The Appaloosa Hedge Fund is run by David Tepper who made $7 billion for his investors back in 2009 by buying financial stocks when it looked like the financial system was on the verge of Armageddon. He was buying stocks like Bank of America at $3 per share when everyone thought that it was going to zero. Well it didn’t go to zero, and instead he ended up making a ton of money for his investors and around $2.5 billion for himself on BofA another other stocks.
To invest with Tepper, you have to have a strong stomach. Sure he has generated double and triple digit returns in a number of years. But these enormous returns have also been coupled with large draw downs. Investors that can’t handle the volatility of his investment style may end up selling at the bottom of a draw down rather than at the peak of his hedge fund’s high water mark.
I always find it to be a great shame when investors manage to turn a great investment into a bad one by simply having bad timing. But we can’t all have good timing as Tepper or we would all be billionaires like him, I suppose. And if we were all billionaires, being a billionaire wouldn’t be so special anymore.
Appaloosa’s Investment Strategy
Tepper focuses on investing in distressed companies. This is a field where a skilled investor can have a disproportionate impact. If you can identify the companies that are going for going out of business prices, that are not going out of business, you can make a financial killing buying them for pennies on the dollar and then waiting until they recovery and sell for full price. And this is what Tepper seems to be so skilled at doing and this has made him a billionaire.
Tepper’s Path To Billions
Tepper went to school at Carnegie Mellon. After graduation he worked at Republic Steel and then he went to work for Keystone Mutual Funds where he refined his investing skills. He did a good job and Goldman Sachs came knocking at his door. Six months after joining Goldman his skill at investing was recognized and he was made head of the high yield trading desk. Eventually he left Goldman to form his Appaloosa Hedge Fund. After raising capital and making quite a number of bold, shrewd investments he grew the fund and his own personal wealth to ten figures. Not bad for a kid from Pittsburgh.