From Day Trader to Billionaire – Wild Investment Strategy of David Tepper

to pay for his tuition david tapper was desperately looking for a way to make money competent in mathematics tapper knew he could become an exceptional trader and soon enough he found a profitable pattern in the late 70s options were relatively new he found that certain option prices are always a bit slow to adjust to the change of their underlying securities temper sees this as a perfect opportunity for an arbitrage with this pattern he was able to generate consistent income to pay for all of his expenses in graduate school [Music] pepper started the firm 26 years ago and is said to have generated 25 percent annualized returns on average since then [Music] growing up in a port family in pittsburgh pennsylvania tapper always wanted to get rich a better life he knew it wasn't going to be handed to him he immersed himself in studying hoping to finish in three years in college in order to save money and while also keeping a part-time job out of all the hedge fund billionaires david tupper really is the one that started from the bottom not only that he suffered a lot of childhood trauma despite these good things about my dad he had a bad side too he was physically abusive to me in my young life there was nothing more terrifying there was no greater adversity but i prayed to god that i would never be the same to my children [Music] after earning an mba degree from carnegie mellon david tapper got a job in the treasury department at ohio's republic steel but the company was in financial trouble these guys are out of work why that's the question you just said why there he was introduced to the junk bond market in early 70s investor michael milken put a wild theory into practice by pioneering a huge market for high-yield bonds aka the junk bonds tepra quickly realized he had a talent for trading junk bonds which eventually helped him land a job at the infamous goldman sachs he made a lot of money for goldman sachs but in a bulk market virtually everyone can do well the real test is how well you can perform during a bear market the law of gravity hit wall street today in financial markets around the world for that matter as stock prices plunged even more than they did on black tuesday of 1929. during the market crash of 1987 virtually all traders lost money at goldman sachs all but david tepper he saw the crash coming and set his entire portfolio as short he made so much money by betting against everybody else goldman sachs has a competitive culture david tupper was not well liked at the firm but when i came up her partner i got shot down and i was incredibly upset finally tupper had enough he started trading aggressively on his own account preparing to make enough money to launch his own fund using his connections and goldman sachs tepper raised 57 million dollars for his new hedge fund appaloosa started my own company 25 years ago in 1993 called appaloosa and ended up doing something that was a lot more fun and made my life better in so many ways as soon as he started his fund opportunity came knocking on the door [Music] in the midst of latin america crisis in early 90s tapper purchased many bank debts in argentina right before the country started to recover as a result the fund made 30 return in 1995. david tumber is different kind of value investor so he's very much like seth clarkman if they find something that is undervalued they will bet really big on it tepper kept making phenomenal returns during his early years until this happened in 1998 the central bank of russia defaulted on this debt sending shockwaves to the world like many investors at the time tepper put hundreds of millions of dollars in russian bonds thinking it was impossible for a country to defuse debt but he was wrong when russia government failed to pay their debt tepper lost 80 million dollars then typer did the unthinkable he realized since the incident the market has become overly pessimistic about russian bonds making them extremely undervalued he will lawn on the same bonds once again by the end of 1990 he gained 61 percent as a result of his bets recouping his previous losses and made much more distressed debt has become a gold mine for contrarian investors like tepper in 2001 tepper generated 67 net return by focusing on distressed bonds but he would invest in anything he thought to be undervalued either for short term or for long term so appaloosa and palomino will do anything he also has made huge profits year by year by investing in under the radar companies such as myron an energy company but none of it compared to the opportunity brought by the financial crisis of 2008. the largest financial disaster in decades in this country like everyone else pepper took a hit in 2008 his fund was down 28 percent but he was enchanted because he saw so many undervalued opportunities he knew his losses were just temporary he was not going to let emotions dictate his trading if your thinking and your emotion is the same as everybody else's then you cannot do the out thinking and what i call the second level thinking which is required to act against the herd the common word is contrarian to sell at high prices which are high because other people are optimistic and buy at low prices which are low because other people are depressed so appaloosa quickly began buying all the common preferred and junior subordinate debt it could get his hands on pay as little as five cents on the dollar for securities of aig bank of america and citigroup as predicted his best paid off bank of america gone up more than 330 percent and citigroup more than 220 percent but the biggest price was aig he made a billion dollars from aig alone [Music] as humans we suffer from various cognitive biases people tend to find patterns that aren't there with robinhood a lot of people are coming into this stock market casino with david tapper it is possible that his success is due to luck but there are two things that he does repeatedly that might be helpful for us to learn he always trades with a large margin of safety and uses no leverage how much leverage not none none none what do you need leverage for when washington mutual was on the verge of bankruptcy temper bought their debt at 50 and 60 cents on the dollar second his strategy was more or less event driven not only the asset had to be undervalued david tupper always tried to figure out why it is undervalued and what events that will happen in the future that will trigger value realization seth clarkman called these events the catalysts which triggered value realization started as a date trader in college with a dream of becoming rich pepper has come a long way building one of the most successful hedge funds in the world [Music] you

Channel: FINAiUS

Views: 698,537

Keywords:

Id: JutRvz-sHMU

Length: 9min 38sec (578 seconds)

Published: Tue Mar 09 2021