Luiz Barsi's method, the largest individual investor in Brazil, consists of purchasing stocks of perennial and cash-generating companies when they are cheap. The formula defines the Price Ceiling as the average annual dividend divided by a minimum required yield of 6%.
| Period | Dividend per Share | Individual Price Ceiling (6% Yield) |
|---|
Luiz Barsi Filho is known as the largest individual investor in the Brazilian stock market. He developed the so-called "Pension Portfolio", focusing on accumulating stocks of perennial sectors that pay consistent dividends, reinvesting all dividends to generate exponential compound interest.
Barsi's Price Ceiling formula is based on the simplified Dividend Discount Model. It assumes that the investor is looking for a minimum real return on dividends of 6.00% per year. The mathematical equation is:
Price Ceiling = Average Dividend / 0.06
Where Average Dividend represents the average of dividends and JCP distributed per share in the last few years. If the current market price of the stock is lower than the Price Ceiling, it presents a positive margin of safety, indicating that the expected net return on dividends is higher than 6% per year.
Barsi summarizes the sectors he considers safe through the acronym BESST: Banks, Electricity, Sanitation, Security, and Telecommunications. These are essential public utility companies with stable, predictable income, often indexed to inflation, which allows for constant dividend payments.
A company's dividend payment can fluctuate from one year to another due to non-recurring profits, subsidiary sales, or economic cycles. By using the average of the last 3 years, we mitigate these distortions and obtain a more conservative and sustainable average dividend for financial projections.