TEPPER: THE ECONOMY LOOKS BETTER, EQUITY GAINS WILL BE MORE DIFFICULT

David Tepper, the founder of hedge fund Appaloosa Management, who made waves last September when he said the market was a “win win” was on CNBC again this morning.  Tepper says the market is still not fully pricing in the economic improvement we’ve seen, but gains in the markets will not come as easily as they’ve been.  Tepper thinks the two biggest risks to the market are Europe and China.  His favorite sectors are tech and financials. Overall, he’s still bullish, but not the same raging bull he was before this huge rally.

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Source: CNBC

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • 3421138532110

    Has the man most tagged as having fathered this recent rally just come on air to bury it too?

  • http://www.pragcap.com Cullen Roche

    Not really. He’s still pretty bullish.

  • 3421138532110

    Well he might be bullish :) My question was did his appearance mark the end of the “Tepper rally”? I guess time…or some weeks will tell.

  • Oroboros

    I get the impression he’s usually bullish. He reminds me of a younger Warren Buffett. Folksy, optimistic, ruthless, circuitous, focuses on cheap individual stocks, value over momentum, “everything can be worked out” belief system.

    I’d love to know how he did in 2008-2009.

  • Southerner

    From the way I got the perception he was still invested…he better hope the recent ralley continues or he will be raiding one of the food banks he has been working to stock when he goes bust.

  • Mountaineer
  • http://www.pragcap.com Cullen Roche

    He got banged up in 2008. I want to say it was -25% or so. But then he was up 100%+ in 2009….

  • Mountaineer

    Down 27% in 2008, up 133% in 2009, up 182% from 2005-2009.

  • http://www.pragcap.com Cullen Roche

    Looks really volatile. Lots of downside vol in there. I wonder what his risk adjusted figures look like. I’ll bet they’re good, but not great….

  • Mountaineer

    Tepper seems willing to ride out a fall. From what I’ve read he doesn’t hedge as much for the downside, just trims some positions, raises cash and goes long heavy with value bets when he feels the bottom is close. Fell hard, 25%, in the 2002 bear as well. But then he killed it for 150% the next year.

  • http://www.pragcap.com Cullen Roche

    Certainly not a sleep easy portfolio….

  • Oroboros

    Thanks Mountaineer.

    Yeah, that’s about what I would have imagined. Sort of a Buffett 2.0. Stick to your value convictions, ride out the storm, do your homework, beat the avgs.

  • Oroboros

    Whoops, … and Cullen. :)

  • http://www.pragcap.com Cullen Roche

    Sharpe ratio is only 0.7, but that’s a lot of upside vol. I’d have to run a Sortino on him also. Would likely be much better, but even the Sharpe ratio shows a huge level of volatility. Would be nice to see his monthly returns. I’ll bet the swings are dramatic….

  • http://www.pragcap.com Cullen Roche

    His area of expertise is distressed debt. All this equity chatter is new to him to some extent. I think he’s only gotten into it because he was forced to via convertibles and whatnot. Interesting guy. Seems like a good man also….For what it’s worth….

  • harold hecuba

    come on. tepper bought bank stocks betting on a gov bailout in 2008. that’s where the gains came from. playing with other peoples money is easy. you have nothing to lose. if your fund is down while the market is down you simply performed well with peers. what would have happened to poor david pepper if the gov was not backstopping the banks and wall street.

  • Oroboros

    Well everybody has to start somewhere. Distressed debt seems like a good background for spotting value. I’m just trying to peel back the layers of the mystique onion. Usually it’s based the same core investing principles (value, risk mgmt, prudence, etc).

  • Oroboros

    Oh, and being able to read the political winds correctly. That’s also a Buffett hallmark.

  • Mountaineer

    Glad to help. Cullen’s right about Tepper’s history in distressed debt, and I think you’re correct about the parallels to value investing. I feel the best way to view Tepper’s approach is a “special situations” kind of thing. He looks for anomalies. I see more than a few similarities between him and Klarman. If you’ve ever read Margin of Safety (and I can’t recommend it highly enough, just for God’s sake don’t pay for the book, the internet is your friend…) Klarman lays out a gameplan for distressed debt and other such “unique opportunities” that seems to mimic what Tepper does.

  • http://www.pragcap.com Cullen Roche

    Yes, and if you’re looking for a great primer on Distressed debt I would look into Marty Whitman’s Distress Investing. A fantastic read also readily available on the net for the low cost of $0.

  • Mountaineer

    Haven’t read that one yet, but I’ll look around for it tonight. Thanks Cullen.

  • http://www.pragcap.com Cullen Roche

    Contact me if you have trouble finding it….

  • Oroboros

    Thanks for the tips. Acquired ‘em both. Yikes, that Klarman book is $1100 used, $2000 new! Forget gold, buy out-of-print finance books … the return’s better.

  • nottpc

    He went all in on moral hazard and won to the tune of billions. You may not like it nor may I but he played the system perfectly. So did Buffet with Goldman. Granted it is easy to read polticial tea winds then the govt is asking you for advice like they did with Buffet and PIMCO so let’s not give too much credit for them being able to analyze the roadmap. When you are helping to guide national policy you have the chips.