Billionaire – Wild Investment Strategy of David Tepper

Billionaire – Wild Investment Strategy of David Tepper
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Way To Make Money

To pay for his tuition, David Tepper was desperately seeking a way to make money. Competent in mathematics, Tepper knew he could become an exceptional trader. Soon enough, he found a profitable pattern. In the late 70s, options were relatively new, and he discovered that certain option prices were always a bit slow to adjust to the change of their underlying securities. Tepper saw this as a perfect opportunity for arbitrage. With this pattern, he was able to generate consistent income to pay for all of his expenses in graduate school.

After earning an MBA degree from Carnegie Mellon, David Tepper got a job in the treasury department at Ohio’s Republic Steel. However, the company was in financial trouble, and he was introduced to the junk bond market. Michael Milken’s pioneering of the high-yield bond market fascinated Tepper, leading him to land a job at Goldman Sachs, where he made a significant amount of money.

Using his connections and experience at Goldman Sachs, Tepper successfully raised $57 million to start his own firm. He founded the firm 26 years ago and is said to have generated 25 percent annualized returns on average since then. David Tepper’s journey from a challenging upbringing to becoming a successful hedge fund manager is a testament to his resilience and talent in navigating financial markets.

Appaloosa

To fund his new hedge fund, Appaloosa, David Tepper started his own company 25 years ago in 1993. He called it Appaloosa and found it to be more enjoyable and beneficial for his life in many ways. As soon as he launched his fund, an opportunity presented itself.

During the Latin American crisis in the early ’90s, Tepper seized the opportunity to purchase many bank debts in Argentina right before the country started to recover. As a result, the fund made a 30% return in 1995. Tepper, a different kind of value investor similar to Seth Klarman, bets significantly on undervalued assets.

Tepper continued making phenomenal returns until the Russian financial crisis of 1998. The central bank of Russia defaulted on its debt, causing shockwaves globally. Like many investors, Tepper put hundreds of millions of dollars into Russian bonds, thinking it was impossible for a country to default. However, he was wrong, and Tepper lost $80 million. In a surprising move, Tepper realized that the market had become overly pessimistic about Russian bonds, making them extremely undervalued. He doubled down on the same bonds, gaining 61% by the end of 1999, recouping his previous losses and making additional profits.

Distressed debt became a gold mine for contrarian investors like Tepper. In 2001, he generated a 67% net return by focusing on distressed bonds. Tepper invested in anything he considered undervalued, whether for the short or long term. Appaloosa made substantial profits year after year, including investments in under-the-radar companies like Mirant, an energy company.

Starting as a day trader in college with dreams of becoming rich, Tepper has built one of the most successful hedge funds globally, emphasizing a disciplined and calculated approach to investing.

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