Full Transcript: Harris Kupperman on Inflection Investing in a Volatile World

Finding Edge in Unexpected Areas

Matt: You are watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I’m Matt Ziegler, and with me here today, Praetorian Capital’s own Harris Kupperman — Kuppy himself — finally getting you on the show. How you doing today, man?

Kuppy: Hey, happy to be here. It’s been a long time.

Matt: Alright, so let’s dive into this idea of inflections, inflection points. What does the word even mean to you?

Kuppy: So I like to say I’m an inflection investor because I can’t figure out any other way to explain what I do. I look at sectors, companies that have been left for dead, that have caused immense PTSD to portfolio managers — that have angst and hate.

And I try to figure out why they’re gonna get better. It’s a top-down strategy and I call it an inflection. I found Wall Street’s really good at taking a company that grows 15 or 20% a year. They drag and drop on an Excel spreadsheet and they discount that back and they argue about what the right multiple is based on 2030 earnings.

And that’s not my game. I don’t have any special edge in that. There are people who are really good at it, but not me. I try to figure out where Wall Street’s just totally missing the ball, where you could buy something really cheap. I’m a value investor. I can buy things for way less than replacement cost. I can buy them at a very low earnings, cash flow multiple. I can buy them at a place where it’s unlikely I’m gonna lose much money. And if it plays out like I think it will, I’m gonna make at least three times my money, but more like five, ten times — and it’s an inflection.

Wall Street can’t see what’s about to happen to this industry because it hasn’t happened in 20 years. And Wall Street has like a two-year memory about everything, and there’s been so many false starts that Wall Street just assumes it’s another false start. So you can actually see something evolving, you can see it working, and the stock’s up 20% or something, and you think it’s gonna go a lot further.

And that’s inflection investing. I try to catch that inflection. It’s mostly top down. There’s some bottom-up tied to, you know, corporate events — new CEO, things like that. But it’s mostly top down.

Matt: Alright, let’s parse those two. Let’s parse top down versus bottom up. Explain how you think about those in terms of inflection.

Kuppy: Well, I’m a macro guy. I think macro is super interesting. It’s what drives things — the bottlenecks, the cycles. I just try to figure out who’s gonna earn excess returns because of something that happened. Remember, politicians are very dumb, but they’re really smart at one thing and that’s getting reelected.

But they have two-year cycles or three-year cycles or four-year cycles, and I have a lifetime at this. And so my cycle doesn’t line up with their cycle. And there’s a cause and effect to a lot of decisions they make, and they make decisions based on getting reelected. And as a result, there’s winners and losers.

And it’s pretty easy early in the process — politician says something, who’s the winner, who’s the loser, what happens? And there’s usually a lag, and then you make a lot of money. It’s one of the easier things to do. My buddies — the analysts, some of the guys who work at the fund — we sit around every Wednesday, drink a lot of beer, and we just say, what’s happened this week? Who’s gonna win? Who’s gonna lose around the world? And a lot of it’s tied to politics. It’s elections.

I mean, look, if you have a guy who’s anti-business and, you know, like Argentina, and suddenly they bring in a guy like Milei, well things are gonna get incrementally better. Is there a trade? These are the sort of things we do all day, every day. And it usually leads to a lot of money. Although, you have to be patient and you have to figure out what ticker to buy once you’ve identified what the trade is. But that’s a lot of what we do. It’s sort of simplistic in a way. I’m surprised more people don’t do it.

Matt: So we’re talking about this in the middle of a war. There’s a war on — this is March 24th, 2026, when we’re having this conversation. Walk me through — I’m not necessarily digging for a ticker or an idea, but just give me an idea. Something in the last couple of years, even with the top-down framework of thing happens in the world, you ask who’s gonna win, who’s gonna lose, and then how it gets expressed. Just walk me through the process.

Kuppy: So let’s keep talking about Argentina, actually, because let’s pick on —

Matt: Argentina. I love —

Kuppy: this. I was picking at that scab. Look, we thought Milei had a good chance in the elections. We bought a basket — this is a couple years back, before he became president. We bought a good basket of Argentine stocks. They went up a bunch in the elections. He won. He didn’t win by as much as I thought he’d win. I didn’t think he’d have a governing mandate. And so we sold them all. We kind of got break even.

And then he was able to execute way better than we actually thought he was going to be able to execute. And he won reelection — well, his party did — and he actually gained a lot more seats, which gives him more legroom to operate now. And we started looking at Argentina again saying, look, all the US ticker symbols are up a bunch. Things on the ground there still aren’t that great, but I see line of sight to them getting better.

But how do we play Argentina where you’re somewhat insulated and protected? Because downside is obviously the number one thing I care about. And so you start thinking about ways you can invest in Argentina where, if the elections go bad — and they do this every two years — you don’t get hurt too bad, and you might make a lot of money if things go well.

And I came across the Argentine stock exchange. It trades at six times earnings. It’s suffered through multiple currencies, multiple governments. They’ve tried to kill this thing — they tried to kill the entire economy there — but it’s just kind of stumbled forward. And so we bought the Argentine stock exchange.

I mean, if you think about a country ETF versus the stock exchange, usually the stock exchange does better than the country ETF when you’re betting on a country. And I guess if you live on the ground there and you really know what you’re doing, you could probably choose the components of the ETF and do better. But history’s on my side that you just buy the stock exchange.

And oddly, the stock exchange isn’t up much. It’s actually the same price — because they’ve devalued their currency so much — as when Milei first won, in US dollars. So it’s gotten nowhere, whereas a lot of Argentine assets are up a lot.

It’s the same price, except trading volumes are up a bunch. The earnings are up. A stock exchange is really just trading volume — that’s how they earn their money. And Milei has been pretty clear that eventually they’re going to allow FDI in. I mean, they want FDI, but there’s exchange controls. It’s messy. Who wants to invest in Argentina? But you’re starting to see some big projects get announced, incrementally more capital’s coming in that’s gonna balance a bunch of their imbalances. They’re gonna slowly widen the band of capital that can come out. People are gonna feel more comfortable. It hopefully is a reflexive process. And eventually people are going to wanna buy Argentine stocks — not the handful of big ones listed in the US, but all the other ones.

And Milei has been very clear that he wants to do privatizations, so that he can cement his legacy, so that if he comes out of power — and he one day will — the next guys, you know, don’t just go back to radical socialism. So he wants to privatize a bunch of stuff. And if you have more QIPs to trade, well, that’s just more trading volume, more revenue, more profits. There’s a ton of things in Argentina that probably should IPO, you know, because they need outside capital, and that’s the best way to grow your business and get capital.

I think if Milei is given a few more years of runway here, I think you’ll have a dynamic, functioning stock exchange in Argentina that’s liquid. And this thing won’t trade at six times earnings. Global stock exchanges are 20 to 40 times earnings. But I think you also see a lot more trading volume, a lot more things to trade. I think you can have the earnings go up — I don’t know — three, five, ten times, and the multiple goes up like three to five times, and you put that together and you can make a whole lot of money.

And you have an entry point at six times earnings. I mean, it’s kind of traded around this valuation for a very long time, even when the opposition was in power. Look, there are a million ways to lose money in Argentina, as a hundred years of history has proven. But I think it’s the sort of setup that if you do this a bunch of times over the course of an investing career, you’re gonna make a lot of money on average — you know, in the aggregate — even with some losses along the way.

And so that’s kind of how we frame things. That’s how we start. That’s how we do inflection investing. I think the earnings of the Argentine stock exchange will inflect higher — they already have over the last couple of years. And I think there’s a lot of headroom there to really inflect higher, and no one’s paying attention to it. I don’t think anyone’s ever come on your show and talked about the Bolsa y Mercados Argentinos. But it’s there and we own a bunch of it.

Matt: We love talking about a semi-obscure international market whenever we can. It’s a good time.

Kuppy: It’s a great story. I mean, look, they have a ton of commodities. You’re talking about the war — energy’s up, well, they’re long tons of energy. They’re in the final stages of getting it to the ocean so that they can actually export and earn dollars, which would be great for them. They’re long a ton of agriculture, and agriculture’s gonna do great if Hormuz stays shut. Fertilizer prices go up. They’re long the two trends that are working right now. I mean, that’s just dumb luck. You know, sometimes you get unlucky, sometimes you get lucky. It sort of balances out on average.

But the difference is that when you’re dealing with stocks and you’re unlucky, you lose 20% — usually around 20%. But when you’re lucky, because you have huge operating leverage, you make a couple hundred percent. The odds are in your favor if you’re gonna be unlucky and lucky about evenly. And here, look, we got lucky. They’re long the sort of commodities the world wants, and I think it’s gonna work out good for them.

Matt: How do you think about time horizon, or having a trade like this in place? Is it just the monitoring of the situation for those potential inflection points, or is there an amount of time where you wanna see something working or not working?

Kuppy: I mean, ideally we’re gonna own it for a long time. We run a decent-sized fund here, a couple hundred million. Liquidity has a cost. We don’t want to just be jumping in and out.

If you look at the stock market from a holistic standpoint, you have a lot of these guys where the trade you see on your screen — it’s retail guys in and out, in and out — it’s these pod shop guys and they’re looking at credit card data and satellite data. I mean, they’re basically playing against other pod shop guys at a different firm and they’re trying to basically guess what is gonna happen tomorrow based on the credit card data yesterday. Like, that’s not my game. I have no edge there. I’m not spending hundreds of millions of dollars on alt data. And it doesn’t seem like the guys who are spending that money are making much money either.

But that’s what the moving around is. And they’re like, oh, they’re gonna miss by a penny this quarter, we gotta sell it and then we’ll buy it back next quarter. And look, Argentina will have good and bad data points over the course of my ownership period. Hopefully there’s more good ones than bad ones. We can’t trade in and out of it. In the case of Argentina, there are exchange controls. So we can sell our position, but we can’t even get all the money out immediately. There are daily limits — we’d be able to get it out over a couple of weeks, but it’s kind of annoying.

And so on one side, you size it appropriately for those sorts of risks, but at the same time, I just take a longer-term view. I find that when I was younger I was trying to look at charts and be, oh, if the stock’s at 50 and it goes to 49, then it stops at — you buy it back at 40. I don’t think you make any money doing that. I think you just go along and you say, where do you think Argentina is? And you kind of read the news once a week, and if Milei’s approval rating starts rolling over, then you get out. But until then, that’ll already be in the price. So it’s not like we’re gonna, you know, do anything great and smart. The stock price will literally trade with his approval rating.

For the most part, you’re looking at something at six times earnings and a currency that’s kind of make-believe, that’s volatile. I don’t think I’m gonna lose much money in dollar terms, and I think there’s a chance I can make a lot of money, and I’m just gonna let it ride.

And you look at a lot of the things that we trade — the question always is, has the thesis changed? Has it broken? A lot of times when we do inflection investing, we exit something. And it’s not that the thesis broke, it’s that we thought we had a Category 5 tailwind — you know, just huge 200-mile-an-hour winds — and it turns out it’s just a little breezy, you know? He’s working, the earnings are going up, things are getting incrementally better, but there’s not enough of a tailwind that anyone’s gonna care about it. And we just recycle our capital. I mean, I work my money really, really hard. That’s how you get the returns we’ve had. And if my idea isn’t really working, it’s not really chugging along, there’s gonna be something better that pops up and we’re gonna need the capital for something.

A lot of times what happens is we have a really great idea and we say, I gotta free up a thousand basis points. You can either go on margin, which is really a bridge to freeing up capital, or you free up the capital and something has to be sacrificed. You throw a virgin into the volcano, so to speak, and that’s usually how we end up getting an exit. You look at all your favorite positions on your portfolio, it’s like, which one’s getting a little old and fat?

Matt: Having my TV just trolled me by playing Joe Versus the Volcano the other day, and I’ve been thinking about these concepts a lot in life at lots of levels. I didn’t complain about it, but I did think about it a lot inside — because this is interesting to me too. This is a personal disposition reflected as your own discipline on how you’re treating this thing, which is: you see a new idea or something comes into the level of attraction that you wanna have in the portfolio, and the reality is you’re either gonna have to sell something or go on margin. How do you work through that decision? How much conviction needs to be there in canning an old idea versus putting something new in versus just stacking all these things up on margin?

Kuppy: I wish there was a better process to this. A lot of times, the first thing is — with inflection investing, a lot of times it comes really fast. Something happens, it’s obvious. We are not buying bottoms. We’re not averaging into things. We’re usually buying once it’s already in motion. Someone else has figured out what I figured out and it’s starting to go up and I’m fighting them for shares. We’re usually needing a good-sized position. And so it’s gonna sometimes take us a couple hours, sometimes a couple weeks to buy. We just start buying — you know, I tell my broker, look, I want blocks, I’m gonna be 10% of the volume, we need to get $20 million of this. Let’s go.

And so you’re putting it on margin at first because you’re getting the stock done, and usually pretty soon something shakes loose as an exit. Or you force an exit somewhere. If we have to go on margin, we can. We target kind of 115 to 125. Right now we’re a little below that because there’s a war going on, but, you know, we have some room. I assume through this war, something will shake loose and we’ll get to either some new trend popping up, or some stock I’ve always wanted to own will drop 30% and I’ll get to buy it at a good price.

We always have a shopping list of things we want to own. And yeah, you’d probably go on margin first and then eventually something comes out. And like I said, it’s never like this headline where you’re like, oh, wow, we’ve got the thesis wrong — that happens sometimes, but it’s not usually that. It’s usually, man, I thought that quarter was gonna be 20% revenue growth — they did six. What’s going on here? It’s the second quarter in a row. Let’s go talk to, you know, the people who know this industry.

I’m lucky — we have almost 200 LPs. A lot of hedge funds have a bunch of institutional investors. We have a couple of those and we love all our investors, but the institutional guys are looking at institutional stuff. We mostly have guys that have been in industry, still in industry, or just recently retired — that’s how they sold their business, that’s how they, you know, get money to invest with us. And you just reach out to them: what’s happening in this industry, you know? You guys are so optimistic — what’s changed? Can you introduce me to your sales guy? What’s he seeing? We can figure out pretty fast what’s changed, why it’s not working. Has the thesis changed, or has it just been postponed?

A lot of times the Wall Street world loves to live on Excel spreadsheets and it’s very linear — and that’s not how the world works. Sometimes things just get postponed three months or six months. Something as stupid as: a company has a budget, they set the budget in December for the next year, it gets to October, they’re not ordering your product because they ran out of budget. It’s that simple. And the purchase order comes in January when the new budget starts. We don’t think in those terms — we think of it as very linear, like this grows 20% quarter over quarter, year over year. But it’s just lumpy, because these decisions are made somewhere else that makes logical sense. Or, you know, the government needs to buy something and they’re waiting on Congress to pass the appropriations. It’s always something like that. So before we just sell something — because there’s a slippage cost — we figure out what’s changed, why it’s changed, and then we make a decision: what’s going on here really? How confident are we? And then you gotta find the money somewhere. So eventually you gotta sell something.

Matt: What do you think about in the other direction — raising cash or building cash as a strategic position? How do you think about that?

Kuppy: Two or three times a year, something spooks me. I see the news and I’m like, I gotta de-gross. I’m running 125, which is pretty heavy. It’s kind of the top of where I want to be. We’re capped at 150 at the fund — that’s an internal rule we set. But 125 means that if you have a 20% drawdown, you’re starting to push up into your upper limits and you don’t wanna be the one who’s selling stuff down 20% to get your leverage down.

So when something happens, you’re like, nah, you gotta de-gross. You look at your entire portfolio and it’s like, what do I have the least conviction in? Like the day the war started — that Monday, the market was down like 1% or something — and this is something we always do. We talk across the fund and a bunch of us have been in markets for a very long time here.

We gotta make a thousand basis points free. What do we sell? You know, what do we have the least conviction in? What could be impacted if this war goes longer? And you just queue up some sales. We don’t smash the bid down 1% that day, but you just say, okay, we need to get some cash in the balance sheet, and you start making sales.

I always run the book with some things that are, you know, event-driven-ish. So that’s the first stuff you sell. Obviously we had some SPACs on the book — pre-deal SPACs. Those are free call options. So that’s 500 basis points. That’s easy. And then you start going through — where do we find 500 other basis points?

And I don’t know, it’s a process. I mean, you always want to be panicking first — you never wanna be the last guy panicking. And I’m never usually the first guy. I’m usually kind of the second or third panicker. But I’m good at panicking and just getting that liquidity. And I’ll admit, I’ve probably — well, I’ve dodged 10 of the last two disasters. But that gives you the strength.

When you think of when I’ve made the most money in my career — it was the bottom in 2002, the bottom in 2009, 2018 when things fell apart during Christmas, obviously COVID — at each of these events, I showed up to the event with too much liquidity, with too much on the book. I had to sell on the way down to make balance sheet room. Also, some things got paired along the way because the facts changed. And then on the way back up, I had all this room to pivot into the stuff that I thought was gonna work in this new environment we were in.

And if you look at my career, I’ve had really good years, some really terrible years, a lot of in between. But the overall CAGR of my career has been, I think, really outstanding. And that’s because I get these truncated two- or three-year periods where we make a couple hundred percent, and that balances everything else out.

And I want to have the balance sheet strength for that. Most of the time, things are more or less fairly valued. There are a lot of really smart people daily revaluing stuff, and you’re arguing about whether this thing is mispriced by 10, 20%? And there’s some, you know, corner cases — my inflection stuff that’s usually mispriced if you think it plays out. Some work, some don’t.

But when people are panicking and people are getting margin calls and bad things are happening, that’s when the real opportunity is. And you wanna be able to pivot into that. That’s where I think most money gets made. I’m always amazed at guys — look, the market’s at all-time highs right now, we have a war going on. If you’re running full exposure, I mean, that’s your way of saying, I think the economy’s awesome, I think the war’s gonna end yesterday. I don’t have that sort of certainty. I’d rather run a little lighter and have the flexibility to flex up.

Matt: Talk to me a little bit more about de-grossing. And I’m not saying there’s some systematic process for this, but the actual process — which I think is fantastic to actually say and admit out in public, because it’s important that people understand that this is part of it too. Just like all the stuff that happens in markets where somebody’s kid got sick and they missed soccer practice, so the rebalance didn’t happen, so the institutional fund flows didn’t come, and you’re trying to unpack where the dollar went that day. It’s like, no, no, no — weird stuff happens. This is how markets work. So when the war happens, what are the actual conversations like inside of the fund? How do you actually go like, alright, event-driven, you’re off for right now. Let’s just reassess from a new position. How’s that play out? Days, weeks, hours? Give me a view.

Kuppy: Oh, fast. Look, how the sausage gets made — you’re in the game of probabilities here. A lot of decisions are really great. A lot of decisions are terrible. There’s a lot in between. And over a long period of investing, you hope that you’re gonna have more good ones than bad ones. We’ve made a lot of terrible decisions that are rushed, but we’ve avoided a lot of mistakes also by making decisions.

Look, we were watching this war build up. We said, I think something’s gonna happen here. So we were already running a little lower gross. We were looking at what could be impaired. I had a view that the US was sort of in a recession — it was a global recession. We are not long a lot of GDP to begin with. We’re in things that we thought would do better in a world of a lot of volatility — even long volatility — like companies that are structurally benefited by high volatility.

And so we were already in the sort of things that would work well in the war. We’re just kind of lucky that it played out that way. But look, when that war started Monday — or you know, the weekend — we sat there and said, is anything impaired that we have in the book? And then you say, okay, gotta find a thousand basis points. Where? And then you say, what might drop a lot that we want to own? And you say, hey, this war just happened. Is there anything that on Monday we want to own? Of course, the thing we want to own, everyone else wants to own on Monday. But you look at it and you say, if it’s only up 10%, huh, maybe we should buy it.

But we’re not usually the sort of guys that are looking to trade things for a week or two to make an extra 10, 20% move on the stock. We’re trying to say, what’s dynamically changed in this business? Look, war is common. Has anything dynamically changed? I don’t really know.

And look, when you guys are listening to this, by the time you listen to this, the war might be over. Like look, we were really bullish on the UAE. A lot of people are moving there. I have this 0.1% refugee crisis theory — that wealthy people are gonna want to go where they’re treated well from a tax and quality-of-life standpoint. And the UAE has tried really hard on both fronts. And so we’ve wanted to be long the UAE on a pullback for a long time, and then we kind of look at it and we say, well, maybe this isn’t the sort of pullback we wanna be long.

Has the UAE brand been damaged by people launching missiles at $50 million villas? I don’t know. Maybe I don’t wanna buy a $50 million villa if I’m a rich guy. Maybe Monaco looks a little more peaceful this week. Will the UAE figure this out? Well, it depends how the war gets resolved with Iran. Look, if it’s resolved in a positive way and everyone’s happy again, or there’s actual regime change, then you probably wanna buy this pullback in UAE. If it’s not resolved in a positive way, well then that’s not the right move.

But it made us over the weekend redo our math on a couple of companies we want to own in UAE. We’re still bullish. And you kind of build your model and say, this should be on our front-of-blotter radar. We wanna be long these things in a positive scenario, but nothing yet. So you start building a shopping list of, we think these things will be down, we think these things have only opened up 10%. Maybe the business has dramatically changed. There are some trades we put on — obviously we’re long product tankers. We’ll probably be long sulfuric acid and product tankers and some things like that for, I don’t know, a couple hours to weeks. But this isn’t the long term of what we do.

I mean, you pick up some basis points in aggregate over a huge number of these little trades. But the core of what we do is: can we put 500 basis points to work in UAE down 50%? Well, it’s down 25% now. So we’re starting to get to our, hey, this is interesting — but we don’t know how the war resolves. This is — you sit around for hours and hours and you just try to say, things are gonna change. We don’t have the quotes yet. We don’t have the prices, but what do we wanna work on over the next week or two? Because what you don’t want to do is all of a sudden the war ends, or UAE opens down 50%, and you wanna start buying — but you haven’t done the work. Let’s go do the work and really understand what’s happening. If that makes sense.

Matt: It does make sense, because you have to have your finger on the proverbial pulse of these things so you have an understanding to then set up those probabilities.

Kuppy: Right. And you have to have the work done. You have to know: are we gonna buy the UAE ETF or are we gonna buy the banks? Are we gonna buy the property developers? What do we feel confident in and how do we value these in a stressed scenario?

Look, I assume property sales are gonna be just really terrible in Q1 of 2026 in the UAE. Who has the balance sheet strength to take advantage of this, and who’s gonna be distressed? I assume the hotel numbers aren’t gonna be very good in March, you know? Who’s gonna be the winner and loser amongst a bunch of companies? And you kind of wanna have an understanding of the lay of the land.

Of course, no one knows the number. But you can guesstimate who’s gonna win and lose, and you just wanna understand it. I’m usually showing up in a place with a very dynamic range of outcomes — best case, worst case, mid case — they’re all over the place. Building an Excel model isn’t gonna work. Wall Street research has no clue either. They’re just as lost as we are. Can you buy really good assets with long-term tailwinds at a really distressed price?

And UAE is the perfect example: do you think UAE is better or worse three years from now? I don’t know. But from down 25%, there’s a range of outcomes. From down 50%, there is a different range of outcomes. From down 75%, things start getting priced in such that you’re not gonna have much downside. And so you just look at the thing. That’s how we do it.

Matt: I’m really interested by the process of saying, do I own the country ETF? Do I own a sector? How you parse through that — use UAE if you can, as just like a templated example. Because you mentioned it with Argentina too: how do we wanna play this thing? And then how do we pick and choose what the assets are that most align with what we think is the probable outcome with that margin of safety? How do you think through that?

Kuppy: So when you look at country ETFs, a lot of times you have a view you want to express in that country. You have a view of, I think this country does okay, and then, I think this sector — I wanna bet on the banks, or the consumer, or the stock exchange, or whatever it is. But when you look at a country ETF, there’s usually — I mean, think of Brazil, right? The ETF is Petrobras. I don’t really have a view on the price of oil. I don’t really think Petrobras is that interesting because the government always interferes in it, so it’s always gonna trade at a bad valuation. Then you have Vale. I don’t really have a view on iron ore. The government always interferes. Then you have Nu Bank, which is a great business, but it’s expensive.

You have all these things — I don’t wanna buy the EWZ, the ETF. I wanna go buy the individual. You look at UAE — it’s a more balanced ETF. There are a couple of banks, a couple of property developers. There’s a highway, a taxi company, but it’s mostly banks, and I’m okay just buying UAE. The problem with the UAE ETF is it’s not terribly liquid. But it’s a good representative of what we’re betting on, which is development of the UAE.

I mean, are there better things to own in UAE? We already own a little of the stock exchange — when I say little, I mean like very little. I think the stock exchange is probably gonna do better than the ETF, with less risk. So we’re probably just gonna buy some more of that. But I think each situation’s a bit different in terms of what to buy in which country.

Usually we’re not gonna buy the ETF. We’re usually gonna say, I believe this country will get better because of this — whether it’s, you know, I think the price of oil goes up so I wanna buy consumer, or I think the new government’s gonna be pro-business so I wanna buy the banks at 0.6 times book, and I think we can exit at two times book plus they grow deposits a lot, or whatever it is you want to bet on. I’d rather just bet on that thing. I feel like it’s pretty lazy just to buy the ETF. But sometimes you just buy the ETF also, right?

I’ll give you a perfect example. I know nothing about gold mining — I know just enough to lose money at it. If I was bullish on the price of gold right now, I would just buy GDXJ — the levered small-cap ones that are gonna get all the multiple expansion. I’ll let them choose which, you know, 30 gold miners to own, because they’re gonna do it better than me and they’re gonna do it with more liquidity. So pick your poison.

Matt: Turn the perspective back on the US for a second and maybe give some backdrop on where you think the US is — recession or otherwise — right now. But if you were looking at the US from outside — and you kind of are — think about it this way: why is the US less interesting to you than the UAE or anywhere else in the world, or Argentina?

Kuppy: So the problem with the US is that we have huge structural imbalances. Our imbalances then lead to imbalances everywhere else. Trump came in with a goal of fixing the imbalances, but he’s unable to fix any of them, because to fix the imbalances involves the stock market going down. So every time he tinkers with it, stocks sell off, and then he panics and does nothing.

And I mean, his approach to fixing the imbalances has been erratic and dysfunctional, but he recognized the imbalances. You need to fix the imbalances. And he can’t, because he refuses to take the loss on stocks. Our stock market is very overvalued in the US. I think everyone agrees with that, because we’ve been taking everyone’s excess savings into the US and as a result we’ve hollowed out our industry here. And I think everyone recognized this is a problem. But no one knows how to fix it because no one wants stocks to go down — which is how you fix it. So in many ways it’s unfixable.

That doesn’t mean we don’t have things we’re long in the US — we’re long a lot of things. But I think the US is currently in recession.

Matt, what’s your personal CPI right now of your basket of stuff — when you go out and spend your money? Over the last year, year over year?

Matt: Between the health insurance and all the other things that factor in, and the shrinkflation reality of stuff at like the local pizza spot and bar in our funny little corner of Northeastern Pennsylvania — it’s probably running like 5 or 6% around here.

Kuppy: Well, that’s less than me. I’m at 10% here in Puerto Rico. So when they say it’s 3% in the official government number, they’re using the wrong deflator, which means that the inflation rate’s higher, which means that the real GDP number is lower. And when you have an inflationary environment, you get these economic illusions, for lack of a better word.

And so I don’t think the economy’s that good here. And I think that’s why when you look at consumer confidence, it’s been terrible and getting worse. It’s why a lot of people are really pissed off. I mean, they’re pissed off at the wrong things, but it’s just a general mood of everyone being pissed off, because everyone’s getting squeezed and everyone’s in a bad mood.

And I think it’s been going on for a long time. I think we’ve been in recession really since — I don’t know — 2008. And we had like two good years in ‘21 and ‘22. And everyone was kind of happy, and yeah, it was inflationary, but people felt good because there was a ton of fiscal stimulus. And now everyone’s kind of bitter again.

And in a recession, a lot of businesses don’t really work. There are tons of problems. We could have like two episodes about all the problems. You had the problem of China having a different economic model than we do, where they produce stuff at a 10% negative margin and have the local peasant subsidize it through, you know, below-market bank loans. And that goes on until it stops going on.

And you have the US where we’re kind of doing feudalism, where I don’t think we want economic growth here, because then earnings multiples on equities collapse and real estate cap rates expand. We tried that in ‘21 and ‘22 and it was existential for the rich guys that run our country — they didn’t want, you know, their stocks to go down and their cleaning lady to ask for a raise. Like, it was bad for them.

So you have all these structural, concurrent problems, and I don’t really wanna be involved in any of those problems. I want to go where things are happy and there are tailwinds. Look, I think incrementally Brazil is gonna be better a couple years from now. I think Latam in general is gonna be better. Until the war started, I thought the Middle East was gonna be better. I’m very hopeful that the Middle East resolves this and has a peace dividend and becomes much better. I mean, maybe there’s gonna be some fire along the way, but I wanna be in places where there are big tailwinds, where good things are happening. I wanna be in sectors that are unloved, where things are getting better.

I think the US is probably running negative real GDP right now. You know, maybe not at 6% inflation, but if you take my 10% inflation, we’re running negative real GDP. I don’t wanna invest in negative GDP. I’m an inflection investor — that’s what I call myself — but I’m like a growth investor. I wanna buy things where I can come in at seven times this year’s cash flow, three times two-years-out cash flow, and see rapid revenue growth. I’m a growth investor. I don’t wanna be in sad, depressing things where there are real hard choices to be made. It sounds miserable.

Matt: What do you do or say when either investors or other people ask you about the things that are looked at as growth inside of the US right now? The AI stuff, the tech stuff, where they insist there’s growth. Do you just shrug your shoulders? What do you say to them when they ask, well, look, here’s growth?

Kuppy: It’s growing, but there are no earnings. I mean, at some point you look at AI — they’ve dumped almost a trillion dollars into this, and the data centers make no money. They never will. It’s impossible. There’s not a trillion dollars of revenue that could support this stuff. And it goes obsolete in like two years.

The tech companies — yeah, they have tons of revenue growth, but none of these things are profitable. I mean, it’s all earnings ex-SBC. Well, that’s great when your stock is going up — everyone wants stock options, it’s awesome, right? But if your stock has two down years, people wanna get paid in cash. You can’t take your stock options and buy groceries. At some point you go to your workers and they’re like, I need money. And then there are no earnings.

And I’d say a lot of this is because they’ve been able to use SBC for so long, and Wall Street’s been so focused on revenue growth as opposed to earnings growth — which is the thing I care about — these guys have produced profitless prosperity where they produce tons of revenue, and a lot of it is related-party. I mean, they’ll tell you it’s not related-party, but it kind of is, because they all go to the same, you know, country club in Silicon Valley and they all know the same people and they all do these deals with each other. I’ll buy your software if you buy my software.

And then AI kind of changed that, because you don’t need any of these products — you can just vibe code it in-house. And I don’t know, I don’t think there’s gonna be a lot of revenue after AI. I think AI puts us in a really funny place where you don’t get revenue growth, you get revenue contraction, because you just need less stuff. You can do more stuff for free internally, and that cuts your costs — which is gonna be great if you’re like Verizon and you’re gonna have less people in the call center, or you’re like Citibank and you get rid of a bunch of people doing fraud monitoring, because I think the AI is probably better at fraud monitoring than the guy doing fraud monitoring. But those people then won’t have revenue to spend somewhere else in the economy. And there’ll be a multiplier effect to this. When you get rid of a couple people, you have a recession. AI is gonna get rid of how many millions of people that work in office buildings over the next five years? I mean, it sounds like a depression. And yes, I know — every time there’s some new technology, there’s a new business created. But the Industrial Revolution was like a 200-year process. The internet was like a 15-year process, and the internet’s still evolving. AI is gonna be like a five-year process, and you’re getting rid of the most expensive people.

This is gonna be like what happened to the Rust Belt, where we sent all those jobs to China — and that was a 20-year process and the Rust Belt still hasn’t figured it out. It’s gonna happen to the large cities, and it’s gonna happen in the next — well, it’s already happening — but it’s gonna be really noticeable in the next two to three years. Like, where’d Mary go? Oh, she got AI’d. Where’s Billy? Oh, he got AI’d. Well, there’s no one left on this floor. I’m gonna get AI’d next. I better stop spending. You know, I was gonna buy a car — eh, I can use my car for two more years. I was gonna buy a new house — definitely not doing that. I was gonna fix the roof — nah, it’s 30 grand, I probably just wanna save that. I’m gonna get AI’d. I think it’s gonna happen. I think it’s already happening, and I think it’s going to be recessionary.

They’re gonna do the only thing they know how to do, which is print money, and it’s gonna make certain assets go up and it’s gonna make certain imbalances worse. And the game goes on. But like I said, I don’t wanna be involved in things that are gonna be miserable and shitty. I wanna be in things that are really growing.

And in tech, there will be huge winners in this AI thing. There will be huge losers. There’ll be a lot of in between. I think the bigger winners of AI will be companies that are very top-heavy in HR — people doing really repetitive tasks that can be AI’d. You’re gonna see your margins expand because you’re gonna get rid of some SG&A. But you might see your revenues contract. And that’s really odd in an economy. Wall Street puts terrible multiples on businesses with top lines contracting, even if you’re contracting to become more profitable. These things trade at like four, five times earnings. And the stock market trades at what — like 25 times earnings? This is a long way down.

And then the government will try to bridge that gap through a lot of money printing and a lot of inflation, so that your top-line number will look okay, but your overall unit volumes — the things I actually care about, as opposed to revenue, because you have these weird monetary illusions inside of an inflationary environment — those will be contracting. And I think Wall Street’s smart enough that they’ll say, hey, if they’re doing less overall business — even at a higher revenue because of inflation — we’re gonna give it a low multiple.

I mean, go to Brazil. Everything trades at three times EBITDA. It’s been a recession for 15 years. Like, that’s where you end up in an inflationary recession.

Matt: How do you think from the portfolio manager seat of just going — basically you’re just picking what to put the blinders up to, or saying, this is a situation I’m just gonna monitor and nothing else. Like how do —

Kuppy: We monitor a lot.

Matt: Yeah. But that’s the reality of it, right? Like you’re monitoring most of the world and you’re just doing nothing about it. And you’re saying, this is something I don’t wanna participate in right now, so it’s just another going concern.

Kuppy: Yeah. We have — I forgot what the official name is actually. Let’s call it the shit sector list. It’s a giant Excel spreadsheet, like 200 things that have just been terrible — countries, sectors, companies — but things that every 30 or 40 years have a good five- to ten-year run. And we look at them once a month and we just go through these 200 things. Has anything changed here? No. Anything changed here? No. Hey, wait a second — this thing’s up 20%. Maybe something is changing. Let’s go spend a couple hours and see if anything’s actually happening here. Let’s try to figure out why it’s changing, why the stock’s up.

Matt: Do you have any examples from that list? Anything that comes to mind from that exercise?

Kuppy: Things we’re long today? I mean, look — Argentina came from that list.

Matt: Okay.

Kuppy: Brazil — we’re long Brazil in a big way. It came from that list. It’s been almost a 20-year bear market in Brazil. It’s been miserable. They’ve made a number of terrible policy decisions at the governmental level. They had a huge corruption problem. Brazil is a commodity play, and commodities have been terrible for a long time. Just a messy mess. High inflation. It’s just been terrible.

And I like terrible. And structurally, Brazil does really well in a world where the US dollar is weak — Trump wants the dollar weak. He won’t say that, but it’s obvious that his policies only work with a weak dollar. And it does well when commodities are bid, which seems to be happening structurally. So you have the playbook: things should get better economically.

And the real problem is this guy named Lula — that no one wants to leave money in the country. So locals get their money out and no one has put money in.

Well, they have elections in Brazil. There’s gonna be one this fall. The polling is really close. But, you know, we’ve had a bunch of close elections lately in Latam where the pro-business guy won. And I got a hunch that if it’s super close, the US might just give it a little bit of a shove, like we did with Argentina with Milei.

And Polymarket says it’s about 50/50 — I’d say it’s more like 70/30. So you have all the setup in place to make a bunch of money where Brazil gets better. And is Lula that terrible? I don’t know. I mean, he’s a socialist, but, like, his main goal is he wants to have free bus passes for poor people. Is that so terrible? He wants to eliminate taxes on people making less than $500 US a month. Is that so terrible? It’s not like he’s doing crazy stuff. These are actually probably pro-growth, pro-consumption policies that on the margin, in a $2 trillion economy, are a rounding error. It scares foreign investors because it’s that slippery slope of communism. But look, we had a huge boom under Lula once — during his governing career. We could do it again.

I think if Lula wins the election, I’ll take a down 30% in Brazil, and then everyone shrugs their shoulders, and Brazil probably does just fine also. And if Lula loses, Brazil just screams out of control. That’s the setup of a great trade. And look, we’ve already been in this trade for almost a year now and it’s done really well for us.

Sorry, I don’t even know where I’m going with this. But just try to find situations where your setup is: you probably get your money back, and if it works well, you’re gonna make a lot of money. And I don’t feel that way about a lot of things in the US right now — especially technology, where it’s priced super high and you need heroic things to happen in technology for things to get better from here.

Matt: What’s the psychology of that? What do you think is most important — especially in an environment like this where we have the war stuff going on? On one hand you have all sorts of weird, peculiar opportunities in pockets of the world. What’s the kind of psychology that you think is gonna help you get this stuff right with your people, but also for somebody else watching this? What should they be thinking about? What should they be turning over in their heads and questioning in their own processes to say, how do I adapt in this world that moves at the pace that it’s moving right now?

Kuppy: So Wall Street’s really good at figuring things out 30, 60, 120 days from today — and that’s where everyone’s timeframe is. And that’s a really competitive timeframe. Everyone is in real time discounting every data point from this war. And crude oil moves $10 on a tweet. I have no edge there. I don’t know what’s gonna happen in the war. I don’t know if it’s gonna get resolved or get worse. No one knows, right?

But I can look at things two or three years out and have some certainty on what’s gonna happen, or at least probability-adjusted, to say: look, I get my money back or I make a lot of money. And if you do that over enough at-bats, you’re going to have a very good career in this thing. And as a private investor, you’re gonna have great returns, as long as you don’t make too many horrible unforced errors along the way.

And the worst unforced error you could do is to panic out of a good trade because Trump tweets something about Iran, and suddenly oil goes up $10 or down $10, and you worry about something that’s totally non-correlated to that because you see something in the news and you panic. I’m not saying don’t panic — wars are crazy things, crazy things happen. I’m saying, look out two or three years. What are the range of probabilities? We talked about Argentina. What are the range of probabilities? What are the range of probabilities in Brazil? In any outcome — are the range of probabilities in your favor or not? And is the payoff — upside versus downside — in your favor or not?

And then every data point along the way — companies miss earnings, they drop 20%. Is that gonna change your life? If it does, you’re too big in the position. If you like the trade, you buy more. But Wall Street’s really good at pontificating — an analyst upgrades and they downgrade, they write these big long research reports basically taking what was said on the earnings call. And then they try to figure out what happens next quarter. No one knows. I mean, when you talk to companies, things just happen in a quarter — some cost goes up, some order gets canceled. There’s a certain randomness to quarterly business. You just figure out: do you like your tailwind? Are things getting better? And you let Wall Street create the opportunities for you, rather than you getting whipsawed by the opportunities.

And I think — when you think of this game, investing as a game, like you would never go into the ring against a professional boxer. Well, I wouldn’t. Maybe you would, but I’m gonna get the crap kicked out of me.

Matt: I’m good at getting the crap kicked out of me. I don’t need a boxer to do it.

Kuppy: But I’m a professional in this game, and retail routinely beats me. It’s a very different game in that way. Retail has huge advantages in that they can take a five-year view. And as a professional investor with monthly liquidity, I can take a five-year view too, but if it doesn’t play out within two or three years, my investors say, what’s going on here? I want my money back.

And I’m lucky that I have longer-term investors. A lot of funds — if they have one down quarter, they start getting redemptions. Pod shops — if it goes 3% against them, they have to go to cash. So there’s this continuum, and I think I’m really lucky that I have this longer-term investor base.

So we’re in a good spot. But I can’t just say, I think this is what happens 10 years out, I’m just gonna set it and forget it, because I’m not paid to do that. I’m paid to look two or three years out. You know, a private investor is paid to look maybe 10 years out — they have a competitive advantage against me, and I have a competitive advantage against a pod shop.

But I wanna live in my little competitive advantage, where I don’t care about the next 90 or 180 days. Let those guys fight about that. I care about 18 to 36 months. That’s where I have an edge. My capital liquidity gives me that edge. And I think that’s a really competitive place to play, because most guys aren’t allowed to play there. And private guys — we call them civilians listening to this — they have a different range of outcomes where they can play. And you wanna play to your advantages.

Matt: Inside of that, especially in that 18-to-36-month-out view — okay, any historical period, any other reference — is there anything you think now rhymes with, that you look at for the playbook of how or where to allocate?

Kuppy: Well, look, we’ve mentioned the war like 10 times. There’s been a few Middle Eastern wars over time. I’m a history major. I got into stocks because you don’t get paid anything to write history books. But I think being a history major gives me a unique perspective in that these things are cycles, and these things kind of mirror and match.

And you start looking at this: does this look like the first Gulf War? Not really, because in the first Gulf War, oil collapsed the day we invaded. Does this look more like ‘73? Yeah. Does this look more like when the Suez closed? Yeah. This looks more like an inflationary crisis where you have some bottleneck that’s shut and the energy can’t get out. It looks like ‘79. You start saying, here are 10 Middle Eastern wars in the last 60 years — it looks like two or three of them. And then you say, what assets did really well and which assets did poorly?

And fortunately you have AI now, so you don’t have to Google it — it just tells you what the answer is. And then from there you say, well, nah, I think this is different because of this fact and this fact and this thing. Hey, look — the Middle East now is a big exporter of urea. It wasn’t in ‘73. Okay, well, let’s go learn about fertilizers and the Middle East in this context. You just start compare and contrast.

And that’s why it’s good to have a couple friends that love this game as much as I do, so you can sit around with a bunch of alcohol at three in the morning and see what the world looks like. That’s my process. You can only be so smart with AI. You have all this data bouncing around your head and then you say, what do I actually think? And you have some friend that talks you down from some crazy ideas and prods you — hey, Kuppy, have you looked at this thing?

And then from there you go, okay, let’s go find some ticker symbols and go learn these industries. And there’s a lot of muscle memory because I’ve been doing this almost 30 years now. This isn’t my first or last Gulf War — well, hopefully it’s my last Gulf War. And so you just kind of know. I don’t know how to explain it exactly, but that’s the process. And it works. Our numbers say it works, and I hope it keeps working this way. And I hope I get a little bit smarter and better at this — and “better” meaning just one day faster at making the decision, because there are a lot of smart guys trying to distill this information too.

But no, I think this looks like a couple of situations, minus some other things, add some other things, and you end up with a bunch of companies.

The problem, I think, is that a lot of the trades you wanna put on right now are like Thanksgiving trades in a way. So like, you wanna be long oil because it’s an oil war, right? But the day everyone makes peace, oil’s gonna be down limit like three days in a row. So you have to be long, and it’s a Thanksgiving turkey — a thousand good days and then poof.

And I don’t like those sorts of trades, because there’ll be a couple of scary moments along the way where Trump tweets something and oil drops 15 bucks, and you get scared and you sell it and you miss the trade. Or one of those times it could be the real deal, and you’re scared, you don’t wanna sell, and you miss it.

I don’t like those sorts of Thanksgiving trades where the duration is anywhere from a few hours to a few months and no one knows. I’d much rather look at things like the UAE and ask: does the UAE come out of this in a better or worse place? Because even if it comes out in a way better place, okay, from the bottom, the UAE is gonna go up the day everyone declares peace. But do you think property sales recover immediately? No. Do you think the banks take some losses? Of course. I think from the bottom, the UAE will bounce, and then there’ll probably be this two-year period where things are kind of shitty over there and the economy sucks and people are scared to go back. And you’ll have a long window of time to buy distressed assets with good tailwinds, and you’ll be able to analyze the tailwinds getting better.

And I think that’s the sort of thing — go learn the UAE. I don’t know how this war’s gonna resolve, but that’s the sort of thing I’d be much more interested in: something that resolves positively as a result of this. And the best scenario is where Iran becomes best friends with the UAE, there’s a giant peace dividend and we’re off to the races. That’s the sort of thing to look at, as opposed to the Thanksgiving turkey scenario. It doesn’t mean we’re not playing a few of those, but those are like 25, 50 basis-point positions. Sometimes you just gotta play the game. But that’s not really the thing I’m passionate about. I’d much rather put a thousand basis points of work into UAE.

Matt: Do you feel like the history background helps you with this stuff every day? Do you think about it in that context, or is it just a cool thing that rattles around in your brain?

Kuppy: I think it helps. Look, I’m not gonna tell you I learned a lot in history in college — I don’t remember much of college. I remember Mardi Gras and fraternity. But I think it’s just good to remember that these things repeat. There are cycles, but they don’t quite repeat. And having a long history of everything — I mean, look, we’ve had I don’t know, a dozen Middle Eastern crises in the last 60 years. About half of them have gotten really chaotic and violent. And it gives you a range of outcomes that you can look at. And as a historian, you can quickly say, well, I have a really good knowledge of these things, and it looks like this, not that — it’s like this grab bag. You just pull stuff out and put stuff back into the bag, and then you say, what tickers worked? What sectors worked?

And I think that gives you just a great framework for how to go about investing and being a macro investor. I mean, a lot of macro investors invest in interest rates and currencies. I’m not gonna say we don’t do that, but that’s not what we do. If I think interest rates are going up or down, there’s usually some ticker that gives me operating leverage to that. And I’d much rather put that leverage on someone else’s balance sheet — operating leverage — as opposed to taking financial leverage onto my own balance sheet with a bunch of, you know, interest rate derivative futures, which is what these macro guys do. And some of them are really good at it, and every quarter one of those guys blows up. It’s kind of random.

But I think that’s how to approach macro as a history guy — and then express it through equities, which I think is something that’s unique to us, if that makes sense.

Matt: Closing question for you. One thing you could teach the average investor — what’s one thing you’d want them to know?

Kuppy: Patience. Every time we make a decision that’s rushed, it’s a bad decision — whether it’s buying something or selling something.

There are a lot of times we start buying something and we buy a third of what we want, and then a friend of mine reaches out, or my analyst reaches out — hey, Kuppy, we’re totally wrong. We didn’t know, we just learned this new fact. And it’s like, okay. And then you have to go from buying to selling, and you know, there’s slippage and it costs you some money. Or some piece of bad news comes out and you panic and you sell, and it turns out you misinterpreted the news and it’s not so bad. Most of the time when bad news comes out, the stock’s already down 30%. You missed your opportunity. What are you gonna do? It’ll be down 35% by the end of the week. So you’re risking 5% to actually go and really learn what just happened and how it impacts your thesis. A lot of times just be patient. Take a deep breath, go walk around the office building 15 times, you know, and think it through.

Matt: Kuppy, if people wanna learn more about you, the fund, what you’re doing, bug you on the internet — where do you wanna send them?

Kuppy: So you can come to my website. I have a blog — I haven’t written that much lately just because I’ve been super busy, but go to precap.com. I used to write about once a month, now it’s about once a quarter. You can find me on Twitter at @hkuppy. I hope I don’t offend you too badly. And then I’m affiliated with a group of guys that are writing an event-driven monitor. I launched it and kind of handed off the torch, but they’re doing a great job. Go to KDM.com and take a free trial. I think it’ll be life-changing in terms of the macro commentary they put in — some of which I write — and also just all the corporate events they’re tracking, which really set off inflections. Some of our greatest ideas come from that. So those are my three touch points. Follow me on Twitter. I’m usually pretty vocal.

Matt: Lot of good memes. Kuppy, thanks so much for doing this today.

Kuppy: Hey, thanks so much for having me.

Matt: You’re watching Excess Returns. Like, comment, and subscribe — all the things below. And we are out.