Luiz Barsi’s office is not located in São Paulo’s Wall Street, Faria Lima Avenue, where most of Brazil’s investment banks and asset management companies are based. Instead, the investor, worth over R$4 billion, received Valor in the office of Boa Vista Investimentos in downtown São Paulo, a financial hub of decades ago.

In this austere environment, with several pictures and memories of the open outcry auction of the old exchange Bovespa, the first one to arrive is Mr. Barsi’s daughter, the entrepreneur Louise Barsi, who is flying solo in the financial education segment through a platform called Ações Garantem Futuro (AGF), or Stocks Guarantee the Future.

She summarized which are, according to their methodology, the best industries to invest in stocks. “There is this acronym BESST [in Portuguese]: banking, power, basic sanitation, insurance and telecommunications.”

Luiz Barsi, 83, is a historical advocate of investing in stocks of companies that pay good dividends with the goal of long-term gains. And the method pays off. The investor says he received R$300 million in proceeds in 2021 alone.

Today, the super-investor’s new bets are the power company Auren, the sugar-and-ethanol firm Cosan, Vibra Energia, owner of gas station network BR, and Banco Mercantil.

While most of these positions are in line with his classic strategy of seeking discounted stocks of companies that pay good dividends and have predictable revenues, the way of thinking has been partly updated. Auren stands out, for example, for focusing on renewable power. “Tesla sold over 350,000 cars in the United States in 2021, so there is a strong trend of fossil energy sources having less potential in the future.”

Controversially, he criticized the passionate recommendation that influencers on social media make of a dividend portfolio focused on real estate funds. “Real estate funds are a confidence game,” he said. Mr. Barsi also complained about speculators who sell shares short, and says he still believes in the recovery of reinsurer IRB Brasil – shares are down 90% since the peak, in January 2020.

His stock market recommendations and analyses often include criticisms, targeting bankers and something he calls an attempt to turn Brazil into a “nation of loan sharks.”

Read the interview below.

Valor: You began your career identifying the industries that had the best chance of enduring. At the time they were food, basic sanitation, power, mining and finance. Now, in 2023, if you were to redo this analysis, which sectors do you see as having the capacity to endure and grow?

Luiz Barsi: Not much has changed. Within those sectors, there are a lot of vital necessities, like food.

Louise Barsi: There is this acronym BESST [in Portuguese]: banking, power, basic sanitation, insurance and telecommunications. Those are the best industries to start filtering.

Luiz Barsi: I am buying today the shares of three companies: Auren [a result of the merger between the power assets of Votorantim and the parent company of Cesp], Cosan and Vibra Auren carries within itself an interesting component, which is to continue investing in a solar power mix. It already has a hydroelectric power mix and owns a large plant, Porto Primavera, which belonged to Cesp.

Valor: Is it important for you that it is a company that invests in solar power and other renewable sources?

Luiz Barsi: We are looking at what the world is looking at, which is clean power. We were recently in Miami and drove around several times in electric cars. There is a strong trend of fossil energy sources having less potential in the future.

Valor: Can you unveil something about your investment portfolio?

Luiz Barsi: I do not buy stocks to sell tomorrow. I have shares of Banco do Brasil I bought for R$0.60. I have shares of Klabin I bought for R$0.17. I have shares of Suzano I paid around R$2 or R$3 each. Unipar, which I bought for R$0.25 and is worth R$100. I also have some from [gun maker] Taurus. Besides this, I have Transmissão Paulista, Taesa and Cemig. So, these are securities that I am not going to sell, but that continue to distribute good profits.

Besides this, I have been buying a little bit of Banco Mercantil shares, for strategic reasons. I buy them at R$10 and they pay a higher dividend than Itaú, Itaúsa and Bradesco. But it is difficult to buy the shares. There is virtually no liquidity. When a seller shows up, you try to squeeze him down to his price.

Valor: What about you, Louise?

Louise Barsi: It depends, because as the market capitalization changes, your portfolio gains a different weight. Today, from some movements I made in the portfolio, I believe 30% is in insurance: BB Seguridade, Caixa and IRB Brasil. The second largest slice is in banks, and there is a part equally distributed in power and basic sanitation. In power, I have a good position in AES, Cosan and Eletrobras.

Luiz Barsi: I have a good position in Eletrobras as well, but I bought it for R$3.8 each, and today they are worth R$40.

Valor: Barsi, how do you see value investing today? Is there any difference with how it used to be? Because today, when we look at the U.S. stock markets, we see the Tesla phenomenon and more and more growth theses doing better than value theses. Do you think this scenario has really changed?

Luiz Barsi: You see, these are companies that we don’t buy. They have already reached a level that you can only convince an investor from a developed country to buy, not from a country like Brazil.

Of those who operate in the stock exchange in Brazil, there are probably not 1% of investors. Most want to buy and sell all the time. It is very interesting for the stock exchange to have speculators and not investors. The stock exchange wants brokerage fees, remuneration. Of course, it will not give preference to those who buy and hold.

Most people don’t talk about this, but it is important to talk about it. A country, when it chooses to have a stock market, and makes a place available to negotiate, it has to do so in a way that the values meet in a natural way, that there are no pressures for price formation. Here in Brazil, as in other countries, the stock exchange allows citizens to rent shares and sell them in the market. Thus, you create a selling pressure on certain stocks, and the price made is not natural, it is forged. It is a manipulated price.

Some companies have more than 13% of their shareholder base leased. We don’t have an investor structure capable of withstanding pressure of this nature. This causes that stock to assume a condition that is not the reality.

Valor: Is this the case with IRB?

Luiz Barsi: The Instituto Brasileiro de Resseguros [IRB] has a sector of activity similar to electric power. This company, which should be in a different situation than the one it face today, has two major shareholders, Itaú and Bradesco. So, they have the obligation to rebuild the company. You take out insurance with Bradesco or Itaú, and this insurance contract is not good. Why would Bradesco keep this contract and not pass it on to IRB?

IRB today is an institution you can trust. They are people that you believe would never do something like what was done before [the doctoring of results reported by Squadra in 2020]. That’s why we are fighting and discussing. I know IRB won’t be good for two days from now, but it will be good for a while from now.

Valor: A question for both of you. What do you think about cryptocurrencies?

Luiz Barsi: Cryptocurrency is a fantasy.

Louise Barsi: I’m a big believer in the technology behind it. As an investment, just like any other currency, we don’t put money on it.

Luiz Barsi: It is not good either as an investment or to hold on. In my interpretation.

Louise Barsi: Nothing against those who invest.

Luiz Barsi: Nothing against those who invest, but those who invest will lose. It is a matter of time.

Valor: And how do you see the elections this year? Between Luiz Inácio Lula da Silva and Jair Bolsonaro is there anyone who is better for the market?

Luiz Barsi: What is Lula’s level of education? He doesn’t even know. How well educated is Bolsonaro? He was a lawmaker for many years and is an expert in rachadinha [a kickback scheme where aides return part of their earnings, sometimes for no-show jobs]. If [former judge Sergio] Moro is a candidate I will vote for him. If he is not a candidate, I don’t want to repeat tragedies. I prefer not to vote.

Valor: What about a runoff between Lula and Bolsonaro?

Luiz Barsi: I won’t vote for either of them, neither in the first nor the second ballot. The vision that I have of the politician is the worst imaginable.

A citizen who worked a lot and does a lot is [former infrastructure minister] Tarcísio Freitas. I’m going to vote for him for governor [of São Paulo]. I see in him a person who wants to make the country grow.

Brazilians still need to learn how to vote. We have always been allowed to vote not for the best, but for the least-worst option. The problem is that this time there is not even a least-worst option in the presidential election.

Valor: How do you see Brazil in terms of its capacity to draw investment, considering that of the BRICS countries only Brazil and India are viable?

Luiz Barsi: The money that comes in here is speculative. The exchange rate has fallen now because many dollars have come to Brazil, but the guys are investing here to get interest rates at 12% a year.

Our government has an extremely compromised management capacity. Less than a year ago, our benchmark interest rate was less than 3% and today it is 12%, which generates opportunities for others and not for us.

Valor: You have always been a great defender of the thesis of investing in stocks to earn dividends and reinvest these dividends. But these big investment sites now look at this strategy more in terms of real estate funds than in terms of stocks. Do you think stocks are still better for building a dividend portfolio than real estate funds?

Luiz Barsi: Real estate funds are a confidence game. So are funds in general. Private pension is another one. Run away from funds. You make the fund owners rich. They charge you management fees, success fees, performance fees, and I don’t know anyone who has made money with funds besides bankers.

Valor: What tip would you give to investors who are just starting to invest?

Luiz Barsi: If they are going to buy stocks in the market now, the first thing is to define a focus, a guideline, and be aware that they will only make money in the medium and long term.

The other thing is to create criteria. My most important criterion is that of priority. If someone comes to me saying that he wants to sell me a Mercedes, I will say no, because it is not my priority. My priority is to grow my monthly income portfolio.

I go on exorcising everything that is not my priority. I don’t do anything on impulse. You don’t impose this rule to everything, but to superfluous things, yes.

Valor: You, when you started investing, realized that the INSS [National Institute of Social Security] was going to collapse and it was not a valid way to look at your income in the future.

Luiz Barsi: The state doesn’t have the competence to manage Social Security funds in order for it to be always positive. Brazilians prefer to continue to believe that someone like Lula is a great manager and that the INSS works. We have a shameful retirement burden. In the old days, the citizen retired as an executive and after ten years was destitute. Until today the Brazilian people have not looked at this.

Valor: Do you still don’t believe in Social Security despite the 2019 reform?

Luiz Barsi: This reform was a flight of fancy. It will make up for one or two years. Three or four years from now it will have to be done again. Thirty years ago, you went to Volkswagen, took a picture of the company and saw 15,000 employees working there. Today you have a thousand robots. Robots don’t contribute to the INSS.

Valor: How did you saved money for the first time, and how was the process of starting to save money after beginning to work as a shoeshine boy?

Luiz Barsi: That of being a shoeshine boy happened when I was a nobody, a kid with no culture. I couldn’t do anything else. But then I studied, got a job, and found out that this was not what I wanted. I started to invest in a way to take risks. I am not an economist who ran after the paycheck.

Valor: But how was it to invest in stocks for the first time?

Luiz Barsi: I thought: who has a decent and permanent monthly income? The business owner. Then I said: I want to be a business owner. But I didn’t have any money for that. The first thing I thought was that I wanted to be the owner of Banco do Brasil, but I will never own Banco do Brasil. Then I realized that I could become a small owner by buying shares.

If you buy stocks permanently, maybe you can get to a plausible situation of having a monthly income. How long does it take a guy to retire? 30 years? What if I buy 1,000 shares a month for 30 years? It was possible to do this in Cesp, for example, which paid two dividends a year, according to its bylaws, and had a priority minimum dividend for preferred shares, besides paying a bonus of 10% a year when it still had shares with a nominal value of R$1 in its bylaws. I thought, what if I buy 1,000 CESP shares a month for 30 years? I put it on paper and after I did that, I was convinced that anyone doing the same would be successful in terms of a monthly portfolio.

I called this work “Ações Garantem o Futuro” [“Stocks Guarantee the Future”]. If I did the same today, I would call it “Stocks Guarantee a Great Future.” I followed that work religiously.

Valor: What do you think will be your greatest legacy in the financial market?

Luiz Barsi: My greatest legacy will be to get people to invest in wealth generation and not to be loan sharks. Those who lend money are loan sharks. If they put money in a savings account, they are a loan shark.

Valor: What is your main objective or goal in the financial education work?

Louise Barsi: I think that a small seed was planted more recently with the interest rate at 2%, which made Brazilians awake to risk-taking. We have to demystify this concept that stocks are a very risky investment. It is only risky if you don’t know what you are doing. But it is possible to take risks in fixed income as well and lose money.

Luiz Barsi: Did you know that stocks are safer than fixed-income investments? In 1989, when [former President Fernando] Collor changed the currency structure, he took everything that was in fixed income, except stocks. If he had taken stocks, that would mean to nationalize all the companies in the country. So, stocks, in my modest interpretation, are safer than any fixed-income investment. I have been a fighter for an investment culture in this country.

Valor: And what are the main challenges in this goal?

Louise Barsi: You don’t create a culture overnight. I was in Israel for studies and it’s a country that has a very recent history, with an extremely hostile land for agriculture and surrounded by unfriendly neighbors, so necessity became the mother of invention there. The country has invested in military technology to defend itself from its neighbors. If they don’t have an arable land, they sought technology for desalination and irrigation. Thus, they became a startup nation.

In Brazil, it is difficult to make this revolution because you don’t need to develop the capital market. Here, with little effort a rentier can make money. You don’t have a combination of incentives that is pro capital market.

It is a very generational work. A generation previous to mine started to realize that they have to invest in the future, they can’t count on the INSS. We need these fruits to be passed on to the following generations. Many parents come to us asking for tips on how to make a pension portfolio for their children. It is important that parents pass this on to future generations.

It is a long-term job, but since we already invest in the long term, it is not a problem for me that my objectives are also for more distant horizons. And looking at the curve of new individual investors in the market, we can see that this advance of financial influencers has helped.

Luiz Barsi: It was higher than expected, because more and more people are coming up who say they started to trade in the short term and only lost. Maybe this can be an unpleasant experience, but it will teach you that in the market you will only win if you don’t consider yourself a minority shareholder. Consider yourself a small owner, because the minority shareholder can sell the shares, the small owner won’t sell, because the bigger owner won’t sell either.

In 1970-71 I thought I should be the owner of Banco do Brasil. Today I am not the owner, but I am the biggest individual shareholder. It was the criteria. This is the lesson I would like to leave.

Source: Valor International

https://valorinternational.globo.com