The Author and This Blog
I am a lawyer and self-taught investor discussing value investing and applying Deep Value in Brazil. The objective of this blog is to show and discuss the results of my studies.
I have followed a long and bumpy road until here. Below, I talk about this road, that I learned to be similar to the one of several individual investors.
It is impossible for me not to put some dose of sense of humor in this journey. The name of this blog is inspired in the Baby Herman cartoon, of the movie “Who Framed Roger Rabbit”. Baby Herman is a 50-year old man in the body of a 3-year old baby. He is the embodiment of extremes: age and youth. This condition is clearly said in the quote “The problem is I got a fifty-year old lust and a three-year old dinky”. Something similar happens when you are a self-taught person: there are things you know very well and other things in which your knowledge is very poor. You have to live with that and your development will be different. Maybe a little bit bumpier, but always fun!
The Beginning of Everything
It all started in the middle 80´s, in a branch of the Brazilian Federal Savings Bank (Caixa Econômica Federal). I went there with my grandfather to open a savings account. And, in a tremendous anticlimax, I saw a board comparing the performance of the savings account and the stock market. Times of rising stock market. An incredible contrast and a question: why to invest in a savings account if the performance was so low? My investor side was conceived in that moment.
The Gestation of a Self-Taught Investor
My investor side had a very long gestation. After being conceived in the middle 80´s, it was almost born in the end of the 90´s, when I started working and saving some money. At that time the home broker was a novelty. Internet bubble! In Brazil, Globo Cabos stock was skyrocketing because of the internet bubble! Yes, a cable TV stock skyrocketing because of the internet! Don’t you think it is incredible? And people still believe that the market is efficient…
That was the perfect moment to accelerate the gestation of my investor side. But, that embryo was a perfect idiot! And do you know what perfect idiots do? They follow tips of other perfect idiots! And they buy stock of Globo Cabos (ticker: PLIM4)! We can politely say that things went badly wrong. A catastrophe! I had simply followed what many beginners do: buy high and sell low.
In view of that trauma I decided that it was not the time to let my investor side come to the world. And I had a very expensive bill to pay: my master degree in the USA. No investment in stock for a long time.
Putting Things in Practice (and Studying)
The year was 2006 or 2007. Spartan life (living in a rented 40 m2 flat to save money) and some money in the bank. In Brazil and the rest of the world everything was going fine. It was too good to be true (and it wasn’t!). Once again, I thought that my investor side was able to be born. But I had second thoughts and decided that it was still too early. I hired someone else to invest in the stock market and I chose some famous Brazilian value investing funds (Fama and Orbe). I became a voracious reader of the newsletters of those funds. At that time the newsletters were excellent and very didactic, mainly the one written by Orbe. All about Benjamin Graham. I had never heard of him, but buying US$1.00 for US$0.50 made a lot of sense, don’t you think? But, you know, lawyers don’t know mathematics! Thus, I kept my voyeur position. But, being a voyeur is so boring! And the gestation of the self-taught investor accelerated.
Then 2008 came! And the world started to fall apart. No work to do at the firm. In moments like those it was good to be an associate at a rich law firm. The owners would keep paying the bills until the things got better. And I received an unexpected bonus, in the form of one of the most precious things in life: time! I had a lot of free time! My favorite sport became to see the developments of the crisis on TV and Internet. Did I decide to start investing in stocks? No! But I kept investing in the value investing funds that were melting like butter in a hot pan.
And another thing happened. The gestation of my investor side accelerated even further! But I still was an idiot. To deal with my limits I had to start studying. I bought several books mentioned in the newsletters I was reading. I decided to study financial mathematics, accounting and corporate finance. And I learned how to use the HP12C! Later, using the HP12C would make an Italian client of the firm nickname me Merlin, the Wizard.
After some study, I decided that it was time to start investing! It was around 2010. I bought my first stock, Eternit (ticker: ETER3), a producer of asbestos products! Did I know that? No! Ignorance is bliss! Anyway, I was no longer a voyeur, but a happy stock market investor!
I still did not have an investment philosophy at that time. But since I had just been born, I needed to do something. Thus, China became a source of inspiration. The reader may think that this inspiration has to do with the patience associated with the Chinese tradition. No, it was not the case. Maybe something even deeper, almost religious? No, still wrong.
So, what on Earth was the Chinese Philosophy? Simple: I copied. I didn’t know how to do anything original, so I decided to copy famous funds and investors! A kind of counterfeit investor. Well, when you are fake, you cannot be of any quality! Thus, I was a fake stock picker having very real poor results. It started to change with my quant approach, that I will discuss in the blog.
Taking Things More Seriously
I started taking things more seriously when I realized I could apply the Deep Value method in Brazil. Also, I learned that I could study variations of it and other investment methods, as well. This was a personal breakthrough. I hope to share with you my findings and contribute to reduce the bumps in the road of anyone interested in investing in stocks.
Value investing embodies a great quote of Arthur Schopenhauer: “So the problem is not so much to see what nobody has yet seen, as to think what nobody has yet thought concerning that which everybody sees.”