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For the past three years, Interactive Brokers individual clients averaged 24.3% annually, beating the S&P 500. Lower costs and access to 170 plus global markets matter. Visit ibkr.com performance.
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Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Me Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now. Please enjoy this episode.
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Welcome into the Chit Chat Stocks Podcast, a podcast to help you find your next great investment. My name is Brett Schaefer and I'm joined as always by my co host Ryan Henderson. This week on our Wednesday episode, we are continuing our Super Investor series. Well known for his sharing of drinks with American football opponents, Carolina Panthers owner David Tepper actually earned his wealth as a hedge fund savant the 1990s and 2000s under. And this is, I think, how we say the name, it's a very difficult one to spell. Appalooa Management he's not as known as the Buffetts or the Peter Lynches or the Ben Grahams of the world. Because of his rare public appearances. I don't think he's written any books. I didn't notice anyone looking anything up online. There have been a few profiles in books, but not much besides that. But his returns are just as stellar as some of these legends. In fact, even better, over a 20 year period you can officially say he is in the pantheon of what you'd call market movers. Legends of the industry. People that when they say something on CNBC can move an entire sector or country's trades. But before we get started covering David Tepper, let's make sure to if you're listening to the show, follow the Chit Chat Stocks podcast. Wherever you're listening right now, give us a five star review on Apple Podcast or Spotify. And for further discussion on investing and the stock market, join our riveting chat community. That's completely free by signing up for our newsletter in the show notes, we are winding down our list of super investors covered in the last few years. I think we're going to finish out with the big dogs like Charlie Munger, Warren Buffett to close out 2020, maybe even Ben Graham. I thought of him when we were writing this down. We haven't covered him. I don't think. Sometimes, given the level of episodes we do on a weekly basis, it's hard to remember every single One. There's one you want us to cover before the end of 2026? Let us know. The introduction is going long here. So, Ryan, I'm going to kick things over to you. Tell the listeners who exactly David Tepper is, and then we'll go into his investing style, his track record and his portfolio today.
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David Tepper was born in 1957 in Pittsburgh, Pennsylvania to a father who was an accountant and a mother who was an elementary school teacher. And from what I read, what I gathered, it seemed like he was a part of a pretty ordinary American family. He was the middle of three children. The family was pretty much middle class. He attended a public high school called Peabody High School. He ended up becoming the valedictorian there. And he had a major interest in sports, as pretty much any Carolina sports fan now knows, because he is the owner of the NFL Carolina Panthers and the MLS team there in Charlotte as well. But in all the articles I read about his early life, the only thing that really stood out as sort of like indicative of what he might, you know, one day become was that his brother said he was very analytical. He I mean, he always seemed to be a pretty good student and apparently his grandfather would get him baseball cards and he had a unique ability to memorize the player's statistics. I don't know where this source was, but someone it might have been Tepper himself claimed, or maybe jokingly said he had a photographic memory. I kind of shrugged my shoulders at that. But basically he was analytical, smart and had a good memory from a young age. After high school, he attended the University of Pittsburgh, where he graduated in 1978 with a Bachelor's in economics. And then he earned what now equates to an MBA at Carnegie Mellon after him now. Yes. Yeah, correct. I think it's the Tepper School of Business, if I'm not mistaken, something like that. The he also started trading stocks and options while he was in school. So I think he probably knew that that was probably the path he wanted to go down in the long run. The apparently he was very money motivated from a young age. I mean, I guess all fund managers typically are. His sister has said that he used to claim I'm going to be a millionaire by the age of 30. But anyways, after his MBA, he took a position in the Treasury Department of a company called Republic Steel, based out of Ohio. I put a side note in here. I feel like the being a part of a Treasury Department is fantastic experience for an investing career, especially like at an early age you get to see the true ins and outs of how capital is deployed or budgeted at a big organization. I just feel like that'd be very valuable when you start looking at securities and analyzing companies down the road. Anyways. In 1984 he was recruited to join Keystone Mutual Funds in Boston as a credit analyst. And just one year after that he was recruited to Goldman Sachs to join their new High Yield group out of New York. Within six months, he apparently became the head trader there. And in reading some of the interviews with his colleagues and classmates as well, David was apparently a very confident guy. Uh, he's. People describe him as a bit of a character to help paint a picture. In 2018, it was reported that he kept a, quote, cartoonish oversized pair of brass test testicles affixed to a plaque on his desk to symbolize the courage it took to go against the market. Now you'll see why. Maybe that's somewhat symbolic of some of his investments over the years, but it kind of speaks to, I think, the character of David Tepper. Apparently their offices today are very much like someone likened it to a sports bar, like TVs everywhere, kind of maybe what you would think of sort of a typical Wall street guy potentially. Anyways, while he was at Goldman, I think this is where he really started to kind of make a name for himself. It's said that he played a major role in their survival after the 1980 crash. So he was apparently short a bunch of stuff on October 19 when the market plunged 22% in a single day. And he bought really cheap bonds during the crash, which paid off big time in the following years. And then because of this role in helping them survive, Tepper was under the impression that he had earned the right to become a partner. However, in 1991 and then again in 1992, he was passed over as a partner because some people at Goldman were not fond of his, quote, loud and profane manner. So after being passed over a second time, he left Goldman. Initially, he started trading literally just his own personal account full time out of a desk at Michael Price's office, who was big mutual fund manager at the time. Apparently they were friends. So he got a desk from Michael Price and just traded his own personal account. And the goal was to generate enough money trading his own PA that he could start a fund of his own. And that's exactly what he did. By 1993 he had made enough money that he started Appaloosa Management, which is the fund he still runs. Well, I believe he still runs it. Probably not as active, but the Fund structure he still has today.
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Yes, it is a family office today. So I think all outside capital has been returned. But given the returns he has generated over the years, it's still sizable with just his own money. I think it's fascinating. Maybe it's just a coincidence that two of the best hedge fund managers of the modern era, Tepper and Druckenmiller, are both from Pittsburgh. Both Pittsburgh people. Feels like a little bit of a coincidence. So shout out to Pittsburgh. I think you are right having a. And that is a classic. I don't want to call it the Rust Belt because I feel like that's an offensive term to people that live in that area. But it's a classic manufacturing company. Republic Steel, based out of Ohio, feels just gray offices, iron ore everywhere. That's what I'm envisioning. And yeah, he got to probably experience what it was like in the real world. But that Goldman story is also fascinating. Let's kick things off in 1993 with the start of the fun. Do we know what inspired the name? I have no clue.
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No, but I'll check.
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All right. Yeah, you can do this research live while we're recording. It started with $57 million in 1993. And given the secrecy around his. He doesn't post public letters, doesn't post public returns, never written a book, doesn't go on media appearances much. We really don't know what his mandate was in the early days and we don't know exactly what his returns are, but we can estimate things. And his reputation at the time, as Ryan mentioned, he's not just an equity investor. He buys a lot of distressed debt and that's the reputation he started to build. Similar to Howard Marks who we have covered on the show now through to today, he has built up maybe a reputation as an all weather investor similar to Druckenmiller or maybe Buffett in his heyday where you invest in the best opportunities to maximize absolute returns without the risk of blowing up. Now, Tepper's track record as I mentioned, is not official, but from reading the tea leaves, looking at some public statements, looking at what people have said, it is much better than I thought it was going to be. And one of the best track records over 20 year periods for any investor in history. I think the only one that is actually better would probably be Renaissance Technologies, maybe some others that I'm thinking of over a 20 year period. But from 1993 through 2013, Appaloosa generated a 36% gross annualized return or 28.5% net of fees. That means $1 million invested with Tepper in 1993 was worth $181 million by the end of 2013. As for hedge fund returns, I think only the 30% for 30 years from Druckenmiller at Duquesne. Maybe what Soros did as well. We've covered him before, but those are the only ones that can rival it under that structure in the modern era. Before I get going on kind of his investing style and some quotes here talking about him, Brian, did you figure out what inspired the name?
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Yeah, apparently at the time, a lot of funds wanted to be named after mythical creatures, Greek myth, mythological creatures. So he was. He wanted to do the name Pegasus, but it had already been filed. Someone already had the name and he refused to pay $300 for the rights. So he asked his team to open a book of horses, horse names, and Appaloosa was one of the first ones they found. So, yeah, not. Not the most inspiring, I guess, of stories, but. But yeah, it was a horse name that was early in the book he found.
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All right. Yeah, now we're in the era of nature, trees, you know, river, rock management. Yeah, all things. All things geography. All right, well, continue on the story. The fun got to a size about $20 billion and 2019 was converted to a family office. He has not been in totally quiet. I don't think he's entirely in retirement mode. I believe they still have an investment team working with him, but it seems like he's not working with outside clients anymore. It's just his money now. His wealth is quite sizable. I mean, he was able to buy the Carolina Panthers for, I'm assuming, a few billion dollars, if not even more than that. So he's still playing with a lot of funds. And we'll talk about how with the China pitch and the China trade that he had a few years ago as a case study of what he's doing today now, Ryan mentioned the belief in himself. He mentioned the grouchiness that kept him independent from the crowd and, well, independent from employment. At Goldman Sachs, he can be considered, I think, one of the few investors that simply cares about maximizing returns. There's a blog post talking about him from a capital allocator that talks about him as one of the investing greats and why he is so successful. Quote, Tepper appears to be using multiple mental models when he invests, choosing what works for a moment or context rather than being constrained by his historical role as a distressed debt investor. If you monitor the 13F filings of the stocks he owns. He appears to move effortlessly across sectors and asset classes, scooping up dollars as he goes. You would have a difficult time deciding what benchmark or comparable fund to judge him against. I think that is not a good example of how you don't want to pigeonhole yourself as oh, I'm small cap value, I'm fast growth guy, I only invest in growth stocks. I only invest in stocks with a pe below 15. He stays extremely flexible. He'll buy as we talk about later, maybe a little bit. You know, he bought Nvidia for the AI trade, but he buys extreme deep value distress debt as well. And here's here's another quote, a direct quote from Tepper on why they were so successful. Quote, we're value oriented and performance based like a lot of funds, but I think what differentiate differentiates us is that we're not afraid of the downside of different situations when we've done the analysis. Some other people are very afraid of losing money, which keeps them from making money. Thoughts on this, Ryan? Is he right?
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This is very descriptive of his investing career. He was not linear growth linear returns the whole time like you might have found with Duquesne and Druckenmiller. So it was very much there were big down years. He's often called the bounce back king or the king of bouncing back in sort of the fund world because he's had big down years and he would often follow them up with big up years. So yeah, I think that's pretty descriptive of the way he invested and I don't know if necessarily it's great for everyone to adopt that philosophy, but in his case, when he was able to find that the businesses were going to survive or the securities were going to get paid out, he had the courage to double down when I think a lot of other people maybe would not have.
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Here's another quote I have not from him, but someone describing why investors like him are so good at making money. Quote, keeping score in dollars extracted from the market rather than whether a piece of analysis was correct is one of the most effective strategies for maintaining the optimal grip on your investment ideas. While any fixed identity may constrain someone's viewpoint, the identity of quote, I am great at making money allows greater flexibility than quote, I am smart and therefore I make money or quote, I'm an expert in investing in financial stocks. Level four investors, which he's putting David Tepper in seem at one moment to focus on the business, then switch to see the business as a stock, then switch Again to identify the moments in time when one factor is driving the entire stock market. I think an example here is the investment in Nvidia in 2023 started heavily. He began buying a bunch in 2023. I think he might still own a little bit right now. We'll go about that in the portfolio update. But he started heavily trimming in 2025 so it was a little bit of a short term trade. I don't think it's a coincidence that the other legendary hedge fund manager Druckenmiller and others were piling to the stock at the time. This is when Tepper probably realized like I just mentioned in that quote, there was a huge theme building. There was one factor that was going to drive a bunch of the stock market. And you're riding this theme, if only for a short while. You're not going to get in earliest, you're not going to get out right at the top. But you can ride that sort of theme for easy returns over a few years. It sounds much easier in hindsight, but this is something I think he is probably quite good at. And I think investors like ourselves, individual investors, we generally fall short in having that skill set.
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You research your investments, you analyze markets, you manage risk. But have you researched your broker? For the past three years, Interactive Brokers individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. IBKR's lower trading costs, competitive rates, efficient execution and access to 170 plus global markets help investors keep more of what they earn and put more capital to work over time. The broker you choose matters. Interactive Brokers member SIPC if you care about performance, find out why the best informed investors choose interactive brokers@ibkr.com performance again visit ibkr.com performance yeah, I think a lot of investors, myself included, they want to do the work on a company. They want to have a thesis, they want to. I think often a flaw maybe with some investors is that they want to feel like the most knowledgeable on, on a certain company and have sort of this eloquent reasoning as to why the security is going to be worth more in the future.
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10,000 hours on this single sector, right?
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David Tepper I got the sense, I mean he obviously did the work and understood, but I got the sense that he didn't care how he made money as long as he made money and he was willing to go anywhere in the capital stack for a company. He was willing to go into various different industries and just Basically saw it as a vehicle for returns. And wasn't that thesis oriented? He didn't care about publishing his thesis for the world to know. He was smart. He just wanted to make money.
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All right, let's get into our case studies, Ryan. We're going to cover things like the.com bus, the great financial crisis, where he, unlike a lot of investors during those times, made a ton of money. But we're going to start with one of the earliest case studies. With one you looked at the 1999 Russian financial crisis.
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Yeah, I got to learn a little bit about market history with this one because I didn't know this even happened. But in 1998, 1999, Russia had a large financial crisis. There was apparently a lot of things that went wrong, but it initially stemmed from the fallout of the Asian financial crisis in 1997. So the Asian, Asian crisis ruined investor appetite for emerging markets. So Russia was having a difficult time after that raising money through bonds. And at the time they had been running consistent fiscal deficits and using short term debt raising from global investors to cover it. So the tightening of the credit markets presented a big issue for them. On top of that, oil prices dropped by more than 50%, which was their largest export by a long shot. So incoming dollars for the central bank plummeted. Well, three years prior, Russia had also set up a currency peg between the ruble and the US dollar. So in 1995 they were facing basically a ton of hyperinflation. And consumer confidence in the Russian ruble, or consumer trust was very low. People didn't want to hold it. So Russia set up this currency peg with the US dollar to basically stabilize it. Well, that helped for a short time. But when the crisis started emerging, the Russian central bank was having to spend so much money buying up rubles to keep the price artificially pegged that they had no choice really but to abandon it because it was a waste. And when they did, the value of the ruble got cut by more than 60% overnight. So in 1998, as this crisis was unfolding, David Tepper started buying up Russian bonds, betting that Russia would not default on its debt. But in august nineteen nineteen ninety eight, Russia did default on their debt and Appaloosa had to report an $80 million loss virtually overnight. This was part of what destroyed certain levered funds like Long Term Capital Management. And that year, Appaloosa reported a 29% drop for 29A -29% return for investors. Typically, I think most investors would, or at least most funds would try to get out of those positions. There would be too much pressure from investors, maybe that it feels like, what are you doing? Russia's defaulting on their debt. Why are you owning these things? However, he kept buying the Russian debt as the prices kept dropping. He was buying both the Russian domestic debt, which was what the country actually defaulted on, and he was buying Russia's foreign US dollar denominated debt, which they largely avoided defaulting on. And apparently he was buying these as low as 5 cents on the dollar. Now, quick caveat, when you hear the term default, I think often it kind of sounds scary in the world of credit, but that simply means the issuer missed an interest or principal payment. So you can still make a lot of money on defaulted debt. If they restructure their debt, they liquidate assets, they fall into good times potentially. And that's what Tepper was betting on. So Tepper recognized that the physical assets and the economic capacity of a nuclear superpower meant that the ultimate recovery value was going to be higher than zero. So when Russia did eventually restructure its debt, the new payout significantly exceeded his low entry price and he was collecting interest payments along the way. The bonds carried a pretty high interest rate too, if I'm not mistaken. So Russia's making interest payments on certain restructured debt, which actually allowed Tepper to recoup his entire investment purely just through the cash coupons in a short time frame. And then on top of that, in late 1999 and 2000, global oil and commodity prices began to rally again. So Russia's treasury quickly filled with cash and their creditworthiness began to rise. Tepper's bonds rose back towards par value and naturally Appaloosa made a killing. They not only generated money from the interest payments, but they got a massive spike in the price of the bonds as well. They posted in 1999 a 61% return for investors. We're going to talk about this. This was kind of indicative of his career. There were several times where he had what looked like a bad year on paper, but he hadn't sold the securities and he was just kind of early and trying to bet on recoveries. And ultimately he ended up getting paid out and the returns were worth it in the long run if you were able to hold through those difficult down periods.
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Yeah, that is indicative of my next case study here, which is the telecom bust, the tech boom and the distressed debt of a little known company called Enron who most people think everyone lost money on. Yeah, the Russian one is interesting because I think it goes to Part of his thesis of buying the Enron debt at pennies on a dollar is if you have physical assets that can help recover some of the value there, you can maybe set a floor on the price regardless of what the panic or the bankruptcy or how distressed everything is. Because if you are that front line of who gets the say of whatever Enron, these pipeline assets, well the stock is going to go to zero, but you can still recover not the entire debt but you know, a good chunk and still make a little bit of money. So I will say for Enron, along with my grandpa whose financial advisors convinced him to sell his Enron shares before the collapse, perhaps Tepper is the only other investor who has made money on this business, at least in the 21st century. It's also why the 1999-2002 period were golden years for Tepper, starting with that 1999 Russian crisis that Ryan just mentioned. So Tepper, as we talked about, likes heading into disasters that the rest of the investing world finds toxic. Enron after its fraud was revealed was exactly that. You know, 99.9% of the market would not touch anything close to Enron with a ten foot pole. I mean for us, Ryan, if we were there back then, yeah, we don't have the opportunity to really invest in the debt but we would just say there's fraud, ignore it. We're not touching getting anywhere even analyzing this business or any of its assets.
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Yeah, 100% it. There's so many situations where he made money kind of just going into industries and securities that nobody wanted to be around. Like when there was a fire in industries and everyone would run from them, he was, it was like a calling for him to go find, you know, some element of the capital stack that is potentially mispriced. And it seems like Enron was a good example of that.
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Yeah. Let me try to sum up the story of what happened quickly. So for those that don't know, I know a lot of people do know this story. Enron was historically a natural gas pipeline company that got into a myriad of other businesses and began faking their financial figures to boost earnings per share. I think that sums up the entire book. Right. And eventually they got exposed and they collapsed. Now the fraud latest think over the entire business but the pipeline assets still had value, right? They were still there to some buyer. Now Enron's debt at the time was trading at pennies on the dollar. I don't know the exact pricing because Tepper again doesn't share a lot of things and it's not public. What you know, debt is trading. It's a more mysterious market, but it was trading at pennies on the dollar, maybe 10 cents, 5 cents, who knows? Tepper bought $1 billion worth in 2002 for Appalooza. When the assets were reorganized, Tepper was able to make multiples of his investment back in a short time period, meaning multiple years because there was a lot of time in the bankruptcy proceedings and all that, which is a great internal rate of return. Now we don't know the exact figures, but the Enron Recovery Corporation was able to win $15 billion from Wall street banks that were complicit in the fraud and the sale of the physical pipeline assets both in the United States and abroad. I think Tepper was able to see that the bonds were trading below intrinsic value for these physical assets with some upside from that Wall street case settlement. And even if you aren't going to get all of the debt back at par, if you buy this debt at 10 cents and you get back 16 cents, 20 cents or maybe even higher, there is significant upside there plus what's likely some interest payments as well. Appaloosa was able to repeat this strategy with WorldCom, which was a telecom and Internet infrastructure company that started fraudulently stuffing capital expenditures to mask the collapse in demand from the Internet build out. May or may not remind me of some recently IPO'd companies today may or may not like the pipeline companies. With Enron, the equity went to zero for WorldCom, but the physical fiber infrastructure remained. So Tepper went in, bought the debt for pennies on the dollar again and made a good amount of money. What's funny is that Tepper shorted the nasdaq bubble in 2000, but was convinced to get out of the trade after just a few months from his investors who didn't like the short term losses even though it was almost time to perfection. I ask, and maybe I'll answer this my own question here first is what lessons can we learn from the Enron and dot com bust investments? Is that maybe investors are even more willing to put up with buying the debt of a fraud that's already exposed versus going against the tape and trying to short a thematic bubble. Because it seems like no one puts up with that even though it would have made a kill.
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I mean it's so hard to do when markets are soaring, especially if you're managing outside capital to be the the bear in the room. So yeah, he would have made a killing, but evidently, I mean it was probably hard to report those losses when things were going well, but he didn't.
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With Russia, it's interesting how people have zero tolerance for betting against a bubble.
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Yeah, I don't know if, Yeah, I don't know a. If people were critical of him during the Russia period. But also I think it's different when you're saying something's not going to happen or something's overpriced as opposed to this is underpriced but the stock keeps going down or the value of the securities keeps going down. Like you can still double down in those situations. I mean you can obviously double down on a short too, but it just, I don't know it. I think with the dot com bubble to be the vocal spokesperson that's saying this is overpriced, you probably get a lot more criticism than the person that's like, yeah, I think there's value in this distress debt from Russia. Like you probably just don't have that much attention on that event as opposed to the dot com crisis or dot com bubble. The. I find this interesting. For anyone that's not familiar with distressed debt investing, I'd say maybe don't dabble in it if you're a beginner. But there is a lot of benefits of distressed debt investing when it works well because you can get the price improvement right. So if you're buying bonds at 5 cents on the dollar, if, if those bonds start to trade back towards par value, you get that price appreciation, you get the interest payments as well. And then you typically have higher margin of safety because you have better preference when in the event that there's a liquidation or a bankruptcy. So there is some, some major benefits in when you are a good distressed debt investor. I'll hop to my second case study and we, we ended up spacing out all these case studies fairly well in terms of like his actual career. So the case study I'm looking at is the GFC rebound. This is probably the most famous investment that Tepper ever made. It was certainly his most profitable.
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A
The Tepper bottom.
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C
Yeah, and you are probably noticing a theme here. By now, basically all of Tepper's best investments have come by picking up distressed assets during financial crises. It is worth noting though, and we already talked about this, his timing is not always exceptional, but if he's right, the rewards are typically large enough to compensate for any short term losses. In 2000-2008-2007-2008, things were starting to look pretty shaky in the U.S. there was already cracks starting to show and stocks were beginning to drop and in fact I believe by 2008 there had already been some major, by 2009 there were some major banks that had already gone bankrupt. But Tepper thought the US economy was actually healthier than the market was saying. So as these stocks were dropping, he began buying up shares in tech and financial companies and ended up evidently being very early. In fact, in 2008 Appaloosa's flagship fund posted a 27% down year. However, as the GFC progressed, instead of getting shaken out of his positions, he continued to accumulate assets at cheaper and cheaper prices. His thesis here was essentially that the US treasury was going to do what they said. So let's, let's kind of bring people back to that timeframe. It's 2008, mid 2008, late 2008. Several major financial companies had already collapsed by this time. Lehman Brothers, Bear Stearns, Washington Mutual. And there was widespread concern that this was the tip of the iceberg. There were legitimate fears that all the big banks were going to be, maybe not all, but most of them are going to be nationalized and that the equity and the bondholders were going to be wiped out. So in early 2009 the US treasury released a white paper outlining its financial stability plan and the capital assistance program. The white paper stated that the government would purchase preferred stock in the banks that could eventually convert into common shares. Crucially, the documents specified a conversion price that was far higher than where bank stocks were currently trading in the open market market. So that was if you were a distressed debt investor at that time, the US Government basically gave you sort of a backstop. Keep in mind the concern wasn't necessarily that these were companies were going to go bankrupt, it was that they're going to be nationalized and that the bondholders and the equity holders are screwed. But Tepper, given his experience with other government crises, said that was not possible. Essentially, according to one article, he says he looked at the capital structure and realized the US Government could not afford a true nationalization because it would completely destroy the credit markets. Tepper realized sort of the opposite of what everyone was thinking. There wouldn't be a nationalization and in fact the government was creating a permanent safety net which is music to the ears of a distressed debt investor. With this line of thinking, he decided to double down on a bunch of his financials bets. So one in particular was bank of America. He accumulated 47 million shares of common stock in bank of America, buying some as low as $3 per share using the government's own internal buy in framework that was laid out in that white paper. It valued it closer to $6 a share. So Tepper knew he was buying assets at a steep discount to what the government had already said or had already agreed to pay and had put in writing that they agreed to pay, which is a big deal because obviously it's harder for them to go back on it. He also bought citigroup bonds for 19 cents on the dollar. He bought AIG debt for 10 cents on the dollar. He bought Wachovia and Washington Mutual preferred shares right before J.P. morgan and Wells Fargo were basically forced to buy them out. For anyone who remembers their GFC history, there were basically a bunch of these forced mergers. And by the end of 2009, Appaloosa reported a 132% return. Appaloosa earned a $7 billion profit and Tepper himself pocketed $4 billion that year alone.
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A
Well,
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C
I mean, you can look back on this and it's kind of easy with hindsight to say, okay, so he just took the government at their word and he trusted the white paper and he believed that the sky wasn't falling, that America could survive this. How is that that unique? But he was really one of the only big investors willing to take this leap at the time. Here's one quote I found. It says in March 2009, Appaloosa's traders reported back to Tepper that they were the only major institution buying bank equity and debt. So as they're going in trying to buy as much as they could, they, everybody was selling there was. They were the only bid, it seemed the only meaningful bid, which you can think about how discouraging that might be. It's enough like it's. It's hard sometimes when you stick your neck out there and have a thesis that you're. That you think is a little different. But when you are literally the only big bid, you can tell like, okay, we better be right, because we're thinking differently here. Evidently, like I said, totally worked out, 132% return in 2009. That is one of the big reasons that he's considered the bounce back king. Again, the returns are not consistent, they're lumpy, but they have been exceptional over 20 or 30 years.
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A
It's also nice if people aren't. Well, if you're one of the only buyers and you think there's a value floor, if people are willing to sell at pretty much any price to try to scrape together some value, you can probably get a good price on your end. For reference, and I know he doesn't own it today, but bank of america is at $63, pays a dividend yield of 2%. So probably 100% dividend yield on that cost basis, if you held on through to today. And he's also during that time, I think, credited with being. It's not like a. It's just a saying, but the saying don't fight the Fed came about because of his type of trades and his mentality during that time, which worked quite well. He's used that again and throughout the last last few decades, probably even before as well. It just wasn't as popularized in the media where whatever the fed is doing, for example, fighting inflation in the 2022, 2023 time horizon, you don't want to be long bonds don't fight that. Most likely, if they say what they're going to do, the best move is probably to short bonds at that point. And this leads into, if I can
- [39:38]
C
chime in here, I think that's a good point to raise. Nowadays, it's kind of just seems to be universally accepted that there's the Fed put or there's the Fed will kind of backstop any market if things go terribly or things go awry. The Fed will save markets or they have enough capital to do it. I imagine going into 2008, 2009, that was not the thinking. People were probably skeptical about the Fed after The returns from 2007 and 2008, after Bear Stearns and Lehman Brothers and some of the largest financial institutions started declaring bankruptcy, it probably seemed like the Fed didn't have control yet.
- [40:23]
A
And you have to make decisions under high pressure. It's a lot different than looking out in hindsight. Apologies for anyone listening. There might be a siren in the background, but I think it's going to go away in a couple of seconds. Well close out with a case study here which relates a little bit to his balancing of macro and micro when making investments. And that is the recent bet on China. This one's going to be quick because to be honest, there's not much literature literature besides 13 Fs and CNBC appearances. But we can kind of read through the tea leaves of what he said here. In recent years, he has been vocal about betting on cheap Chinese stocks as a good risk reward. He even went on CNBC multiple times to discuss it as a family office. And I think someone that's more interested in in the Carolina Panthers and philanthropy nowadays. He said he didn't put his entire portfolio into a stock of communist the stock market of a, you know, not an ally of the United States, little riskier. But he did put a bunch of money into Russia back in the day and that can maybe be considered in the same boat. He said, though he limited the, the percentage of portfolios in this. And I think the first question I have, and maybe we can save to answer this until the end of the section. At one point or at this point, has he graduated to someone who can move stocks solely based on what he says? I think the answer is probably yes. And the thesis on China was pretty simple. He articulated in public on cnbc. One, there are, there were and are Chinese technology AI and hyperscalers like Alibaba. And they traded at single digit pe ratios in 2024. And second, at the time, in late 2024, the Chinese government put on major stimulus to get out of the housing bust and to increase consumer spending, which, you know, there's. For those that don't know, there has been, I think still ongoing a little bit a gigantic housing bust in the Chinese market from like 2021 through 2024. Kind of did a similar thing where they wanted to fix that, I guess. I don't know the exact details, but there's a huge amount of stimulus for the economy in 2024. Tepper thought that combination would create a floor and help with these technology stocks in the country. He ended up buying a bunch of specific tech stocks like Alibaba ETFs and said to buy, quote, anything related to China. I'm not sure what the exact returns were on these stocks, but they rebounded nicely in 2025. It looks like Alibaba doubled in less than a year and it was trading at a PE ratio below 10 or right around 10 in late 2024. Now, I don't know if there's anything else here to analyze besides there being a few different factors causing Tepper to try and catalyze his own move with these stocks. He mentioned he liked the buybacks as well. So maybe that was also a nice floor that you could put in with some of these companies. But besides that, it seems like he saw an interesting risk reward on a trade. Not something I really enjoy doing or if I don't have a grasp on the underlying nature of the business, their competitive environment, what have you. But he, I don't think saw it as a business he wants to own for the long term given that he sold a lot of these companies already. But strictly, all right, there's a setup here. They're trading at extremely cheap ratios. There should be a catalyst with the Chinese Consumer stimulus. They're buying back a lot of stocks. Probably a good risk reward to start piling into here. Do you think Ryan, he actually believes in these businesses or did he believe in the trade?
- [43:53]
C
Probably more so. Believed in the trade. I think there were a lot of big hedge fund managers that kind of did the same thing. Maybe at least some of the vocal ones. I know Michael Burry did this as well.
- [44:07]
A
He's still in them.
- [44:08]
C
I think it's probably hard. Not like if you have some familiarity with the Chinese market and you know that Alibaba's an exceptional or highly influential business there that's growing and they've should grow for some time and you see them at a single digit PE multiple. I could see how people get drawn into this. It's not really for me, but yeah, you don't, you don't have to love the company to make money. I think Tepper's a good example of that.
- [44:42]
A
That's a lesson, lesson to take away from this episode. Maybe be a little bit flexible. That could be something that us and our kind of style the market. Individual investors buy and hold high quality businesses. Maybe that's a fault we have where if we don't understand something perfectly but the pieces are lining up, the stars are aligning, we still don't invest. Probably a mistake. Something like Nvidia in 2023. A business we knew fairly well that year.
- [45:12]
C
Yeah, yeah. If we look at the portfolio today. Appaloosa Management according to the latest 13F, I'll just rip through some of the largest holdings here. Amazon is the largest. Micron, second largest. Google, Uber, Vistra. I actually don't know this other one.
- [45:31]
A
Energy play. AI energy play.
- [45:34]
C
Okay. Nvidia, NRG Meta, SanDisk, Corning Taiwan Semiconductor. There's a lot of semiconductor exposure here. I. I would guess. Probably.
- [45:46]
A
How much you want to bet the next 13F he's out of SanDisk and Micron completely.
- [45:52]
C
I'd have high conviction. Yeah, certainly possible. I mean this is one of those where it's hard to follow a 13F for someone like that. I mean he's a hard investor to follow to begin with because he trades in and out very regularly.
- [46:03]
A
It doesn't say anything.
- [46:05]
C
Yeah, there's no public communication so yeah, I'm not sure there's much to take away here.
- [46:14]
A
Position. That's nice. Maybe Uber and Amazon are long term bets.
- [46:22]
C
Yeah, I mean maybe he just has a mix of both these days where it's just some are just long term and he's less involved and you Know he thinks he'll hold those positions for a long time. And then some are more secular or thematic. Let's talk lessons learned. What did you take away from studying Tepper? And then is there anything that you think you can apply to your own investment process?
- [46:47]
A
Okay, first one I have is focus on time or the length of when the length of time is going to take for your returns to either materialize or you're going to realize you're wrong and can get out. Which is really incorporating IRR as opposed to. Well, I think the stock can go up 2x over who knows how many years. For example, in my own portfolio last year there was a time based component to a stock called Oscar Health. It's done well, but I was going to either figure out in 2026, less than a year later, whether I was right or wrong on the investment. I think the ability to get the outcome, whether good or bad, is almost better than sitting in something that is just stagnating for five years, going nowhere. For example, on the other side of things, maybe I could have learned this lesson to be more patient in buying or targeting Nintendo stock until the switch 2 is imminent or there was a better setup for I want to own this for the long term, but over the next year I kind of have this catalyst that can maybe create a better risk reward versus what I could do with something else in my portfolio. So I think that's a lesson I have. Am I explaining this right, Ryan? I feel like I'm saying it a little bit, but he definitely does this as opposed to a lot of individual investors like ourselves.
- [48:08]
C
Entry Timing matters. Basically being cognizant of what's in front of you in terms of short term catalysts when you buy something. Honestly, studying David Tepper, I'm not sure there's a ton that's applicable to my own investing just because I'm not managing my portfolio as actively. And he was in his prime and maybe still today was very active and very time based in his investments. None of the investment case studies we talked about today were long term successful compounders. They were usually, you know, had had a specified duration, so not sure there's a ton to take away. The one thing I would maybe one thing that was recurring in looking at his case studies is he did well buying stuff when the crisis was unfolding. Now part of that is he had the ability to recognize what was an opportunity and what was actually trash, like what bonds were worth something, but he also had the money to actually do it, which was part of the biggest issue was a lot of the other big funds probably recognized the same thing. But either they didn't have the investor base, either they didn't have the cash on hand, or they didn't have the other assets they could rotate out of to actually capitalize on that opportunity. So I guess that's kind of my way of thinking if things feel frothy, try to have some capital or dry powder or I guess counterweight type positions that you can rotate out of or apply towards better opportunities when things go badly. Like just be patient.
- [50:11]
A
It might be. Yeah. Good lesson is it might be easier to bet on kind of distressed assets and this doesn't mean debt, which a lot of us don't have access to. But stocks, you know, in a, in a market crash might be easier to do that than betting against a bubble or bull market or overvalued sector. Let's see my other ones. I think this is a nice one that a lot of people can use is use macro conditions as a guiding tool. Like I personally may disagree on the China bet. I think it's much more of like them pushing on a string for stimulus. But regardless, when Tepper is trying to time up this big bet on the sector which do work out for him, I will say I was someone that was wrong on that specific one. Unsurprising. He's a legend. I'm not. But using the fact that there was government stimulus to kind of propel the economy or make a floor, maybe change things with the Chinese economy, this seems to work out well for him when combining that. And you don't just have to say I'm making a macro bet on the Chinese economy. But that kind of changes the winds a little bit in your favor. Just like with don't fight the Fed in 2009 and they can help be a guiding principle. When he didn't just make a bet on the economy of the United States, he made a bet on the banking stocks specifically. But the macro conditions and decisions from the government helped guide his thinking there. The last one here I have is thematic investing can be simple. Like Druckenmiller, you saw Nvidia, it was a way to play the AI theme. He bought it, wrote it to some solid gains, really good IRR over maybe a one to two year period. And he sold. That's it.
- [52:03]
C
Yeah. Like same with Micron Miller.
- [52:07]
A
Guessing.
- [52:08]
C
Yeah. Druckenmiller is famous for saying the only thing that really matters is the next 18 months. I think you would have probably made a lot of money with some of the memory chip stocks if over the last year or so, maybe last two years, if you knew what was going to happen to revenue over the next 18 months. So yeah, I'm glad we studied Tepper. I didn't realize who he was and his investment track record. He's done a good job, an exceptional job. He's probably in the top five returns wise of the investors we studied making
- [52:44]
A
money for clients too.
- [52:45]
C
Yeah, maybe top three the and and now when we see him at Carolina Panthers games or on tv, you'll know how he, how he got there.
- [52:56]
A
So yeah, you could see where that grouchiness comes out, some of his actions with fans. And speaking of his portfolio, Uber stock as we're recording under $70. So maybe kind of do 13F digging if you can buy what super investors bought at a lower price. Not a recommendation, but it's a good starter point to potentially research. It's one we've looked at quite a bit. Ryan, we want to do Munger, Buffett, maybe Graham to close out the year. Is there anyone else we're missing in super investors and listeners? Let us know as well.
- [53:31]
C
No, I think we'll have our homework cut out for us there with with those three. There's so much written on them it's hard to distill it down into a one hour podcast.
- [53:42]
A
But the who's who's the four tech investors. We're not going to do them. The all in the all in crowd. We're not going to cover them.
- [53:50]
C
Don't know if they'll be on my hard to do VCs. No, I think those three would. Those are probably the biggest ones we haven't done that are top of mind right now. You want to do Munger and Buffett together or separate?
- [54:06]
A
Separate. Separate. There's plenty of partnership info for Munger. There's so much. I've said this word twice literature on both of them. We'll have enough for two episodes.
- [54:16]
C
All right, well I think that's going to do it. Thank you everyone for tuning in. Want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat stocks is not formal advice or a recommendation or we may buy, sell or hold any of the securities discussed on this podcast. Thank you all again. We'll see you next time.