Investor Letter - April 2025

This is an investor letter that we shared earlier this week with our investors.

Dear Investors,

To state the obvious, the past few days (and weeks before that too) have been extremely volatile. Apparently at one point on Monday the S&P500 had seen the largest three-day drop in percentage terms since 1987 which included Black Monday.

At times like these we like to reach out to our investors and provide a few thoughts as to what we think is important. Our fund has weathered the storm well. As of the end of March it was up 6.9% YTD (on unfinalized March numbers) and so far in April we are up a bit more so far. We are currently in cash with no positions.

Everyone we speak to wants to know how we managed to get this right as they usually ask us when we find ourselves on the correct side of events as we often do. The answer is multi-fold.

The first thing is that we do not marry our positions. What matters is performance, more than anything. And when you have confidence that you are able to make money whatever market environment we enter into, you are very happy to cut your entire book at short notice. We have gone to cash with zero positions 7 times since we launched our fund, and it works every time. We are not trying to buy stock of companies we believe in at “discount valuations” because we don’t believe in anything other than making money year in and year out.

The second thing that we do is we listen, and we try strip out the noise. We have been writing for ages about the Trump administration and how crystal clear they have been in terms of what they are aiming to achieve. We even went so far as to write that it reminded us of how clear the Chinese authorities are when communicating their intent. The Trump administration told us that they wanted equity markets lower many times. These tariffs too were telegraphed a long time in advance. We are not economists, and we are not going to pretend to understand the minutiae of what the economic implications may or may not be but what we are good at is understanding what the signal is while filtering out the noise.

Our instinct is that the economic implications, while important, miss the point. This is about the reshaping of the global order and the tariffs are the first shot across the bow. The bow is aimed squarely across the Pacific at China. This is a case of dividing up the globe and looking which countries are with the US and which are with China. In fact, very early on in our journey we wrote a piece which we laugh at now given it was a very simply put together allegory called the Eagle and the Dragon (Link here). In it, we illustrated how the world would be divided up between the Americans and the Chinese. We really didn’t know how foreboding it would prove to be.

But more important than all this is the one simple fact: that whatever you read (including from us!) no one can honestly tell you what will happen next. Nobody knows so don’t listen to anyone! UNCERTAINTY is where we flourish. That is where the name of our business comes from!

The Three Body Problem has never been solved. There is no equation that can solve for the relationship between three (or more) bodies in motion. Which means the outcome of the movement of those bodies is UNCERTAIN, and not deterministic. We LOVE uncertainty because that’s where we earn our stripes. Instead of predicting and choosing a predefined path which could well prove to be incorrect, we rather acknowledge unpredictability and manage it. It’s in our DNA. The current situation is extremely fluid and there is literally a multiverse of outcomes on the table.

What we can say with some level of clarity is that for us the risk/reward dynamic from late last year was heavily skewed to the downside but now it is much better balanced. It could still go either way with a lot of velocity though and hence we are in cash. Once the dust settles (whether this week or this month, who knows?) our base path remains for the GREAT ROTATION to resume at pace. International markets, led by Europe should benefit from the flow of money away from the US.

And finally, allow us to sell ourselves, which is something we are less good at. If one looks at the S&P500 since inception of this fund, we have outperformed it on any horizon. We have had smaller drawdowns and zero negative calendar years. And for those who will say we are making a comparison after a massive drawdown we will say YES that’s the entire point. Nobody knows when these things are coming, the same way nobody really knows if the markets will go all the way back up again. Our job is to deliver returns regardless of the environment.

Our job (and that of anyone who claims to run a hedge fund) is to protect capital when it matters. Otherwise, what’s the point? You may as well run a long only or invest in a passive product. As we close in on our 5-year mark for this fund, we have seen bull markets, bear markets and everything in between. And whatever has been thrown at us, we have provided positive returns, compounding now at around 16% per annum and zero negative calendar years.

We thank you as always for your trust and confidence in us as we manage your money, VERY IMPORTANTLY alongside our own. As treasured investors in our fund, you are the best testimonial that can be given to anyone who wants to get to know us better. So, if anyone you know is looking for a proper hedge fund in the old school sense of what that is, please put us in touch with them, with our greatest thanks in advance – we’d love to speak with them anytime.

Kind regards,

David and Eugene