David Tepper: King of the Distressed Investment

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Although he isn’t quite a household name in the same way as George Soros or Ray Dalio might be, there can’t be a single person in the investment industry that doesn’t know who David Tepper is.

As the founder of Appaloosa Management, Tepper has made vast fortunes by investing in ‘distressed’ companies, and in 2012, he was (according to Institutional Investor magazine) the highest-earning hedge fund manager in the world with a $2.2 billion paycheck.

Born in 1957 into a middle-class Jewish family in Pittsburgh, Pennsylvania, Tepper was raised by his accountant father and schoolteacher mother along with his two siblings. After excelling at school, he paid his own way through a bachelor’s degree in economics at the University of Pittsburgh by working in the Frick Fine Arts Library, and graduated with honours.

It was while at university that Tepper made his first forays into trading the markets, with his father giving him his first two investments, which were in Pennsylvania Engineering Co. and Career Academies, the latter of which went bankrupt. Perhaps it was this early experience that led to his interest in making money out of companies that are in trouble – which was to be his hallmark as a trader, and would later make him a fortune.

Upon graduating from Pittsburgh, Tepper went straight off to work in the finance industry, landing a role as a credit analyst in the treasury department of Equibank. However, he soon grew unsatisfied with his position and his hopes of advancement, and left in 1980 to study for an MBA at Carnegie Mellon University. Two years later, with MBA in hand, Tepper went off to work in the treasury department of Republic Steel in Ohio.

From here on in, there was literally no stopping the upwards career trajectory of the talented young financier. In 1984 he landed a role with Keystone Mutual Funds in Boston, and just one year later he was recruited by investment banking giant Goldman Sachs in New York, which was in the process of forming its high yield group.

Starting out as a credit analyst, Tepper’s undoubted talent for dealing in distressed securities saw him promoted to head trader on the high-yield desk within just six months. He stayed there for eight years, racking up huge profits for the bank by focusing on bankruptcies and other special situations, and cementing his reputation as one of the shrewdest traders on Wall Street. By the time he left Goldman in 1992, he was considered to be one of the foremost authorities on the topic of distressed securities, and formed his own hedge fund management firm, Appaloosa Management, in early 1993.

Tepper’s uncanny knack of spotting profit opportunities in securities that the market is running scared from has since proved to be a huge asset to himself and the investors in his fund. Back in 2001, he made a staggering 61% annual profit by focusing on distressed bonds, although he changed tack in 2005 by deciding to focus on stocks in the S&P 500.

In his own words, he generates his remarkably consistent profits by

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