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Good morning everyone, we're starting a bonus episode, a free episode of the Magic Formula, which is part of Tiouli's recommended portfolio. I'm very happy to be with you on this day, May 30th, 2023. I'm going to use a technique from a book I really like, called " What's the Approach to This Recommended Portfolio?" by Joe Grendant, a fund manager who was part of Gotham, and even played a character in the movie "The Big Score!" He wrote a book where he says that you can very simply and quickly create a portfolio that will beat the market in terms of profitability, and you can trust that.
So we adapted this methodology for Brazil. Normally, he does this with 20 or 30 stocks and renews this portfolio every three months. Here, we're going to create a portfolio where we'll only recommend 15 stocks. For those of you who are starting in the financial market and don't know what I'm talking about, good, you're a little lost.
I want you to know that we have three basic steps to start in the financial market. The first step is to open an account with... So, to get right to you, I'm going to recommend two brokerages that are very easy to use and also very inexpensive. We can start with Rico Investimentos. I don't have any agreements with any financial institution, so it doesn't matter to me whether you open an account with Rico or not.
That's why I'm going to bring up a second alternative, which is Genial Investimentos. By opening an account with one of these two brokerages, you'll have the possibility of being in the financial market, and for those who don't know what that means in practice, I consider being in the financial market to be a huge status symbol.
Many people you know don't have an account with a brokerage. The second step is to learn how to use the Home Broker. Okay, so I'm going to show you how we do this in practice. I just opened the app, the app of the brokerage I use. Right here you can buy and sell assets; it's very easy, it's like using Instagram.
But I want you to have total clarity about what you're doing here, so don't waste your opportunity to open one. Okay, so your account, while this matter is still fresh in your mind, is fine. Another thing I want to ask you is if you know what formula you're going to use, because stocks, real estate funds, options, fixed income funds—all these instruments, even gold, are instruments like yeast, flour, eggs, milk when making a cake.
When you're making a cake, you have various recipes; you can make a pie, you can make a chocolate cake, you can make a vanilla cake, you can make various different shapes that will bring higher returns in some, lower returns in others, higher risks in some, lower risks in others. So the Magic Formula shouldn't be 100% of your investment portfolio; it's a cake formula, and this cake is very profitable and very safe too.
So let's now move on to actually building this portfolio. It has a metric; it has a variation within itself between attractive prices and quality in these assets. Okay, so when you mix these two characteristics, when you mix these two characteristics within your Magic Formula, you will be able to make investments where you know what you're doing.
You know the step-by- step process that will build this story. So that's it. This will give you a very clear idea of what you're doing. Remember that the formula will be to you what the By Hold strategy is to other people, just as other strategies are to other people. So, the clearer you are about what you're doing, the stronger your conviction will be when you face a crisis.
And look, I don't want to hide from you that at some point we will have crises, even with this choice, even if it's profitable, even if it's a good portfolio, because the market is volatile, and if you don't know how to deal with this volatility, it doesn't matter if you have the best car in your hand; you won't be able to handle the ups and downs.
So you should put the formula in your portfolio within another mix, and what should this mix have, in my opinion? You have to have some fixed income in this portfolio. You'll have to have some CDB, or some SELIC Treasury bonds, or some IPCA Treasury bonds, LCI, LCA. We have several different fixed income options; we can even use LFS 11, which is an ETF that replicates the SELIC Treasury bonds for you, and you have some...
The main advantages are related to taxes; you'll have a straight line and a 15% tax rate. Okay, so let's open the data we're going to use so we can have clarity on what we're doing. Okay, so let's open our spreadsheet now. What will this spreadsheet show us? Here we'll have the company name, the class of the company ( whether it's common stock or preferred stock), the country where the company is headquartered, the type of asset (whether it's a stock, an ADR, or a fixed income), and the code to trade this asset.
Here we have a relationship between enterprise value and operating profit, which we can also call Elite, and we have a quality metric called ROIC. And here I have liquidity, that is, the ease with which I can convert money into assets and assets back into money. Okay, so I'm going to explain to you very quickly what enterprise value is, what Elite is, and what ROIC is.
Okay, so now that I've zoomed in a little more on your screen, I want you to understand that the EV there is enterprise value and is the value of the firm. A firm is composed of capital from... Okay, so the enterprise value, the firm's value (which are synonyms), refers to the market value of that company.
But the net debt it has... And then we're going to divide that by the operating profit. Remembering that a company, within the income statement (which is the profit and loss statement), is an accounting document that the company is obligated to disclose to its shareholders and publicly as well. It will have net revenue minus costs, which will be gross profit.
It will deduct expenses and will have an operating profit, which is the net profit. After that, it will have the financial result, taxes payable, and net profit. Why are we going to take the operating profit? Because the interpreter, it will be paying the shareholder's profit, but also the creditor's profit, which is interest.
So we're going to compare on this basis, that's why the operating profit is this basis. The net profit, which is the return on employed capital, will be related to all the capital the company has, all the accounting capital the company has. And then, in addition, the accounting capital will also be added, and we will have this as the denominator.
The numerator will be exactly the... Operating profit, so here we're going to talk about the relationship between operating profit and accounting, as well as market value. That's why these two comparisons will give us a mix of price and quality in this portfolio. And now I'm going to use exactly this metric that we're using here to play this game.
Okay, so once we have this data, this is the most difficult part, okay, this is very complicated because we have to get this data that is relatively reliable. And here I have the Chromatic database, which is a database that I pay over 50,000 reais per year to access, so we are clear that this data here is reliable for us.
And now I'm going to teach you how to work very quickly with this data. Okay, so we're going to do this here, we're going to take everyone who's here, I just want to have one column greater than zero and I want to have three columns. In other words, from this I will have the ease and speed to create this portfolio here, very quickly.
I started doing this at 11:08 in the morning. Okay, so we're doing this live class for those watching the recording. Okay, so I'm going to show you how long it will take us to make this selection. So the first thing we're doing here is excluding what's not useful. You can see there are more than 16,000 rows in this spreadsheet.
So we're going to select what's most selective, that is, only companies with positive operating profit. And if it's positive, what can I do now? I can also filter by country only, because I only want Brazilian companies. So if this equals BR, I want it to be a one, otherwise I want it to be zero. All these processes I'm doing in Excel, folks, are very easy to master, okay?
And I suggest you master them because an investor who knows how to use Excel will have a huge advantage over everyone else simply because they gain productivity. Okay, so from the moment you have productivity as an investor, you can see more opportunities. When you can see more opportunities, you find more opportunities, and by finding more opportunities, you can increase your potentially profitable operations.
Okay, also remember that an excess of alternatives can be... There's also a problem, so I want you to understand that from the moment you know what you want, that is, you have this magic formula that I'm bringing to you, it becomes much easier to make a decision. The next decision we want to make here is to accept assets that have at least one million reais in liquidity.
So now we have a total of 194 assets to choose from, and now we're going to do the relationship between the lowest liquidity and the lowest liquidity. In other words, we're going to actually apply the formula. Up to this point, we've only prepared the data. Let 's do the following: the lower the value, the easier it is to make a decision.
Look, we'll need to remove the companies that have duplicate shares so that we don't have to keep repeating our alternatives. So, let's always remove the lowest liquidity. Okay, let's double-check and remove these companies. Why don't we want these duplicate companies here? Because we have common shares, we have preferred shares, and this can cause us to end up having two companies, two shares of the same company, and this occupies space in the portfolio.
This will be proportional because we 'll have double exposure in one of these assets, okay? Nowadays, most companies have evolved in terms of governance. The companies with the highest level of governance on the Brazilian stock exchange are the companies in the Novo Mercado, and they only issue common shares.
So we're going to organize a column where we'll have the relationship in sequential order, okay? Now we're going to do the quality relationship, which is Royal. And then we'll have Magic Form 2023, okay? And we'll only sum the position of these companies here in the ranking. And then we'll compare the ranking of the top 15.
I just want you to wait a little bit here because I can't make recommendations on assets that I'm trading. Okay, so let me see here first if I'm trading any of these assets before I say their names. So number one is Bradesco, then Kepler Weber, then Petrobras, and Taurus Metalúrgica, simply because Metalúrgica is the holding company controlling Gerdau, so we would be in that situation.
...to double the exposure in some assets, Recôncavo positive, the alliance, Luz Corretora, Metal Leve and Celulose Irani, okay, the old enterprise ratio of this portfolio is at 3.7, we also have an average rock of 24 percent, and we're going to save this portfolio, let's put it here, 'Recommended Portfolio Free Magic Formula', and today's date is May 30th.
Why am I saving this spreadsheet? I'm going to send this spreadsheet to my students who are in the Start Millionaire mentorship program at Invest Club. Okay, so we have a simple portfolio here, 11 and 14. At the moment I'm doing this, it took me 6 minutes to execute this portfolio, and I'm going to hold it for a period, which will greatly optimize my work.
So, if you're just arriving at my channel, know that subscribing to my channel and liking this video is exactly what you need to do to start getting results in the financial market. Okay, because every Tuesday we do beginner content, not this content, at 8 pm. We're going to create Olivia's portfolio, which is content where I show how I would invest $50 weekly in my daughter's name.
And every Thursday we have our giant machine, which is super nutritious content for those who want to evolve in the world of finance and do it on their own. This is the movement I lead, the movement I believe is most important for people to be engaged in: the movement of investing on your own. Let's stop paying management fees to these fund managers because they don't deliver value in the end when the management fee is charged.
I'm talking about the average, of course there are exceptions, like my friend César Paiva from Real Inverter, which is the only fund I would actually put my money in. He's very competent. And much of what we do here is also what these large, profitable funds do. I'll leave it at that. Leave your like if you're watching this video until the end.
I ask that you go to my Stories or my Instagram and say "I saw the portfolio," write it to me in the Direct so I can boost my algorithm. But... I also knew you were following this content and that you liked it. Great, I'll leave it at that for now. Big kiss, and this is just the beginning.
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