David Tepper is one of the most prolific hedge fund managers in investing particularly that is not using high frequency computers to make his gains. GuruFocus lists his annualized returns at 26.5% from 1993 to 2014 (covering the dotcom crash and the subprime crash). With these type of returns one could double their money about every three years.
Here is his performance listed in GuruFocus. (click image to enlarge)
He worked for Goldman Sachs as a distressed debt specialist for eight years in the mid eighties into the ninety’s. Despite being moved to head trader and having one of the best records for the firm he did not get added as a partner in the firm so he opened his own firm.
After leaving Goldman Sachs, Tepper started his own fund Appaloosa Management and runs it today. His record noted in the first paragraph has been while with Appaloosa.
To get such big returns Tepper has often run against the crowd in situations where people had given up on, very much contrarian. Some of his big moves include:
- Early 2000’s during the California power crisis he bought heavily into two of the more beaten up stocks feeling sure the government would not let them fail. He tripled on the investment.
- He shorted (options that gain on the drop in price of the shorted index or company) the Nasdaq in 2000 due to overvaluation but sold that position due to the concerns of his clients who were caught up in the dotcom bull market which had gone up 14 times in value in the 90s. Had he held his record would have been even more outstanding as the NASDAQ dropped from 5,000 to 1,200 March 2000 to August 2001. The drop was a little less than a third of it’s high and the short would have tripled his investment.
- Surprisingly I found he was one of the people who made a profit on bankruptcies at Enron, Worldcom and Conseco buying their distressed preferred shares and bonds in bankruptcy for an approximate gain of 150%. Debt and preferred shares get payouts before the common shareholders so if the balance sheet is strong then there is a good chance these debt holders will get their money back and when it appears they will then the value of the debt goes up. This is an area I intend to look at more closely as when I buy beaten up stocks sometimes the debt may be a safer bet or a combination of both.
- In 2009 after the subprime crisis, Tepper bet big on the banks purchasing common stock, preferred stock and debt in the almost bankrupt banks such Bank of America (BAC) and Citigroup (C). BAC was bought for 6.73 a share and is now $17 and he bought preferred and debt at a discount as well.
- In the first quarter of 2010, Tepper began to purchase airline stocks Delta, American and Southwest were some of the big picks. At the time people said airlines were not good investments. The chart from Gurfocus below shows his purchases of Delta in the green bars and the stock price in the olive chart line. As you can see he made significant amount of gain on the investment below.
- Not every bet works out. In 2011 he did start accumulating housing construction stocks but at this time I do not see significant gains.
- Currently his top holding is General Motors (GM) which contributes to his top sector being consumer cyclicals and he still is holding large positions in airlines making industrial’s his second largest sector. Transportation possibly due to lower oil prices may be the reason.
An investor like David Tepper gives me a lot to look at and learn from. This does not mean I follow his investments but I do try to pick up on what some of his strengths are like seeing weakness from the market pricing when he sees a better financial picture. I do hold West Jet Airlines in Canada for good fundamentals and a dividend as well as Magna International in the auto but not with the same conviction as Tepper.
Below is a YouTube video put out by GuruFocus outlining Tepper’s investment style and you can find interviews with him here.
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