How One Fund Manager Is Taking Advantage Of Wartime Volatility
Will Hormuz open or not?
One of my favorite investors that I love reading and following, Harris Kupperman, has offered up his Q1 2026 investor letter this week, which is a great read.
Harris is the founder of Praetorian Capital, a hedge fund focused on using macro trends to guide stock selection.
Harris is one of my favorite follows and I find his opinions - especially on macro and commodities - to be extremely resourceful. I’m certain my readers will find the same. I was excited when he offered up his latest thoughts, published below.
Please be sure to read both my and Harris’ disclaimers, located at the bottom of this post.
During the spring and summer of 2025, I took an extended vacation to try and understand why our portfolio wasn’t performing in line with my expectations. Through that journey, I worked to crystalize a new economic model to explain the sluggish performance of our businesses, consummating in my new narrative of Economic Feudalism as the current global economic model.
Suddenly, with this theory in hand, I could understand why the global economy appeared mired in recession, and I could better understand the sorts of investments that would prosper in those economic conditions. Since my epiphany, I rebuilt our portfolio and the Fund’s performance has begun to track more in line with my expectations, including the current quarter which is something of a slump-buster if continued performance in April is any guide.
Normally, these letters are replete with economic views and forecasts, but currently, everything in global economics comes down to one question; will Hormuz open or not. I don’t feel particularly capable of answering that question any better than any other prognosticator. When you look at incentives, it’s in Iran’s interest to stall for time and do everything possible to run the clock, draw commodity inventories globally, and make things incredibly painful for everyone involved—with the goal of forestalling any future thoughts of regime change operations. For most everyone else involved, the goal is to open Hormuz before the world is crippled by a depression.
As you can imagine, the world cannot continue to draw petroleum inventories at the current pace before stuff breaks, and soon. It’s even worse when you look at other products like fertilizers where the world is dangerously close to missing the spring planting season.
What will happen?? Nobody knows and I admit to being unqualified to tell you—as the fog of war is thick. If anyone thinks that monitoring the various tweets, AI generated content, and high-level leaks will lead them to an answer, they’re also fooling themselves. It’s called a fog of war for a reason.
Fortunately, we were well positioned for Hormuz shutting even before the war started—as our portfolio is mostly long inflation beneficiaries, long volatility, long exchange trading volumes, and long disruption. We even got lucky to have a large exposure to refiners, which have dramatically over-earned since the war began. I think this portfolio continues to do well if Hormuz opens tomorrow, and could do even better if Hormuz never opens. We have trimmed some Event-Driven equity positions to generate a bit of dry powder in case anything crazy happens, and to take advantage of some war-time volatility, but overall, we’ve done very little in the core book since the war started.
That’s actually the point. While keenly focused on the left tail risk that could permanently impair our portfolio, I spend most of my time trying to understand where the puck is going twelve, eighteen, and twenty-four months out. Not what Trump tweets in the next fifteen minutes.
Our edge, such as it is, lives in looking through the noise. Through the retail crowd YOLO-ing 0DTE options. Through the pod-shops getting gamma-squeezed into quarterly prints. Through whatever narrative the correlation matrix has decided to obey this month. Our edge is in focusing on what we can actually quantify and predict.
Backing up a step, markets are always fixated on something. Twelve months ago, every correlation went to one around tariffs. Before that, it was regional banks choking on duration risk. Before that, the UK GILTs blew out, and before that, we all fixated on a land war in Ukraine. I am old enough to remember when the entire industry reorganized itself around the RORO market, “risk on, risk off”, an analytical framework so deep it could be reduced to two syllables. There is always a narrative-du-jour, and it always feels, in the moment, like the narrative is all that matters. Yet, it rarely is. It’s only what matters to the next few percentage change in prices.
Does anyone actually have edge in guessing the outcomes of these narratives?? You can game-theory it all you want. You can build decision trees. You can pay for “expert networks” staffed by people who used to work near the person who allegedly knows. However, most of these events are unknown-unknowns unless you are part of the inside grift. Even if you can guess correctly at this, your edge is going to be quite small over a huge sample set.
Trading these narratives is an educated guess. It is not edge. Everyone wants a hot take because hot takes are how you sound smart at dinner parties, and get Twitter follows. But at the end of the day, what we do is place probabilistic bets on asymmetric outcomes, looking many quarters out into the future.
Will Hormuz open this week?? Who knows??
Will Marex (MRX – USA) be a structural beneficiary of elevated commodity volatility and trading volumes as we move from a unipolar world, and into a multipolar one with increasing structural imbalances?? That is a bet I can actually underwrite.
Don’t get bogged down in the narrative-du-jour.
Climbing down from my soap box, let’s talk about Marex, which recently pre-announced blow-out results for the first quarter, and saw its shares appreciate by 38% from before the announcement until the shares peaked out 13 trading days later. As a guy who mostly invests in inflecting securities with un-capped upside, I’m always amazed at how a good earnings report can reset all of the valuation metrics. I originally expected Marex to earn around $4 to $5 a share in 2026 (up from $4.12 in 2025). Following a huge March for them, I now expect Marex to earn well in excess of $5 and more like $6 a share in 2027. Putting a 20 times earnings multiple on that (it’s a business that grew revenues 27% in 2025 with a 27.6% ROE), gets you to $120 a share for a fair value as we begin to approach next year, when compared to $44.58 at quarter end—which is quite the mismatch.
The reason that we focus on high-quality businesses with accelerating fundamentals, is that when you get it right, you REALLY get it right as all the metrics reset higher. Despite a large share price move since preannouncing first quarter results, the shares remain optically quite cheap with a single-digit forward multiple, and the fair value is likely to keep increasing as they continue to grow the business, with an added benefit from periods of elevated volatility and trading volumes.
I normally enter earnings season with a bit of trepidation as I fear the unknown unknowns. I have been wrong before, but this time, I have an anxious anticipation as many of our companies have readily observable indicators foreshadowing similar blow-out results when they report first quarter results over the coming weeks. While many of the shares have appreciated in anticipation of those earnings, it seems that in our increasingly quant, pod-shop, and momentum market, if a company beats earnings by a mile and then raises guidance materially, the stock goes up, especially if it’s trading at a single-digit earnings multiple on next year’s earnings.
As you can imagine, I’m excited to see if we can get some more price moves like Marex. We own a collection of good businesses that are obviously inflecting. I feel like we’re in the sweet spot for the first time in a while. Now comes the fun part…