Great Traders: What David Tepper Has to Say

David Tepper was born in Pittsburgh, Pennsylvania, in 1957. After earning an MBA, he worked for Goldman Sachs as a credit analyst and then as a high-yield head trader. In 1993, Tepper started his own hedge fund, Appaloosa Management.

After generating good returns on distressed bonds, David Tepper’s hedge fund began to focus on stocks. In 2009, the fund made $7 billion by investing in financial stocks, which were badly beaten by the 2008 financial crisis. Throughout the years, Tepper made the list of the best-performing hedge fund managers multiple times. His wealth is estimated to exceed $11 billion.

Below we present some of the best David Tepper’s quotes and our commentary.



“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.”

This is probably the most famous statement made by Tepper. He pointed out that even a great company which looks cheap may be a bad investment, for the time being, if the overall economy is doing badly. When analyzing stocks, don’t only look at what the company is doing. Look at its industry and overall economy as well.

 
“There is time to make money and a time not to lose money.”


Everyone in the market wants to make money. But, when bear markets come, losses occur, and often quite quickly. Good investors and traders prepare for such shocks. For example, some traders don’t hold positions over night, while some longer-term traders don’t leverage their positions. For investors, there are various ways to protect such as buying put options and diversification across asset classes and countries.


“We don’t really buy high-flyers. We buy before they get to be high-flyers.” 

Many investors think that by buying a stock of a great company, great returns can be made. At times, it’s a mistake since all the good news are already priced in. Should some negative news come, the stock will drop. Better to buy shares of a good company before it rises in value. Buy quality at a discount.

For traders, buying shares that constantly break to new highs is risky. If there’s a drop, it could be quite significant.


“I think when it comes to decisions, I try not to be emotional.”

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“Those who keep their heads while others are panicking do well.”


As an investor or a trader, you can’t have emotions overtake. Usually, you’ll panic if you risked too much. It can be a result of betting too much on a single trade and/or using lots of leverage
 

“Our biggest mistake was not realizing how illiquid markets could get so quickly.”


If there’s a market panic, everyone is heading for exit. Prices drop very quickly as there are few buyers and lots of sellers.


“For better or worse we’re a herd leader. We’re at the front of the pack, we are one of the first movers. First movers are interesting, you get to the good grass first, or sometimes the lion eats you.”

In 2009, Tepper moved in early. There was lots of quality selling at a discount right after the market crash. But, everyone was scared and worried about what will happen next. Perhaps another great depression? Depression didn’t come, but recession was deep. Now, it’s called the Great Recession. Tepper’s early move has made him billions of dollars as the stock market has done very well over the several years.


Summary:

  • Because a stock looks cheap, it doesn’t mean it’s a great buy. Look at industry and economy as well.
  • Prepare for the times when bear markets arrive.
  • Watch out for high-flyers: companies that have done very well. They could be too expensive to buy.
  • Don’t panic. The best way to avoid panic is to never make concentrated bets. Leverage is dangerous, too.



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