LEARN FROM GENERALS OF THE MARKETS - PART 25
“I try my best to look to the market itself for guidance. I believe that the market provides us with the clues we need to succeed and it is our job to be as objective as possible at deciphering that message.” -- Brian Shannon
David Alan Tepper was born on September 11, 1957. He’s of Jewish ethnicity and an American. He went to Peabody High School in Pittsburgh's East Liberty neighborhood. He then attended the University of Pittsburgh, where he got his BA in Economics (with honors). While at the university, he worked at a Library to help offset his tuition costs. After this, he joined the financial industry. He worked at a bank’s treasury department as a credit strategist. Later, he went for an equivalent of MBA at Carnegie Mellon University's business school. He was then employed at the treasury department of Republic Steel in Ohio. In 1984, he got hired at Keystone Mutual Funds (now part of Evergreen Funds). In 1985, he was hired by Goldman Sachs, and 6 months after, he became the chief trader on the high-yield desk at Goldman, working for 8 years. At this time, he specialized on bankruptcies and special situations. He left Goldman Sachs at the end of 1992, starting his own firm - Appaloosa Management in early 1993.
In 2010, the New York Times declared that David’s success in the markets has made him one of the most profitable funds managers on this planet. In that same year, he was named the 258th wealthiest individual on earth. As a profitable hedge fund manager, David is now worth 5.5 billion US dollars. He purchased an ultra-luxurious Hamptons mansion for 43.5 million dollars, from Joanne Dougherty, once the Senator, Governor and Mayor of New Jersey. The estate sits on more than 6 acres of oceanfront land, and David has torn down this mansion to rebuild it in to 2x its original size. One architect named Jaquelin Robertson is responsible for building the mansion to David’s taste. On September 25, 2009, he bought a portion of the Pittsburgh Steelers. In 2003, he pledged an amount of 55 million dollars for the Graduate School of Industrial Administration—GSIA (now Carnegie Mellon University's business school). He also gave sizable gifts to the University of Pittsburgh, so that many of the University’s academic and outreach programs could be well-funded. Another 3.4 million dollars was promised to be given to Rutgers University - Mason Gross School of the Arts (where his wife, Marlene, graduated). He’s made other donations after this.
Lessons
Here are intriguing lessons from David Tepper:
- Uncertainties have become our ally and helper. Risk is our auspicious companion. The unpredictability and the uncertainties in the markets have brought David an immense wealth (just as they’ve brought immense fortunes to many other traders). We don’t fear the risk in the markets. On the contrary, it is the risk that makes us money. Without risk, there can’t be profits. David took risks, even getting involved in the riskiest speculative decisions, and he’s now very rich. What causes fear and stress for neophytes is what causes excitement and rewards for great traders.
- You can make returns on your portfolios as you deal with the market uncertainty. David made 61% return in the year 2001 by focusing on distressed stocks (companies). Year after year, he made money by being greedy where others were fearful. He speculated on the markets that others didn’t want to do anything with, and he made gains that others couldn’t make. For example, he made a profit of seven billion dollars in the year 2009 by speculating on seemingly hopeless markets. No matter how big and how small your trading account is, you can make profits on it (only that you shouldn’t expect to make a living from an account that’s too small, or else, you’ll turn yourself into a suicide trader).
- David knows when to enter the markets and when to exit. As it was mentioned earlier, he likes to buy the markets that many people are afraid of, and he likes to exit those markets when people begin to develop confidence in them. He goes against the herd mentality. For example, in 2009, he bought the Bank of America common stock at 3 US dollar per share around February/March and gained huge returns when the stock bounced back and went north significantly. That year alone, he gained 4 billion dollars as his personal profits from his speculative activities.
- Any further information on David’s investment strategy? He’s an expert when it comes to speculating on distressed firms and debt investing. He invests in many countries and companies. He would buy companies that are close to bankruptcy, and then sell their debt as it matured or sell their stocks as they rallied. He also preferred to take risk on companies he believes could be bailed out by the government (so that they won’t collapse). By doing this, he made huge fortunes. He invested in Conseco Inc. (which was near bankruptcy) and made 148% profits in 2003, as its stock recovered. In the year 2009 (the same year he invested in Bank of America) he bought AIG’s debt for 10 cents per share and later sold it for 61 cents as the company began to recover.
- David wasn’t always right in his investment decisions, yet he was able to make profits that were far bigger than losses. He made some investment mistakes, but overall, he made more than he lost in his career. This is the real McCoy in positive expectancy and profit making. No matter who you are, your experience, education or trading strategies, you’re going to be wrong often, and losses would often come. Nevertheless, the most important thing is to make more money than you lose. This is a secret of trading gurus and they know how to do this. If you don’t know how to achieve this peerless objective, I’ll put it in a separate article.
- No matter the satisfaction and/or rewards you gain from your current career, you can gain more than that from trading. Trading is one of the best jobs in the world, if you can master it. Do you enjoy your current career? If yes, you may also need to think of your old age, when people will tell you that your services are no longer required. This is one of the biggest advantages of trading: it has no age of retirement unless you retire yourself willingly. Many traders today are former lawyers, engineers, accountants, doctors, and so on and so forth. Whether you’re satisfied with your current job or not, trading remains a better option (please see the concluding remark on this article). Because David didn’t really found his office job at the bank as the best thing in the world (or his last biggest opportunity), he left the bank and founded his own funds management firm - Appaloosa Management. This step is what has made him a multi-billionaire today, for his firm has become an ATM machine for him.
Conclusion: Your destiny in the market isn’t where you’re presently, so you can’t afford to rest. The most tragic thing for a man is to quit whilst at the threshold of victory. It’s good to enjoy success but far much better is that such success remains permanent. There’s nothing good about being an ex-champion!
This piece is ended with quotes from David:
- "This company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.”
- “Those who keep their heads while others are panicking do well.”
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