The $7 Billion Payday

Monday, December 21, 2009

Hat tip Crossing Wall Street

Ever heard of David Tepper? His hedge fund made $7 billion this year, of which Mr. Tepper will keep about $2.5 billion for himself. The funds secret was to beat against American falling into a second Great Depression.
Through February and March, Mr. Tepper scooped up beaten-down bank shares as many investors were running for the exits. Day after day, Mr. Tepper bought Bank of America Corp. shares, then trading below $3, and Citigroup Inc. preferred shares, when that stock was under $1. One of his investors insisted more carnage loomed. Friends who shared his bullish beliefs were wary of aping his moves amid speculation that the government was about to nationalize the big banks.

"I felt like I was alone," Mr. Tepper recalls. On some days, he says, "no one was even bidding."

The bets paid off. A resurgent market has helped Mr. Tepper's firm, Appaloosa Management, gain about 120% after the firm's fees, through early December. Thanks to those gains, Mr. Tepper, who specializes in the stocks and bonds of troubled companies, manages about $12 billion, a sum that makes Appaloosa one of the largest hedge funds in the world.
My Thoughts: Is he a genius or just plain crazy? With the entirely unknown variable of possible nationalization, Tepper certainly took on risk. Yet, since the end of the world only happens once, you should never bet on it. The rebound trade has been brilliant.


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