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Hey everyone, how are you all doing? Welcome to the Financier channel! For those of you who are here for the first time, we talk about financial education and investments, and today I want to start a series with you about the book "The Most Important Thing for the Investor" by Howard Marx. This book greatly influenced my way of thinking about investments, and I believe it will also make a difference in your life.
Ideally, you should buy the book and read it, but if you can't do that right now, that's okay, no problem. That's why I'm here to give you a kind of summary of this book or discuss some important topics it covers. " The Most Important Thing for the Investor" by Howard Marx – who is Howard Marx? Howard Marx is an American who graduated from Wharton School in Pennsylvania, and he's known for having a counter-market mindset.
He does n't follow the crowd; he calls it second-level thinking. What does that mean? You know when everyone's going somewhere saying, "Look, let's invest here, it'll be good!" Well, he thinks, "No, if everyone's going to that place..." It's not so good anymore, anyway, I'm going to delve deeper into this type of thinking of his, which is one of the themes he mentions: second-level thinking.
But basically, he became known as ISO, and he's the co-founder of O'Capital, a giant American investment management firm that has an annualized return of 9.53% per year. That's very good for the American market, and he's always going against the market trend, investing in more alternative assets. So let's look at this book a little bit.
I'm not going to talk about everything in one video so it doesn't get too long; I'll divide it into a few series, maybe three or four. Let's see how it goes, but let's start looking at this book. So, he's going to talk about what's most important for the investor. This is a very intriguing question, isn't it?
What should a person know about investments? What would be most interesting? And he's going to say a series of things that are important, but from what I understand in the book, he says that risk is the most important issue. How will the investor analyze risk? But to get to that point, he talks about a series of things.
And the first point I want to mention here is second-level thinking. For him, investing is like an art form. How can I think about it? Imagine football. In football, you have various football schools, right? Well, there the student will learn what to do: pass, shoot, goalkeepers will learn goalkeeper jumps, defensive techniques.
But in the end, you can't mass-produce Ronaldinho Gaúcho, Ronaldo Fenômeno, Neymar, and other great football players. You can't reproduce them in series because there's a certain talent, a certain art in football that can't be replicated by everyone, just like in all arts. You can train hard for years and you probably won't be Leonardo da Vinci.
But in investments, he says that of course you can learn about investments and that there's a basic level. For example, you can try to stay in line with the market. What would that be? Imagine you want to invest in the Brazilian stock market, and you don't necessarily need to want to outperform it. In other words, if the stock market's performance—let's just talk about numbers so you understand—these aren't the exact numbers, but to make it clearer...
Easy to understand: Imagine that the Brazilian stock market yields 10% every year. So, if you want to track the stock market's performance, you'll invest in the index, and you'll always get the same return, 10%. But let's say you want more, you don't want to stay with the market. So you'll look for other investments within that same mix of stocks to get a return above that 10%.
Obviously, when you do this, you run more risk. You might get a higher return, but you could also get a worse return because, if you analyze most equity investment funds, they can't outperform their benchmark. What is a benchmark? A benchmark is a reference point. So, what is the reference point today, for example, for Brazilian stocks?
The Ibovespa, right? It's the Brazilian stock market index, which has a certain number of stocks according to their specific weights, and that's the index that equity funds seek to outperform. Or even you, as an investor—the average investor, or rather, the professional investor, which are the investment funds for the most part— can't outperform the Ibovespa mark for very long; they might outperform it by 1, 2, or 3 percent.
Years, but 20, 30, 60 years, right? Because it's difficult to measure 60 years of an investment fund, but even for a professional it's difficult. So how could the average investor do that? It's not easy, right? That's why he talks about this second- level thinking, going against the market, because if you go in the direction of everything the market is doing, you'll have the same performance as the market.
If everyone says, "Okay, let's invest in Petrobras," for example, then you'll have the same return as everyone else, and you'll be the same as the market. So this second-level thinking is very difficult to have, but if you want to outperform the market, you'll have to have it. Now we go to the second point, okay?
So it's just that if I go against the market, I'll have this result, because it would be very easy, right? If everyone said, "Oh, let's invest in Americanas shares, right?" which caused this problem, but anyway, then you say, "Oh, okay, I'm not going to invest in Americanas just because everyone else is, you're not going to, no, it's not like that." And he likes to mention here, as another more important thing...
The investor's question is about value, and what is value? Value, in the R-Max concept and other concepts, is different from price. Price is what is being charged for something at the moment, but what is the real value of that thing? Imagine a car brand you don't like, and you're being charged, say, 80,000 for the Mob.
You think, "Wow, the price of the Mob is 80,000, but is it really worth that much?" So what's the point here? If value is different from price, I can't be guided solely by the price of the stocks. And then he makes a kind of counterpoint to day trading and technical analysis. Basically, technical analysis is projecting the price of a stock based on its past results.
It's like this, putting it very simply: "Look, a stock X is falling, it's falling, so based on the analysis of this chart, it will continue to fall, so I'm going to make a market operation that I profit from the fall of this stock." Analyzing only the price is not adequate; you have to analyze the value.
How much is that asset, that stock, really worth? How much is it really worth? And of course, he won't explain the techniques in the book. He's the one who does this valuation of how much it's worth, right? But he says that this analysis is the most important part of looking at an asset, and when he talks about assets, it could be a stock, it could be a bond, for example.
When he talks about bonds, it's fixed income. So how do I analyze it? And there's another point besides the value, because you have the value now and the value in the future. So you can imagine that there are people who make a type of investment based on growth stocks. That is, I see a stock today, let's say a new airline company emerges in Brazil, VOA Brasil, right?
And then VOA Brasil goes public on the stock exchange, and I look and say, "Well, based on what it has today, in 5 years it will be worth twice what it's worth today." So I can even pay a higher price for it than it's worth today, but it's because I know that in so many years it will give me that return.
So you project the growth of a company. He also doesn't like this because he'll say, "Well, who can guarantee that in the future this company will be worth that much?" So he dismisses this issue of investing in... So, regarding growth, he'll go back to the question of value—what is the intrinsic value of this?
Because, let's say, his idea is to look for assets that are undervalued, or rather, undervalued. Undervalued means the price being charged for it is actually lower than its value. For example, let's say you want to buy a house and you find one in a very, very complicated neighborhood, right? And a house that was built there, I don't know, cost R$500,000, is now worth R$300,000.
And you say, "Well, this house is worth more than what they're charging for it," so he simply looks for assets in this sense because he believes, "This has value," but the key point is that he knows the market doesn't always see this, and he anticipates the market. In other words, he sees this undervaluation and invests there at the right time, when the market sees the real value of that asset.
Imagine, nobody has looked at this house; it's worth R$ 300,000, but... The fact is, it's worth its cost, which would be half a million, 500,000. When everyone realizes this, everyone will want to pay 500,000. And that's when he'll make his profit. The opposite is when you invest looking for overvalued assets.
Imagine everyone is buying a certain house in a subdivision, and you know that house is worth 300,000, but they're charging 400,000. You buy it for 400,000 because you know it will appreciate even more in the future, and people will pay 500,000. But you're taking a bigger risk because you 're paying more than it's worth, and if people don't see that, you'll probably have a loss.
If you buy and sell houses, then he seeks this intrinsic value as the greatest measure of security. Because the cheaper you buy something, the lower the risk. Imagine the cheaper you buy a car, the lower the chance of your loss because if the car has a problem, you paid less for it. This book is about assets, of course, but he doesn't advocate buying just because something is cheap; you have to see value in it.
He has his own methodologies for quantifying that value. So, for today, folks, let's stop here. But there are still other aspects of investing that he will cover. This book is very rich and offers many insights. So, if you're wanting to invest in the stock market and things like that, and want to get an idea of how to start, how to form your mindset, this book is ideal because, when we talk about investing, your mindset will greatly define your success or failure.
It's no use wanting to know, "Oh, what's the best stock?" The question isn't about knowing which is the best stock, what is the best thing, but about having the right mindset, which is something he will defend here and which is also one of the most difficult things there is. So, thank you for watching until the end. Until next time, may God be with you, and stay tuned for the next videos.
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