The success story of investor David Tepper and his investment rules
A successful investor, an outstanding personality, a philanthropist, one of the richest people in the USA – all this is about David Tepper, who is the founder of the hedge company Appaloosa Management. Many novice investors are interested in what led him to success and what capital allocation strategies helped him create capital that exceeded $13 billion.
Childhood and education
D. Tepper was born in 1957 to a Jewish family in Pennsylvania, USA. My father was an accountant, my mother was a primary school teacher. The future successful trader did not have any special abilities, but thanks to a hobby popular at that time, he developed an unusual talent: he managed to remember all sports statistics. Perhaps it was the photographic memory that later led Tepper to success.
David’s entrepreneurial abilities were discovered when he entered the University of Pittsburgh after graduating from high school, from which he graduated with honors. To pay for his studies, the future investor began to earn money and trade on the stock exchange, and later became interested in options. The resulting profit turned out to be enough to pay for tuition and get a bachelor’s degree in economics.
He now started as a junior analyst at Equibank, but very quickly such work became uninteresting to him, and our hero decided to take up entrepreneurship. In 1980, Tepper entered business school, and two years later, when he received a master’s degree in business administration, he got a job at the Treasury. Here he first learned about such a concept as “junk bonds” and gained practical experience in the field of bankruptcy.
Tepper continued his professional growth as a credit analyst at the Keystone Investment Fund in Boston, but in 1985 he moved to Goldman Sachs. Occupying a similar position in a new place, he now significantly increased his income, and six months later he was transferred to the department engaged in trading highly liquid bonds.
Already in 1986, David began to manage the department in which he worked, but the divergence of his views with the bank’s policy became a stumbling block for career growth.
In 1992, Tepper and his colleague left Goldman Sachs and founded the Appaloosa investment fund. The fund’s assets grew rapidly and already in 1993 reached $ 300 million, and in 1996 amounted to $ 800 million. The profitability of the company in the period from 1993 to 2009 was at the level of 38% per annum.
David chose an unusual strategy for his fund: he invested in companies experiencing financial difficulties and earned money by changing quotes upward.
His first investment was shares of Algoma Steel Inc, which he bought for 20 cents, and sold for 2-3 times more expensive. Other well – known investments of Appaloosa were:
- debts of the Government of Argentina (the income from the transaction amounted to 42%);
- investments in the Korean War, which brought a profit of 29.5%;
- Russian debts of 1998, which, however, turned out to be a failure (the company’s losses amounted to 29.2%);
- acquisition of debts of companies from the housing and utilities sector, marked by the best yield in the history of the fund, which reached 148.8%.
Later, Tepper began investing in financial institutions, 30% of whose assets were accounted for by banks, and by 2009, the profitability of Appaloosa reached 120% per annum. And although this was not a record, the Tepper fund showed the best result among hedge funds.
2011 was not the most successful year for such funds, but already in 2012 Appaloosa received a good quarterly profit. 2013 was the year of the stock market boom. This year, the Tepper Foundation received 40% revenue, and the total amount of funds managed by the fund reached $ 20 billion. The next risky venture was investing in airlines, and this venture turned out to be very successful.
Despite the fact that D. Tepper’s hedge fund consistently showed good results and was considered one of the best, the “great combinator” himself did not stop there. His new focus was investing in sports. In 2005, Now acquired 5% of the National Football League and continued to invest in football leagues and teams.
The 2008 crisis
It is difficult to find a company that would not suffer as a result of the global economic crisis of 2008, but now I have found a winning option here. At first, David invested in ordinary shares of leading companies, but he lost. Appaloosa lost 25%. Then the investor decided to bet on preferred shares of banks bought out by major competitors, and this brought him a solid profit.
Contrary to the general trend, he now invested in unprofitable financial instruments, and when the half-ruined banks began to receive support from the state, the Tepper fund received more than $ 7 billion and 120% of net profit.
Unlike other hedge funds, Appaloosa, adhering to the strategy of investing in unprofitable financial institutions, was able not only to stay afloat, but also to be among the leaders.
David married for the first time in 1986, but the couple broke up in 2014. In 2019, Tepper remarried. Together with his wife, a successful businessman lives in a three-hectare estate overlooking the ocean. The cost of his estate, located in New York state, analysts estimate at $ 60 million. David has three children who are fond of various sports, which he supports in this.
David is not only a successful investor, but also a well-known philanthropist. He regularly spends large sums on charity. The priority direction of this activity is education. For example, in 2013, Trepper transferred $67 million as a grant to Carnegie University.
In addition, David actively donates funds to kitchens for the poor, transfers money to the Jewish foundation, and in 2012, after Hurricane Sandy, he donated a large amount as aid to affected families.
A hedge fund, which is the David Fund, is a fund operating under minimal restrictions in terms of the choice of financial instruments and management methods. This allows such funds to get the best result.
Stepper’s main strategy is to invest investors’ funds in debt securities of companies in a difficult financial situation. The purchase is carried out at the lowest price, and the sale is carried out at a higher price. Investing in “junk” assets allows you to get a tangible profit during the growth of quotations. The counterweight in case of unsuccessful investments in hedge funds are investments in promising growing companies that allow you to compensate for losses and receive a stable income.
The success of the Tepper Fund can be explained by the ability to form a profitable investment portfolio without fear that some of the assets will not bring profit. David compares his activity to a game consisting of an infinite connection of dots, the prize of which is billions of dollars.
Published: 21 May, 2022