Summary

Lucas Bielawski and Bruno Levacov co-founded Atmos Capital in October 2009 as an investment-fund – not an asset management company – seeking to maximize long-term returns for investors. Our company has a research-driven, value-oriented approach to investing and focuses on a long-only strategy in the Brazilian stock market.

Investment Philosophy

Our work consists in: i) performing detailed due-diligence of companies in an attempt to find distortions between their fair value and the prices at which they trade; ii) focusing on capital preservation through a constant evaluation of the risk/return equation of investments to ensure there is an adequate “margin of safety”; and iii) fostering a partnership with an ownership-mentality work environment that rewards intellectual honesty and prevents potential biases.

Detailed Due Diligence

• Continuous Analysis: A thorough and scrupulous study of companies with a focus in understanding the non-quantitative aspects of the business such as culture and people.
• Extensive Network: We leverage a vast network of relationships, developed over many years of hands-on/first – hand experience in the Brazilian market, to access key stakeholders of researched companies.
• Multiple Sources of Information: Having a plethora of sources is vital as equity-based incentives and the increased utilization of stocks as an M&A tool have augmented the bias of “positive” information from officers.
• Local Experience: Essential to be aware of local business intricacies, such as the reputation of businessmen and the very particular regulatory and tax regimens of different industries.
• Research Global Companies: Researching global companies’ expansion into Brazil and M&A in the region is key to understanding the effect on local companies. Additionally it can provide insights – “cheap crystal ball” – on how the competitive landscape may evolve.

Capital Preservation

• In order to maximize the compounding of returns through time it is paramount to minimize the possibility of incurring a permanent loss of capital. The focus should not be in achieving many home runs, but rather committing few mistakes.
• A large drawdown affects expected long-term returns not only due to the losses incurred, but also because it increases the odds of misallocating capital during the period of psychological-stress following the loss.
• We hold cash whenever there is a lack of opportunities for good returns with a high margin of safety – we view cash as an option to allocate capital at better rates of return in the future.
• Our focus in avoiding significant losses is enhanced through the practice of continuously rebalancing the fund’s positions in order to mitigate unwanted concentrations that would otherwise occur naturally due to price-appreciation.
• Portfolio’s core consists of companies that are stable, generate operational free cash flow, and are managed to generate value for all shareholders. We also invest opportunistically in peripheral positions with interesting medium-term risk/return profiles, but larger potential downsides, and adjust the portfolio’s risk by the smaller sizing of such positions and the amount of cash held.

Partnership’s Structure

• Ownership culture is fundamental to retain talent and for the compounding of knowledge through time. Atmos has had zero turnover since the fund’s inception.
• All partners have substantial “skin in the game” in terms of proprietary capital invested in the fund, thus guaranteeing that the structure remains aligned over time, and agents remain committed to the sole purpose of maximizing returns on the clients’ capital rather than obtaining short-term bonuses.
• We hold cash whenever there is a lack of opportunities for good returns with a high margin of safety – we view cash as an option to allocate capital at better rates of return in the future.
• The fund is organized as a hierarchically horizontal structure in order to foster intellectual honesty to admit mistakes and allow for a meritocracy of ideas.  We are aware of our limitations and biases and believe the best precaution is to allow for a transparent decision-making environment.
• To keep analysts attached to fundamentals and as devoid as possible from passing emotional judgment, compensation is based on investment-process instead of performance, thus enabling mistakes to be recognized and understood as a learning tool as well as a fundamental part of the job.