritize more or less, such as momentum, evolution of margins, dividends, governance, etc. I start from the premise that I will never have everything I want in a company, so I need to give up something. That something is never price, which is, for me, the biggest margin of safety there is.
BS: How do you like to build your stock portfolio, considering the number of companies, sectors and concentration?
VK: I have no rules for almost anything, even portfolios. When I was looking to build assets, I concentrated a lot. Today, I aim to have between 10 and 14 assets, some of which are inversely correlated with others. Even today I live on dividends, I look for a diversified DY, which covers 200% of my personal needs (this is a limitation). By choice (or ignorance), I do not invest abroad, in fixed income or in cryptocurrencies.
BS: What precautions do you take when investing in turnarounds? What is your formula for these cases?
VK: I don't think there is a silver bullet. It needs much more study than in healthy companies. I talk to the company even more and look for as much information as possible. At any sign that I'm projecting something wrong, I tend to be very quick to reset the position. I have a tolerance for error in these types of companies close to zero.
BS: How often do you like to rebalance your portfolio?
VK: Again, I have no rule for this. I constantly ask myself what my portfolio would be if I had to buy everything from scratch with my current equity. Whenever the answer is something different from what I have, I start to adjust the position. I don't mind making a loss. I'm really very quick at making decisions.
BS: How long on average do you hold a position in your portfolio?
VK: I would say that I rotate my portfolio very quickly, but I analyze it case by case. If the stock is performing as I expected, I don't mind waiting for the price to reach the correct value. I wait for whatever you need. But in practice, I never stayed active for more than 1.5 years. The only exception is Klabin.
If I had to have just one share forever, without being able to sell it, it would be Klabin. This is a company that I consider complete: diversified in products and geographies, clear earnings policy, operational and capex execution capacity, a sector that should continue to gain importance in the world (replacement of plastic with paper, increase in deliveries and global urbanization ) and, most importantly, entry barrier (forests) and competitive advantage of the company and Brazil in the sector (pine and eucalyptus trees grow much faster in Brazil, with Klabin's forests being even more efficient).
BS: What additional safety margin is necessary to justify exchanging one share in the portfolio for another? In other words, how much higher should the return potential of a studied stock be to want to sell a current position?
VK: As a rule, any greater potential in risk vs. return would make me think about switching. But in practice, I evaluate the asset's role in my portfolio and the short-term momentum. I am assuming here that my possible lack of knowledge of the new asset is already priced into the risk x return relationship.
BS: Do you believe that the pattern of the famous Ibovespa cycle chart in USD will continue?
VK: I believe almost zero in charts/patterns in the financial market. I even look at it for fun, but I don't believe it and I don't change my investments based on information like this.
BS: Do you believe that graphical analysis, together with fundamental analysis, can help with the buying and selling points of shares?
VK: In line with the previous answer: I respect those who study and make money with graphical analysis, but I use almost zero. It would at most be a tiebreaker when I'm in doubt about 2 roles. But I know a lot of graphics artists who have been earning above average in recent years.
BS: What are your favorite sectors on the Stock Exchange? And the ones you avoid? Why?
VK: I really like construction companies, as I believe that the market has a very wrong view of them, focusing on the traumas of the past, without understanding the changes and resilience of demand they have. Furthermore, there are several small caps with a lot of upside in this sector. I avoid commodity securities, as I accept that I do not have any knowledge advantage over other investors (it took me a while to realize this limitation). Illustrating the answer, if I am Messi, I will focus my career on football, not basketball.
For construction companies, I start by looking at the simplest multiple, which is P/VP (separating MCMV). From there, I see if the discount makes sense, starting with my expected ROE for the next 2 or 3 years (which is the maximum I understand I can estimate with quality). To estimate this ROE, I delve deeply into the theses, looking at the past, projecting new sales and calculating the results via POC (percentage of completion). I talk a lot with companies, visit projects, talk to brokers, etc.
I separate MCMV because it is a much less capital-intensive segment, which is good, but it has its own risks, such as the transfer of works by CEF without correction. It usually has a higher ROE, hindering the P/VP analysis. So, I look more at the forward P/L, and I give more importance to leverage and short-term perspectives given the risk.
When I analyze a construction company, I look closely at the quality of launches (VSO is extremely important), quantity and quality of inventory and leverage. I prefer an owner-owned company, as it is a sector in which projects usually take a few years between purchasing the land and completing construction.
Retail is a sector that, in general, I avoid investing in. Looking at history, it is much more cyclical than the market makes it seem and they rarely generate cash consistently. There are many challenges, not only with sales, but with financial ones, which are almost always present. But there are always exceptions and/or opportunities that are too cheap to ignore. Currently, I see a retailer that I will mention later as one of these opportunities (too cheap to ignore, even though I don't like the sector that much).
BS: Which Brazilian stock has the greatest upside potential (or best risk/return) in your portfolio today? Could you briefly explain the case?