Pliny The Elder would’ve made a great stock trader.
During these turbulent times, when the market is careening from boom to kaboom, when tariffs are on and then they’re off, it may sound a little odd to look back on the Roman author, naturalist, and military commander who died in 79 AD.
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But Pliny The Elder is the guy who gave us such gems as “in wine, there’s truth,” and “home is where the heart is.”
Veteran hedge fund manager Doug Kass homed in on another one of Pliny’s pithy pronouncements: “the only certainty is that nothing is certain.”
There’s little doubt that we are living in some rather twisted times.
Scott Wren, senior global market strategist with Wells Fargo Institute, said in an April 23 research note that “with the pace of change on the tariff and geopolitical fronts moving fast and sometimes adjusting on a day-to-day basis, investors are wondering what they might do to help navigate the uncertainties.”
“The first rule of thumb for our plan is to focus on quality in a diversified manner,” he said. “For example, in the equity market, we continue to favor large- and mid-capitalization equities over small-cap.”
Wren said that larger-capitalization companies “tend to have stronger balance sheets, more dependable cash flows, easy access to credit, an ability to buy back shares, and a wider range of products and/or services than their smaller-cap brethren.”
Doug Kass reviews his 2025 predictions.
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Wall Street veteran touts disciplined risk management
Kass, president of Seabreeze Partners Management, said in his recent TheStreet Pro column that during the past 15 months, he has structured his portfolio conservatively, with mostly pairs trades and modest net short exposure. (Short sales are bets that securities will drop in price.)
“While failing to expect the emergence of ‘animal spirits’ contributing to large equity fund inflows and a rapid climb in stock prices in the past year, our fund’s ability to generate positive investment returns (and not to incur losses) speaks volumes to disciplined risk management,” he said, referring to irrational, emotional, and gut-feeling driven decisions that investors often make.
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Though embracing an admittedly wrong-footed and negative market outlook since early 2024, Kass said his fund had racked up profitable returns in 14 of the past 15 months, with his hedge fund’s only monthly loss coming in at negative 0.22%.
Looking further out, Kass said his base case is for an extended period of substandard investment returns.
“As always, I might be proven wrong as I acknowledge the uncertainty of outcomes (see Pliny The Elder!),” he said.
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“The factors that influence markets move ever faster these days! So, regardless of my current view, I will remain flexible and opportunistic. Remember, I am not Perma anything. I recognize that shorting stocks preserve capital but buying stocks generate wealth.”
Despite his intermediate-term market concerns, Kass said some sectors and individual securities have already entered value levels — with favorable balances between upside reward and downside risk — and he’s boosted net long exposure to roughly 20% to 25%.
“It seems increasingly probable that over the next few months stocks could fall to levels that will encourage me to further and more aggressively expand our net long exposure,” he said.
Investor reviews his 2025 forecasts
And with that Kass leapfrogged several centuries to focus on the wise words of Warren Buffett, the billionaire investor and philanthropist who is also chairman and CEO of Berkshire Hathaway. (BRK.A) (BRK.B)
“The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot,” the Oracle of Omaha once said. “And if people are yelling, ‘Swing, you bum!’ ignore them.”
Kass said that he will be patient and let stock prices come to him, and that’s when it will be time to generate wealth.
“Since early 2024, I have repeatedly expressed a series of concerns regarding corporate profit and economic expectations and sticky inflation,” he said.
“I worried about fiscal and monetary policy mistakes and a paper-thin risk-equity premium. I feared that extremely elevated stock market valuations were a poor launching pad for future stock prices.”
“This year the markets have begun to recognize the validity of my concerns and stock prices have fallen,” Kass added. “As of Friday the S&P Index is down by -10.3% in the first 72 trading days of 2025.”
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Kass reviewed some of his expectations for 2025, such as his belief that consensus 2025-26 S&P profit estimates were unrealistic. He noted that earnings revisions have been marked lower in each of the past 17 weeks.
He also thought inflation would remain uncomfortably high and that “fiscal and monetary policies continue to be off the rails and, at times, are dangerously unpredictable and improvisational.”
“Regardless of one’s political views, some of these conditions and policies have served to reduce consumer and corporate confidence and have some questioning America as a ‘safe haven,'” Kass said.
And Kass predicted that several factors, including market structure and uncertain policy, will likely contribute to unprecedented volatility in our markets this year.
“This has proven to be quite accurate,” he said.
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