Market Makers: Insights on the Brazilian Stock Market and Investment Strategies

The episode of Market Makers begins, described as a special review format without a guest, featuring familiar debaters. The hosts mention the absence of a better name for this format, humorously acknowledging its commonality.

Christian Kelet, a co-founder of Alfa and a well-respected figure in the market, joins as a debater. He previously appeared as a guest and received positive feedback, contributing significantly to the audience's understanding of market dynamics.

The central question posed for discussion is whether it is time to give up on the stock market. The hosts, however, express a contrary view, suggesting that for those who enjoy investing in stocks, now is the time to increase their investments.

The hosts introduce a special content segment about Charlie Munger, highlighting a list of 20 influential books in his life. They encourage listeners to subscribe with their email to receive this material, emphasizing Munger's inspirational role in their discussions.

Christian Kelet shares his extensive experience in the market, spanning 25 to 26 years, primarily focused on equities in Brazil. He recounts his early career at Grifo, starting in 1999, and his journey from working for free to earning R$ 500, illustrating his deep-rooted passion for the stock market.

Kelet reflects on the evolution of the Brazilian capital market, noting significant milestones such as the IPO of Natura in 2003. He contrasts the market's early days, where daily trading volumes were around R$ 300 million, with the current figures, which can reach R$ 20 billion, highlighting the market's substantial growth over the years.

The speaker shares their journey, starting as a partner at Reding Grifo, emphasizing the importance of meritocracy in their work environment. They highlight their transition to working at Credit Suisse after the company was sold, where they spent an additional seven years, from 2009 to 2010, seeking personal development and learning from excellent analysts.

In 2017, the speaker observed a decline in performance at Credit Suisse and felt it was time to invest independently. They partnered with Bruno Rign, who had previously worked with them, forming a strong team that has been successful in generating alpha in a challenging market. The speaker reflects on the importance of selecting the right stocks, managing portfolio quality, and understanding macroeconomic impacts.

The speaker discusses the unique challenges of generating alpha in a market that has not followed a beta trend, noting that while the stock market rose from 100,000 to 150,000, not all stocks performed equally. They emphasize the significance of short-selling in Brazil, particularly in identifying discrepancies between company performance and reported financials, which can lead to profitable investment opportunities.

The speaker introduces the funds managed by their company, Alfa, including a long bias fund and a long/short fund. They describe the long bias fund, Alfa K Ações, and the long/short fund, which has low volatility and aims to achieve 150% of the CDI. The speaker explains the strategy of buying and selling stocks to capitalize on price differences while managing risk through beta adjustments.

The speaker elaborates on the importance of adjusting beta in long/short strategies, illustrating that for every unit of one stock, a proportional amount of another must be sold to mitigate risk. They mention a specific product developed by BTG, which employs a long/short strategy with equal amounts bought and sold, and highlight the success of a fund called 'Get Ninjas' that emerged from their innovative approaches.

The discussion highlights the establishment of a separate fund for 'prer', a small company aiming to build a significant position without a redemption date. The intention is to allow the fund to grow, potentially becoming a medium or large entity, with aspirations for it to remain listed on the stock exchange.

A positive discussion took place between the speaker and Mati regarding their daily work routine, which involves extensive study in the mornings and interactions in the afternoons. They recently met with Pedro Jobim, the Chief Economist at Legacy, who expressed a lack of optimism about Brazil's economic situation, despite being part of a multi-market fund that has the flexibility to invest elsewhere.

The speaker attended a meeting with Rogério Xavier from SPX, who identifies as a realist rather than a pessimist. The conversation revolved around the current state of Brazil's economy, questioning whether the negative outlook from multi-market funds is justified or influenced by their investment positions. The discussion also touched on the recent financial results of companies, indicating a more nuanced view of Brazil's economic health.

A report from Valor highlighted the financial results of 399 companies, excluding major players like Petrobras and Vale, which showed a 133.6% increase in revenue and an 84% increase in profit from Q3 2023 to Q3 2024. Profits rose from 34 billion to 64 billion, suggesting improved operational efficiency among these companies, despite the overall negative market sentiment.

The speaker noted a prevailing pessimism among investors regarding Brazil, with comparisons made to more favorable investment opportunities like NVIDIA and Bitcoin. Despite this, the results from publicly traded companies in Brazil indicate potential for growth, suggesting that the market may be undervalued. The overall narrative in the market remains negative, affecting investor sentiment.

The speaker reflected on Brazil's fiscal situation, noting a projected primary deficit for the year. While not macroeconomic specialists, they emphasized the importance of monitoring these large-scale economic indicators as part of their investment strategy.

The speaker reflects on Brazil's economic performance, noting that the deficit expectations for 2022 and 2023 were significantly higher, with a projected deficit of 0.4% to 0.5% in 2022. However, the actual delivery for 2023 was around 0.25%, which was better than anticipated. Despite a long-standing negative narrative surrounding Brazil's economy, the speaker suggests that the reality may eventually align with these improved figures, although concerns remain about future revenues and government spending.

The discussion shifts to investment strategies in the Brazilian stock market. The speaker emphasizes the importance of filtering for strong companies amidst a challenging economic environment. They mention that some companies in their portfolio offer attractive dividend yields, with one company providing a 10% yield. The speaker argues against abandoning the stock market, suggesting that identifying resilient companies will yield better returns when the market narrative improves.

The speaker addresses the perception of Brazil as the 'ugly duckling' of Latin America, asserting that Brazil is the only deep market in the region. They compare Brazil's market to those of Chile, Colombia, and Argentina, highlighting the limited investment opportunities in those countries due to lower market volumes and the challenges of investing in foreign markets. The speaker advises caution in investing heavily in less stable markets, suggesting that investors should focus on Brazil for more substantial opportunities.

The speaker warns about the risks associated with high volatility in investments, particularly in sectors like airlines. They stress the importance of managing investment positions to avoid excessive exposure to volatile stocks, which can lead to significant fluctuations in fund performance. The speaker advocates for a balanced approach, suggesting that investors should seek opportunities that require less time and effort while potentially offering better returns.

The speaker discusses the investment landscape in Brazil, noting that there are around 400 companies within the investable universe, with their own firm considering 150 to 200. They highlight the current challenges in Mexico, particularly with the new government's changes to regulatory agencies and the Supreme Court, creating significant investment uncertainty. The speaker expresses concern over the high valuations in Mexico and suggests that while near-shoring is becoming popular, Brazil remains the most attractive market in Latin America, despite some emerging Asian markets potentially benefiting from U.S. tariffs on China.

The speaker emphasizes the importance of diversifying investments rather than concentrating them in one area, suggesting that there is still money available across various markets. They acknowledge that while Brazil may not seem attractive at the moment, some companies are delivering impressive results, contrary to expectations of declining profits. They mention a specific valuation metric, noting that they are buying at five times earnings, which they believe is reasonable given the current market conditions.

The discussion shifts to Brazil's fiscal policy, with the speaker noting that the fiscal deficit has improved from 0.70 to 0.25, indicating that the government is managing its spending effectively. They express optimism about the upcoming announcements regarding fiscal measures, which will be crucial for assessing the sustainability of Brazil's economic policies. The speaker anticipates that the 2026 elections will focus on a single theme, likely related to fiscal policy, and stresses the need for clarity in government spending to ensure stability.

The speaker reflects on a recent statement by the President regarding the decision not to spend $250 to $300 million on a new airplane, interpreting it as a potential positive signal about government spending priorities. They express frustration that positive signals are often overlooked in favor of negative news, agreeing with another speaker that the market's perception can be skewed. The speaker shares their own investment strategy, indicating a high level of commitment to the market with 120% invested and 30-40% short positions.

The speaker discusses their investment strategy, emphasizing the benefits of short selling while expressing a preference for long positions. They highlight a significant gain of 50% in the Brazilian market over the past 23 months, achieved without engaging in unethical practices like pyramid schemes or investing in microcaps. The speaker mentions that their fund's largest position was 10%, with successful investments in companies like Direcional, Santos Brasil, Despegar, and Mercado Livre, indicating a well-diversified portfolio.

The speaker reflects on the current market sentiment, noting a consensus among multi-market funds regarding a strong dollar and the negative surprises from Brazil's economic indicators. They mention the postponement of fiscal adjustments and the pessimistic narrative surrounding Brazil, which has led to significant capital withdrawals from top multi-market funds, with some experiencing rescues of 20-30% over the past two years. The speaker points out that only a few funds, like Absolute, have managed to attract new capital during this challenging period.

The speaker elaborates on the difficulties faced by investors in the Brazilian market, particularly in justifying investments in Brazil when global markets, like the S&P, are performing well. They highlight the reputational risks associated with investing in Brazil, where the market has been declining, making it uncomfortable for fund managers to defend their positions. The speaker notes that the current environment presents a challenging test for multi-market funds, which are typically well-informed and intelligent but find it hard to justify their strategies in the current climate.

The speaker discusses the dynamics of the Brazilian stock market, particularly the Bovespa index, which is heavily weighted towards companies like Petrobras and Itaú. They mention that large investors often hedge their positions by shorting the index while maintaining long positions in their preferred stocks. However, they point out a disconnect between the futures market and the actual stock portfolios, as the deterioration of the market and poor fiscal trajectory have complicated investment strategies. The speaker expresses hope that the government will prioritize important economic issues rather than delaying necessary actions.

Dr. Rubens, a prominent investor in Brazil, expresses frustration over the high interest rates of 15% per year, which hinder his ability to invest profitably. He emphasizes the need for better financial conditions to support local entrepreneurs, particularly in the Amazon region, to foster job creation and economic growth.

The speaker discusses the current market situation, noting that despite a decline in certain investment portfolios, the overall market index remains stagnant. He highlights the issue of widespread selling among investors, particularly in stocks like Vivara, leading to a collective downturn in portfolios without new capital inflow.

The discussion shifts to the challenges faced by short sellers in the market, where despite expectations of price increases, certain stocks remain resilient. The speaker mentions that short positions in small-cap stocks are causing financial strain, as the anticipated gains do not materialize, leading to losses for those betting against the market.

The speaker identifies two significant upcoming events that could influence market prices: the dividend announcements from Petrobras and Vale, which traditionally occur in December. He suggests that if positive news emerges, it could lead to a lighter market atmosphere and potential buying opportunities, possibly resulting in a short-term rally.

Looking ahead to January, the speaker anticipates a pause in market activity as investors reassess fiscal conditions and strategize for the upcoming year. He acknowledges the importance of monitoring economic indicators and adjusting allocations accordingly, while also thanking Josué Guedes for his support during the live discussion.

The Ibovespa index shows a slight positive variation of 0.69% for the day, indicating a modest recovery amidst the ongoing market challenges.

The discussion highlights the stagnant performance of the Ibovespa index, which has shown a slight increase of 0.62% over the week and 0.02% for the month, but a decline of 5% over the past three months and 3% for the year. The range of the index has been between 125,000 and 135,000, indicating a lack of significant movement. Comparatively, the previous year saw a rise of approximately 23%.

The speaker expresses skepticism about the necessity of holding Petrobras shares, emphasizing that the focus should be on delivering returns to investors rather than tracking specific stocks. Despite Petrobras' stock price being at R$12 and having increased by 100% since the beginning of Lula's presidency, the overall market remains stagnant. The index excluding Petrobras stands at 115,000 points, reflecting the mixed performance of major stocks like Vale, which has dropped by 30%.

The conversation shifts to individual stocks, noting that some, like Valid and Vulcabras, are at all-time highs, while others like JBS and Itaú are performing well but not at their peaks. The speaker questions why the Ibovespa index isn't higher, given that several stocks are performing well, pointing out that the B3 index is at a low and that stocks like Banco do Brasil and Bradesco are underperforming, which impacts the overall index.

The speaker expresses a lack of confidence in the stock market's upward movement, attributing it to high CDI rates, which are currently at 12% and may rise to 13% or 14%. Despite this, some stocks have doubled or increased by 50%, while others have fallen by the same percentage. The emphasis is placed on the importance of individual stock analysis rather than relying solely on index performance, highlighting the need for thorough research and engagement with companies.

The speaker recounts personal experiences of engaging with company executives, emphasizing the importance of understanding company operations and market positioning. They mention a specific company that has improved its operations and is transitioning from electronic to cosmetic products, showcasing a strong market cap performance. The speaker notes that the company's valuation has significantly changed, indicating potential investment opportunities despite the overall market conditions.

The speaker discusses the potential of investing 2 billion reais, suggesting that allocating 2% (40 million reais) could be a viable strategy. They emphasize the importance of being adaptable in the market, noting that investment positions should be adjusted based on changing market conditions. The speaker reflects on the dynamic nature of the market, where external factors such as government announcements or foreign investments can significantly impact company performance.

The speaker highlights the rapid changes in the market, mentioning how external influences, like a Chinese company setting up factories in Brazil, can affect local businesses and pricing strategies. They advocate for a cautious approach, suggesting that investors should not abandon their investment thesis but rather adjust their positions to mitigate risks while remaining open to future opportunities.

The speaker emphasizes the importance of maintaining a long-term perspective on investments, even during short-term downturns. They advise against selling off entire positions during a temporary setback, as this can lead to missed opportunities for recovery. Instead, they recommend reducing exposure while keeping the investment in the portfolio, especially if the long-term outlook remains positive.

The discussion includes practical examples of trading strategies, particularly regarding a stock named Valid. The speaker notes that Valid has been a long-term holding but has required active management to optimize its position size based on market movements. They explain that stocks with lower liquidity can be more volatile, necessitating careful trading to capitalize on price fluctuations.

The speaker discusses the benefits of holding cash in the current market environment, likening it to a form of investment that can yield good returns (12-13% annually) while waiting for the right moment to reinvest. They mention that some companies are facing delisting from the stock exchange, indicating a need for strategic operational decisions in managing investments.

The speaker discusses the potential delisting of Santos Brasil and Wilson Sons, along with Clear, indicating that these companies are currently yielding returns between 140% to 160% of the CDI in a reasonable scenario over the next eight months until the OPA. The speaker maintains a cash position of 15% to 20% in these investments, acknowledging the associated risks, particularly the possibility of the transaction not occurring. They emphasize the importance of due diligence and mention that market fluctuations, such as a 20% drop, could lead to withdrawing offers.

The speaker elaborates on their investment portfolio, highlighting a strategy that includes a mix of cash and equities. They mention a specific focus on Eletromidia, which is expected to yield a CDI plus return, projecting a 10% gain over ten months. The speaker notes that this strategy is part of a broader portfolio composition, which includes a net position of 110, with 80 net long and 30 to 40 short positions.

Reflecting on their experience with Centauro, the speaker recalls a challenging year for the company due to significant inventory issues. They emphasize their close relationship with the management, particularly the CFO, and how this proximity allowed them to provide valuable feedback on communication strategies. The speaker believes that maintaining open lines of communication with smaller, sometimes overlooked companies can be beneficial.

The speaker notes that under the leadership of CEO Pedro, Centauro began to improve its operations significantly in the second quarter of the previous year. The company managed to reduce inventory without sacrificing margins, leading to increased cash generation and cost-cutting measures, including layoffs. They highlight that the company's valuation was attractive at six times earnings, despite skepticism from the market.

The speaker discusses Centauro's recent financial performance, noting that the company is on track to reduce its debt to near zero by the end of the year. They express satisfaction with the company's strong results, particularly in the most recent quarter, where the top line showed significant improvement despite previous challenges. The speaker critiques the notion of growth based solely on revenue increases, emphasizing the importance of cost management and profitability.

The discussion begins with a focus on the projected profit for the upcoming year, which is anticipated to be six times the profit of the previous year. The speaker mentions a doubling of this figure, indicating a strong market performance. They reference a market cap of 12 times for retail, specifically in the clothing sector in Brazil, highlighting companies like Lojas Renner and the challenges faced by other retailers such as Asa, which is undergoing integration issues.

The speaker reflects on the stock performance of companies like Cia and SBF, noting that when their valuations approached 10.5 to 11 times earnings, they decided to sell their positions in SBF. They discuss the strong performance of the third quarter of the previous year, which made comparisons difficult, leading to a decline in stock prices. The speaker emphasizes that despite a drop from 18 to 13 times earnings, they maintained communication with the companies and adjusted their positions accordingly.

The speaker expresses confidence that once the market turns, companies like Renner and Localiza will trade at significantly higher multiples, potentially 20 to 25 times earnings. They attribute this to a scarcity of available stocks in Brazil, as many companies are exiting the market. They mention current valuations of SBF at seven times and PR Cia at eight times earnings, with Vivara being highlighted as a strong investment opportunity at ten times earnings.

The speaker discusses their investment strategy, noting that they initially held a 3% position in SBF, which increased by 40%. They reflect on the importance of timing in the market, especially in a context where new money is not entering the market. They emphasize the need for discipline in investment decisions, particularly in knowing when to sell or reduce positions, which is crucial for long-term investors.

The conversation shifts to the current market dynamics, where the speaker notes that there is a lack of new capital entering the stock market. They highlight the importance of identifying companies that are currently delivering strong performance, as the investment horizon has shifted from long-term to more immediate results. The speaker stresses the necessity of having a clear exit strategy to manage investments effectively.

The speaker discusses the difficulties of managing a team and making investment decisions, referencing the book '100 Bagger' which highlights the rarity of companies that multiply in value by 100 times. He notes that in the U.S., it is challenging to find such companies, and reflects on historical performance, particularly mentioning that major banks like JP Morgan have multiplied in value by over 10 times since the Lehman Brothers collapse.

The speaker expresses confidence in a fund he has established, predicting that a company valued at 500 million could potentially reach a valuation of 2 billion, with an EBITDA of 400 million. He emphasizes the importance of management quality and shareholder integrity, mentioning a respected figure in the industry, and asserts that he is not ashamed to discuss his investment positions, even if they are not large due to liquidity constraints.

The speaker shares his investment philosophy, preferring a diversified portfolio over concentrated positions. He mentions holding a 2% stake in Vivara, a company trading at 30 million reais daily, and discusses the importance of having a balanced portfolio that includes defensive components like Porto Seguro, which he previously underestimated. He acknowledges the volatility in the market, citing examples of companies like MRV that have seen significant fluctuations in value.

The speaker raises concerns about corporate governance among various fund managers, noting that many do not prioritize it. He highlights the importance of transparency and accountability in management, especially in relation to minority shareholders. He criticizes certain companies for poor communication and mismanagement, particularly in the healthcare sector, where he cites oncological clinics as an example of businesses that have failed to meet expectations due to inadequate guidance and operational issues.

The speaker reflects on the disconnect between CEOs and the realities of being a publicly listed company. He argues that some CEOs lack awareness of their responsibilities towards minority shareholders and the importance of generating returns for them. He points out that many executives are compensated heavily without holding shares in their companies, which raises ethical concerns about their commitment to shareholder interests.

The speaker emphasizes the importance of commitment to the company and highlights Rafael Sales' understanding of market dynamics. Sales, who operates almost as a portfolio manager, has experience in managing shopping assets and rebalance strategies, which is crucial for navigating the complexities of the market. This understanding became evident during the recent IPO wave, where not all offerings were promising. The speaker notes that executives lacking market insight may misrepresent their companies' potential, leading to skepticism among investors.

The discussion shifts to the challenges of regaining market credibility after missteps, using the example of 3R, which faced skepticism due to past errors. Despite a recent 30% increase in stock value, the company still struggles with its reputation. The speaker reflects on the difficulty of restoring trust once lost, citing a previous investment in Mitre, a home builder with significant parallel business operations that ultimately led to financial distress. The speaker illustrates the impact of poor management decisions on investor confidence.

The speaker recounts a troubling scenario involving a home builder who faced severe financial issues, including a debt of R$ 500 million. The builder's actions, such as using company stock as loan collateral and selling land under duress, exemplify poor financial management. The speaker describes how these decisions not only jeopardized the company but also harmed minority shareholders, leading to a loss of trust and future investment opportunities.

In contrast, the speaker highlights the success of Moura do B, which, despite previous struggles, managed to secure a loan from Credit Suisse and successfully executed an IPO. This company is now performing well, with its stock approaching historical highs. The speaker contrasts this with other companies that failed to manage their operations effectively, suggesting that those who navigate the market wisely will emerge as winners in the small-cap sector.

The speaker expresses surprise at the decision-making within corporate boards, particularly noting that a highly regarded board member voted in favor of a controversial decision regarding Mitre. This highlights the complexities and potential pitfalls of corporate governance, where even experienced individuals may support decisions that could lead to negative outcomes for the company and its shareholders.

The speaker reflects on the motivations of board members, suggesting that those who are financially compensated may prioritize their own positions over shareholder interests. He emphasizes the importance of understanding the board's dynamics to ensure they are acting in the best interests of the shareholders.

The speaker shares his experience as a board member of Direcional, a prominent Brazilian company, highlighting that he joined about five years ago during a pivotal time for the company. He describes the company's spinoff from Riva, which focused on the middle-income housing market, specifically properties priced above R$350,000, and notes the significant growth in the company's valuation from R$1 billion to R$5 billion.

He recounts a dinner meeting in Minas Gerais with the founders of Direcional, including CEO Ricardinho, where they discussed the potential spinoff and IPO. The speaker describes the founders as warm and honest, and he felt a strong connection with them, which led to his appointment as a board member.

Over the years, the speaker has contributed to Direcional by sharing insights from his experience in capital markets, enhancing communication strategies, and focusing on minority shareholder interests. He notes the evolution of CEO Ricardinho's approach to transparency and communication with shareholders, which has significantly improved since his arrival.

The speaker discusses the modest compensation for his role on the board, indicating that he initially chose not to accept payment. However, he later agreed to a small fee to help cover costs for the asset management firm. He emphasizes the importance of transparency in their relationship and reflects on how the lack of a spinoff turned out to be beneficial for the company.

The speaker discusses the trajectory of Riva, noting that it has transitioned from a small-cap to a mid-cap company, now valued at approximately R$8 billion. They express optimism about Riva's potential to become one of Brazil's largest companies, highlighting its growth and market positioning.

The conversation shifts to the sense of responsibility felt by leaders like Pedro Bartelli, who inherited shares from his late mother. Despite not being heavily involved in the company initially, he took on the CEO role during a challenging period when the company faced R$1 billion in debt. The speaker emphasizes the weight of this responsibility, especially given the company's precarious situation during the Credit Suisse crisis.

The speaker praises Pedro Bartelli for his work ethic, contrasting him with the stereotype of a privileged heir. Instead of indulging in a lavish lifestyle, Bartelli is portrayed as dedicated to the company, actively engaging in market analysis and product development. This commitment is echoed in the actions of other leaders, such as Ricardo, who prioritize the company's financial health over personal luxury.

The discussion turns to the compensation of management at Curi, where the annual remuneration totals R$30 million. The speaker acknowledges the significant contributions of Fábio Curi, suggesting that his compensation, potentially around R$25 million, is justified given the company's success. However, they also raise concerns about the disparity in salaries within the company, particularly highlighting that while some executives earn substantial amounts, others earn significantly less despite the company's growth.

The speaker reflects on the financial performance of the company, noting that it has seen a tripling in value, reaching R$5 billion. They mention that the company's profits have surged from R$100 million in 2020 to an expected R$830 million in the coming year, illustrating a remarkable growth trajectory. This performance raises questions about the fairness of executive compensation in relation to the company's overall success.

The speaker discusses the challenges of executive compensation, highlighting that leaders often prioritize business growth over financial concerns, as seen in the case of a CEO who is unconcerned about the difference between earning R$50,000 or R$500,000. This perspective contrasts with lower-level employees who may feel the impact of such decisions more acutely. The speaker notes that competitive market pressures are leading to higher salaries, suggesting that a proposed increase to R$100,000 for an executive could align them with industry standards, where some CEOs earn R$2,400,000. The speaker reflects on successful companies like Porto Seguro and Direcional, emphasizing the importance of aligning executive compensation with company performance and shareholder interests.

The discussion shifts to the importance of alignment between executives and company performance. The speaker criticizes a lack of accountability among executives who do not hold shares in their companies, suggesting that this detachment can lead to a disregard for stock performance and overall company health. He contrasts this with companies like Itaú and XP, where executives are incentivized through stock options and performance-based rewards, fostering a sense of responsibility and alignment with shareholder interests. The speaker argues that this alignment is crucial for long-term success and addresses the challenges companies face when executive compensation does not correlate with performance.

The speaker reflects on the rapid growth of XP and its journey towards an IPO, noting that this transformation significantly impacted many lives over a five-year period. He emphasizes the importance of setting clear goals and the potential for executives to lose sight of their responsibilities as they approach personal milestones, which can disrupt the alignment that partnerships typically provide. The speaker suggests that misaligned compensation structures can lead to a disconnect between executive actions and company performance, highlighting the need for ongoing discussions about effective compensation strategies.

The speaker acknowledges the audience of over 650 participants and invites questions, indicating a willingness to engage in further discussion. He mentions a specific question from Evaldo Batista regarding the CEO of Tupi, suggesting that there are preconceived notions about the company that merit exploration. The speaker expresses interest in discussing these perceptions and encourages dialogue on the topic, indicating a collaborative approach to addressing industry challenges.

The speaker reflects on the prolonged difficulties in the Brazilian market, noting that it has been a challenging period lasting four to five years. They express frustration over the lack of financial flow and the impact of market conditions on their investments, particularly highlighting the pain of not being able to buy more shares due to insufficient funds.

The discussion shifts to the investment landscape, particularly focusing on the company Track & Field. The speaker mentions their previous reluctance to invest at a price of 14 times earnings due to low liquidity but notes a recent opportunity to acquire shares at nine times earnings, indicating a significant price drop. They express optimism about the potential for growth in this investment.

The speaker provides context on Vulcabras, suggesting that the company is likely to pursue physical store expansions through mergers and acquisitions rather than developing them internally. They speculate on potential mergers in the coming year, particularly with Centauro and Track & Field, indicating a strategic interest in creating a larger conglomerate in the sports retail sector.

The speaker discusses the unique market position of Track & Field, emphasizing the strong brand loyalty and the long-term commitment of its owners. They highlight the significant valuation asymmetry, noting that the market price does not reflect the true value of the company, which has consistently delivered results despite recent challenges related to its investment in esports.

The speaker expresses confidence in the future valuation of Track & Field, suggesting that it could potentially double in value due to its high growth prospects and low current multiples. They draw parallels to past experiences with other companies, such as Unipar, where strong shareholder backing helped unlock the company's value, indicating a belief that similar dynamics could play out for Track & Field.

The conversation touches on governance issues at Tupi, particularly regarding the commitment of a board member who is also a government minister. The speaker recalls a previous discussion with Fernando de Riso, where the topic of government influence on corporate decisions created a tense atmosphere, highlighting the complexities of navigating such relationships in corporate governance.

The discussion highlights concerns regarding the technical qualifications of a council member, specifically referencing the Caixa and BNDES, which each have three representatives on the council. Historically, the government has not interfered with Tupi's operations, allowing significant acquisitions like Techd and MWM to proceed without hindrance. Despite the council member's lack of expertise in head block production and electric vehicle electrification, it is suggested that this will not impede Tupi's actions. Recent discussions have pointed out that Tupi's weak results were anticipated, and the market's reaction may stem from fears of a deteriorating future outlook.

Tupi's traditional business of head blocks is facing a 35% decline in volume this year; however, the company's margins have remained stable year-over-year, indicating strong operational performance despite challenges. The speaker emphasizes that Tupi has untapped potential in its decarbonization efforts, particularly in transforming pig waste into biogas and mineral organics. With Brazil's reliance on fertilizers and the government's agenda to reduce dependency on imports from Russia and Ukraine, Tupi's initiatives could align well with national interests.

Tupi has secured financing from BNDES through the Climate Fund, which is pegged to the CDI rate, to support its decarbonization initiatives. The speaker notes that Brazil has approximately 28 million pigs, with many farms lacking waste treatment solutions. This emerging business, currently contributing 0% to revenue, has the potential to generate billions with significantly higher margins than Tupi's traditional operations. The partnership with Primato, initiated in September, is expected to enhance visibility and revenue generation in this sector.

The speaker argues that Tupi's current market valuation does not reflect its potential, trading at four to five times EBITDA. If the decarbonization business achieves projected revenues of 3 billion with a 30% margin, Tupi could transform significantly. The discussion acknowledges the mixed implications of government involvement, suggesting that while government ownership can pose challenges, it may also facilitate access to credit and support for Tupi's growth initiatives.

The discussion highlights a video featuring Sérgio Rib, which has garnered over 100,000 views. The speaker reflects on the excellent insights shared by Rib regarding energy transition and the automotive industry, particularly emphasizing the depth of knowledge he possesses. A feedback from a seasoned market manager, who has over 20 years of experience, praised the episode, stating that the insights gained from Rib surpassed what he learned in years of covering the local market.

The conversation shifts to the potential growth of the Brazilian market, with the speaker suggesting that Brazil could transform from the 'ugly duckling' to a 'beautiful swan' in the next two years. They discuss the possibility of reaching a market cap of 2 billion, contingent on the work being done and the market's acceptance. The speaker mentions that the fund's growth to 2 billion will depend on the availability of good investment opportunities and the market's overall conditions.

The speaker elaborates on the strategies for achieving a 2 billion market cap, indicating that it may not be feasible within two years unless market conditions are favorable. They emphasize the importance of identifying compelling stories and asymmetries in the market. The discussion also touches on the idea of creating niche investment vehicles for small caps, allowing for a focused approach while maintaining conviction in smaller companies.

The speaker expresses a long-term investment philosophy, drawing inspiration from renowned investors like Charlie Munger and Warren Buffett. They aspire to be a 'monoprodutora' of closed capital, focusing on studying businesses and maintaining a commitment to this approach for life. The conversation suggests that as the market evolves, there may be opportunities to adapt their investment vehicles to align with growth while staying true to their core philosophy.

The speaker discusses the future of their investment strategy, emphasizing the importance of maintaining a consistent philosophy regardless of the fund's size. They believe that in 2, 5, 10, or even 20 years, their approach will focus on investing in well-managed companies with responsible leadership, aligning with societal benefits. They assert that their current small fund allows for quicker capital multiplication compared to larger funds, but the core philosophy of investing in quality companies will remain unchanged.

The speaker reflects on their experience in fund management, highlighting that the alignment of investors is more crucial than the fund's size. They argue that having a supportive investor base makes it easier to explain delays in investment theses. Despite the challenging market conditions, their fund has doubled in size and the number of investors has significantly increased, indicating that a shared philosophy fosters stronger relationships and easier management of the fund.

As the discussion progresses, the speaker acknowledges the current difficult market conditions, noting that this is a unique experience for many, including themselves. They emphasize the importance of understanding and navigating these challenges together with their investors. The speaker contemplates the timing of investments, questioning whether the current market is truly the right time to invest in stocks, suggesting that the best opportunities may arise during periods of widespread pessimism rather than optimism, as seen in 2019.

The speaker reflects on a family member's impulsive investment in Pets during a social gathering, questioning the appropriateness of the timing. He expresses a desire to invest more in the stock market but feels constrained by a lack of funds, indicating a belief that the market is poised for growth.

The speaker emphasizes the importance of discipline in investing, suggesting that individuals should allocate a portion of their wealth—around 10%—to the stock market. He shares insights on how he prepares for the trading day, including reading financial news and engaging with analysts, highlighting the need for a well-informed approach to investing.

The speaker warns against the misconception that all stocks will eventually recover, citing specific examples like Oi, which has lost significant value. He stresses the importance of caution, noting that while indices may rebound, individual stocks may not, and advises against overconfidence in personal investment skills compared to seasoned professionals.

The speaker discusses his personal life, balancing family time with his professional commitments in the investment sector. He mentions his dedication to his family, including his three children, and his involvement in their activities, such as tennis, while also maintaining a rigorous work schedule that includes studying market trends and engaging with company CEOs.

Reflecting on past performance, the speaker notes that in 2019, their investment firm achieved a 61% return, outperforming the average fund return of 40%. He acknowledges that while the market was favorable in 2018, the last two years have presented challenges that have allowed them to differentiate their performance, emphasizing that their strategies will yield returns despite difficulties.

The speaker emphasizes the importance of diversifying investment portfolios beyond traditional options like CDBs, which may offer guaranteed returns of 12-13%. They caution that credit funds and real estate funds are not guaranteed either, especially in a rising interest rate environment. A balanced portfolio should include 5-15% in these funds, while also being prepared for market volatility. The speaker recalls that significant gains were made in November and December of the previous year, highlighting the necessity of being actively involved in the market to avoid missing out on opportunities.

The speaker argues against the notion that Brazil is out of the investment game, asserting that while it may not be the best option, it remains a viable market. They mention that Mexico has some attractive stocks, but overall, the rest of Latin America is not promising for high returns. The speaker believes that Brazil offers selective opportunities with good companies, and stresses the need for better government communication and a reasonable transition in policies to foster investment.

The speaker discusses the current economic challenges in Brazil, noting that while tax revenues have increased by 10% year-over-year, the debt-to-GDP ratio is not improving. They highlight the need for a balanced approach where businesses can grow and contribute positively to the economy, while also advocating for a reduction in government spending. The speaker expresses optimism about the investment climate if these adjustments are made.

The speaker reflects on the changing dynamics in the Brazilian market, mentioning that foreign investors are increasingly interested in Brazilian assets. They note that several companies, including Localiza and Suzano, are engaging in significant share buybacks, which reduces the number of available shares for investors. This trend, combined with the exit of major players from the market, is leading to a decrease in free float, making it more challenging for investors to find opportunities.

The speaker reflects on the unpredictable nature of the Brazilian market, suggesting that significant changes could occur within a year or even sooner. They express astonishment at how certain companies, like 'cela', have achieved five times their profit over the past year, while others like Itaú have reached seven times. The speaker notes that the market's price-to-earnings ratios vary, with Porto Seguro at 12 times and retail companies potentially reaching 30 times, indicating a complex landscape of valuations.

The discussion shifts to the anticipated influx of foreign investment into the Brazilian stock market, particularly as the yields on NTN-Bs (Brazilian government bonds) are currently at 15% per year. The speaker believes that a significant portion of this capital will transition from fixed income to equities, especially as the stock market is perceived to have a limited number of attractive stocks, such as Localiza, Renner, and Itaú. They emphasize that the current environment is ripe for investment, despite the challenges faced by multi-market funds.

The speaker comments on the prevailing market sentiment, noting that many investors are cautious due to recent poor performance in multi-market funds over the past three to four years. They argue that for investors to consider equities, interest rates must drop significantly from the current levels near 10%. The speaker highlights a growing asymmetry in the market, suggesting that the potential for positive surprises in stock prices outweighs the risks of negative outcomes, particularly for undervalued companies.

Referencing the Brazilian stock market's recovery in 2016, the speaker connects it to significant political events, such as the impeachment of Dilma Rousseff. They recall a notable week in March when the Ibovespa index surged nearly 20%, triggered by unexpected events like the coercive conduct of Del Amaral. The speaker suggests that future market movements may similarly be catalyzed by unforeseen circumstances, rather than anticipated announcements, indicating a level of unpredictability in market dynamics.

The discussion highlights a positive shift in Brazil's economic landscape compared to 2016, with growth driven by government initiatives. The speaker notes that the economy is genuinely growing, with projections suggesting a potential growth of 2% in the coming year. This contrasts sharply with the previous years under Dilma's administration, which saw a cumulative decline of 10%. The speaker emphasizes that many companies are now operating without debt, positioning them favorably in the market.

The conversation shifts to the performance of companies in the current economic climate, where many are achieving record operational results. The speaker mentions that several companies have zero debt, which mitigates the risk of bankruptcy, especially for those with limited access to capital markets. This situation allows these companies to gain market share and improve profitability, leading to increased operational leverage. The speaker expresses optimism about the current market conditions, suggesting they are better than in 2016.

The discussion touches on the unpredictability of economic forecasts, particularly regarding the United States. The speaker references Rogério Xavier's comments about revising projections upward, noting that despite expectations of a recession in 2023, the economy grew nearly 3%. This highlights the frequent inaccuracies in economic predictions, with the speaker acknowledging that economists have often misjudged the situation in recent years. The speaker appreciates Xavier's candidness about these errors and the positive outcomes for those who remained invested.

The conversation begins with a suggestion to discuss various companies in a quick, ping-pong style. The speaker mentions their largest position, MS, and highlights a shared investment in PRER. They explain that MS's main business is in elevating platforms, which is currently facing challenges due to competition from Chinese platforms. Despite this, they believe MS can survive the high-interest rate environment, as it is not heavily leveraged, with a debt ratio of 1.2. The speaker emphasizes the resilience of MS, Vulcabras, and Valid, noting that these companies have weathered tough times before.

The speaker elaborates on MILS, which has shifted its business model over the past three years. Previously, 90% of its revenue came from elevating platforms, but this has decreased to 55% as the company has diversified into yellow line machinery and forklifts. They argue that while the narrative around MILS is currently negative due to potential price pressures from Chinese competitors, the company is positioned to perform better than expected. MILS is projected to generate 800 million in cash flow next year, which is significant for dividends, and operates without incurring debt, making it an attractive investment despite its current low valuation.

The speaker points out that MILS is trading at its lowest multiple in history, with a current valuation of four times EBITDA compared to ten times in the past. They acknowledge the negative sentiment surrounding the company due to Chinese competition but stress the importance of considering the company's structural strengths and long-term potential. Despite a 20% decline in stock price this year, they maintain a 15% investment in MILS, indicating confidence in its future performance.

Transitioning to another investment, the speaker discusses Porto Seguro, identifying it as one of their top three holdings. They note that a year ago, many viewed Porto Seguro merely as a traditional insurance company with 6 million clients. However, they have closely monitored the company's evolution, particularly under the leadership of executives like Sami, who have diversified the business. Currently, 25% of Porto's profits come from new verticals beyond auto and life insurance, showcasing the company's growth and adaptability in the market.

The company is performing well with 600,000 lives insured, reflecting a profit multiple of eight times. Other business verticals are experiencing a growth rate of 20% annually, with a return on investment (ROI) between 23% and 30%. The management team is described as serious and aligned, with a projected dividend payout increasing to 50% next year, benefiting from a high-interest rate environment favorable for insurance companies.

The speaker notes that the company has three additional business units that are growing significantly. There is potential to unlock value through an IPO of one of these units when market conditions improve. The speaker feels secure due to the dividend and ongoing communication with management, observing a strong control over claims in health and auto insurance sectors.

The speaker discusses a perceived shift in crime patterns, particularly regarding car thefts. They believe that thieves are now more focused on stealing mobile phones rather than cars, as the latter involves higher risks and complexities. The speaker attributes this change to a structural shift in criminal behavior, noting that car thefts have decreased significantly compared to past experiences, especially in the southern region of São Paulo.

The discussion shifts to Valid, a company previously thought to be at risk due to changes in driver's license legislation in 2021, which extended the validity from 5 to 10 years. The company has successfully reduced its debt and refocused on profitable business divisions under new leadership, including CEO Olavo. Valid is now benefiting from government initiatives to issue national identity cards, with an estimated 120 million identities expected to be issued in the coming years.

The discussion highlights the ongoing digital transformation in Brazilian society, emphasizing the importance of resilience and adaptability in companies. The speaker notes that the company in question has seen a significant increase in its earnings before interest, taxes, depreciation, and amortization (EBITDA), with 25% of its EBITDA this year coming from new revenue streams linked to government digitalization contracts.

The speaker elaborates on the company's growth trajectory, indicating that its current EBITDA is around 500 million, with expectations of reaching 600 million in the next year or two. The market's valuation of the company is currently at four times its EBITDA, but if it continues to demonstrate growth and add new revenue sources, the valuation could increase significantly, potentially doubling.

The speaker praises the leadership of Direcional, considering its CEO as one of the best in Brazil, particularly for his commitment to minority shareholders and capital return. The company is noted for having almost zero debt and is monetizing its assets effectively, with expectations of becoming one of the top five dividend payers in Brazil within the next one to two years, potentially offering a 15% annual return.

Direcional's current market position is discussed, with the speaker noting that while some competitors like MRV are struggling, Direcional is experiencing operational success. The company is projected to stabilize its revenue around 1 billion, with a significant margin, indicating a strong potential for future growth and profitability.

The speaker concludes with an optimistic investment outlook for Direcional, suggesting that its valuation could rise to eight times its earnings due to its strong dividend potential and operational performance. The expectation is that the company will continue to provide substantial dividends while remaining an attractive investment opportunity.

The discussion highlights the potential for a 50% return on investment over two years, factoring in dividends. The speaker expresses confidence in this projection, suggesting it could be a compelling addition to an investment portfolio.

The speaker initiates a segment on cultural recommendations, mentioning their own suggestion from a recent newsletter. They tease an upcoming article about Vulcabras, emphasizing its significance and the detailed analysis it will provide.

A cultural recommendation is made regarding a report from GAVC, noted as a leading authority on China. The report discusses the misconceptions held by the West about China, particularly in the automotive sector, and highlights the rapid advancements made by Chinese manufacturers in the last four years.

The speaker references a statement from the CEO of Ford, illustrating the challenges faced by Western automakers due to the rise of Chinese automotive production. They point out that companies like Volkswagen, which have historically not closed factories, are now struggling to adapt to the competitive landscape shaped by Chinese innovation.

The GAVC report is described as an engaging read that not only provides insights into China's market dynamics but also critiques the biases that shape Western narratives about China. The speaker emphasizes the importance of understanding these perspectives to grasp the broader implications of China's economic strategies.

The speaker suggests a book by Peter T. El, tentatively titled 'Tell Me Where I'm Going to Die to Not Go There.' They also recommend a film by Fernanda Torres, which explores themes from Brazil's dictatorship era, highlighting its engaging story, excellent soundtrack, and potential Oscar contention.

The film recommended by the speaker is praised for its compelling narrative set in 1970s Rio de Janeiro, its beautiful cinematography, and its incorporation of MPB music, making it a culturally rich experience that resonates with both historical context and artistic expression.

The speaker expresses a passion for road cycling and recommends watching the Netflix documentary on the Tour de France. They highlight the dangers of the sport, noting that professional cyclists often face life-threatening situations. The speaker explains that while many perceive cycling as disorganized, it is a highly strategic and collective sport. The financial rewards primarily go to the team leaders or sprinters who excel in flat stages or mountain stages, where endurance and high VO2 levels are crucial. They emphasize the importance of teamwork, comparing it to corporate environments, where each member plays a vital role in supporting the leader, akin to the gregarios in cycling who sacrifice for the team's success.

As the live session concludes, the speaker thanks the audience for their participation, noting a peak viewership of nearly 800 people. They encourage viewers to like the video and subscribe to the channel, setting a goal of reaching 300,000 subscribers by the end of the year, a significant increase from the previous year's 50,000. The speaker humorously compares this growth to the rise of Bitcoin, indicating a strong desire for community engagement and growth.

The speaker announces upcoming live sessions scheduled for Tuesday, Thursday, and Saturday at 6 PM, and mentions that the next episode will feature Pedro Jobim, the Chief Economist at Legacy, airing on Thursday. This highlights the commitment to providing valuable content and insights to the audience.