Diplomacia e Relações Internacionais

Querida: encolheram (eu encolhi) a minha fortuna: US 2 milhoes por hora...

Um analista de mercado, que me chama pelo meu primeiro nome, e que gostaria de me ter como seus clientes (eu não tenho milhões para investir, mas ele não sabe disso, por isso deixo que me envie suas propostas "atrativas"), me manda a "sua" (dele) história do nosso capitalista promíscuo.

Eu sempre acho que se aprende mais nas derrotas, nos fracassos, do que nos momentos de glória. Por isso, aí vai a história do nosso mais importante futuro-ex maior bilionário do mundo (uma categoria já muito frequentada, estamos esperando agora o primeiro trilionário...)

Paulo Roberto de Almeida

The Man Who Lost $2 Million an Hour!

By Evaldo Albuquerque, Editor of Pure Income

Dear Paulo Roberto,

Last year, he lost about $19.4 BILLION!

That’s more than $2 million per hour.
What a terrible year. And this year, it’s not getting any better.
So far he’s lost another $10.3 billion.
That’s a total loss of $29.7 billion in less than two years. But, according to Forbes, he’s still worth about $4.8 billion … so there’s no need to feel sorry for this “poor” guy.
He only has himself to blame. He’s the one who made such bad investment decisions.
And I’m about to tell you his story because the collapse of his empire can teach us a powerful investment lesson...

His name is Eike Batista.

I wouldn’t be surprised if you’ve never heard of the man. He’s not very popular here in the U.S. But in Brazil, where Batista and I were born, he’s a celebrity.

Last year, he made news around the globe when he said: “I will be the world’s richest man.” At that time, he was the world’s 7th richest man.
After losing a big chunk of his fortune last year, he’s now ranked No. 100.

Today, he’s not even one of the top three richest Brazilians. And if you invested in one of his companies, you’re probably hurting too. But there is an important lesson to be learned here. When it comes to investing, timing is everything. You must know the right moment to get in and out of certain sectors and asset classes.

Unfortunately, a lot of people still follow the flawed “buy and hold” approach and end up getting caught in disastrous losses, such as the ones experienced by Mr. Batista.

A PowerPoint Billionaire

Back in 2010, every investor in Brazil was talking about OGX, MMX, OSX, LLX and MPX. Those are the names of Batista’s companies.

They all had big rallies that year. For example, OGX, his oil company, rallied 750% from November 2008 to November 2010. Some analysts in Brazil were even calling that group of stocks “the Eike bubble.”

So, I decided to travel to Brazil to check what all the fuss was about. In the summer of 2010, I met with executives of each one of those companies.

We were all sitting at a big round table. During the meeting, the executives took turns giving PowerPoint presentations about each of their companies. Even though I had never invested a penny in his companies, I felt like I was a very important shareholder.

I was impressed by the quality of the presentations … but not by the numbers.

Immediately after I left the meeting, I turned to Justin Ford, a colleague who’d traveled with me, and said: “I don’t like any of those companies, but they do have a great PR team.”

Although Batista’s companies had all rallied hundreds of percentage points, they were not making any money. I felt his companies were nothing more than projects … promises that investors would get rich … castles made of paper.

Some savvy analyst in Brazil, who saw the writing on the wall, even came up with this joke: “Besides Bill Gates, who became a billionaire thanks to PowerPoint presentations?”

The chart below shows how his companies have performed in the past year or so. The best performing company, LLX, is down 73%. The worst performing, OGX, had dropped 90%. And the price of bonds from OGX suggests default is imminent.

Batista’s Wealth Has Evaporated in the Last Couple of Years

See larger image

Now We Know Who Was Swimming Naked

Warren Buffett once said: “When the tide goes out, you learn who's been swimming naked."

Commodities have been extremely weak for the past couple of years. This, in part, explains why Batista has lost so much money. All his companies were commodity-based businesses, including an oil driller, a mining company, an electricity producer and a port operator.

The "tide" in commodities is out. Batista had been swimming naked.

In fact, it seems the whole country of Brazil had been swimming naked. During the decade-long commodities boom, both Batista and the Brazilian economy grew wealthier.

Now Batista has lost billions. And growth has basically stagnated in Brazil.

That’s why I told you back in April to avoid Brazilian stocks. Since then, they’ve fallen another 20%.

In that same article, I also told you how inflation in Brazil was getting out of control. And that’s essentially what has triggered the recent street protests that made news last month.

So keep in mind that successful investing involves knowing when to avoid certain sectors and when to jump in. If you used the traditional “buy and hold” approach regarding Batista’s companies and the Brazilian commodities boom, you would have lost your shirt.

Right now, I would avoid any investments that are related to commodities. Of course, at some point this trend of weak commodities will change. But the key is to know when to jump back in.

I will be on the lookout for the most opportune moment to make this jump and will be letting you know when to do it.

Regards,

Evaldo Albuquerque
Editor, Pure Income

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Diplomacia e Relações Internacionais