One of my favorite investors that I love reading and following, Harris Kupperman, has offered up his latest thoughts on the market and his fund’s positioning in his investor letter, out last week.
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.
Please be sure to read both my and Harris’ disclaimers, located at the bottom of this post. The letter has been slightly edited for length and to focus on Harris’ take on markets.
Liberation Day
It’s easy to look back at a discrete event with hindsight and wonder how I could have better prepared the Fund. On the positive side, throughout 2024, we culled many of our smaller and less liquid positions. We even took selective bets against the market using puts, put spreads and even equities themselves on broad based ETFs and a handful of individual companies.
Finally, we exited most of our Chinese positions (with gains) in anticipation of the fireworks on April 2nd. On the negative side, the portfolio’s exposure was still far too elevated—though almost any exposure into a wild drawdown in markets, is too much exposure. In summary, Liberation Day was not kind to us, though it could have always been far worse. As of my writing to you on April 24, 2025, the Fund is down low single digits, net for 2025.
As a veteran investor, I’ve suffered through plenty of situations where the rules changed suddenly, and markets declined rapidly. When you invest with me, you’re effectively buying into my very expensive tuition. I’ve suffered through the 2000 tech crash, 9/11, the 2002 recession, the GFC, the Eurozone crisis, the Flash Crash, Volmageddon, 2018’s ‘long way from neutral’ crisis, COVID, 2022’s Tech Wreck, 2024’s JPY blow-out, and now Liberation Day.
These waterfall events tend to happen every year, or three, and I’m sure I am forgetting quite a few of them. I’ve found that they always follow a familiar pattern. Early on, I’m surprised by the event, and my portfolio moves rapidly against me. Having learned from experience, I know that the first leg down is scary and unpredictable, as it’s often unexpected. Sometimes, it ends after a few days. Other times, there is a re-test, or a continuation lower.
Three of these situations (9/11, GFC, COVID) led to severe market crashes. At the onset of one of these events, no one knows what will happen next. No matter how many hot takes you hear from supposed gurus, correlations usually go to one, and contagion/cross-asset spillover is difficult to predict.
At the core of my investing belief system, is a simple phrase, “making money is really quite easy, but holding onto it is really quite hard.” As soon as a strong sell-off starts, I’ve learned to take evasive action and de-gross the portfolio. I intuitively know that my sales will be sloppy, and I may regret them almost immediately, but I also know that the guy who is out the door first, is the guy who can then play the best offense on the way back up.
To start with, I liquidate the Event-Driven book, even if it means realizing losses. I often then cut everything else, either by cutting individual names, cutting exposure across the board, or some combination of the two. The goal is to take exposure down dramatically. If this is going to be a deep market crash, I’m going to want capital at the end of the process, and if it isn’t a crash, losing a few hundred basis points to prepare myself, is money well spent, as no one knows what will happen next. I’ll admit, I was a bit sloppier than I wished in this de-grossing, but it’s never going to be graceful. The goal is simply to get less exposure, so I can play offense on the way back up—whenever that is.
As I contemplate the nature of Liberation Day, I grow increasingly worried that this is a ‘Big One’ as opposed to a ‘few day wonder’ in the context of markets. The Flash Crash was over and done with quickly, but Liberation Day will fester for years to come. As I was already bearish on the US economy going into this event, I believe it will simply serve to compound and accelerate many existing trends in motion.
In particular, I think this will speed the almost inevitable credit event in the US Treasury market that will spill into private credit, corporate refinancings, and private equity. Fortunately, we came into Liberation Day with some downside protection, that we booked for a nice gain, offsetting some of the slippage from our de-grossing.