David Tepper placed a huge bet on beaten-down bank debt last year.
When investors worried that the government would nationalize banks, the hedge fund manager instructed his traders to buy up bank debt and stock.
He knew it was risky; at one point in March 2009, Tepper says, he was told he was the only big investor doing much buying.
But he stuck to his guns and his belief that the government would stand behind banks has paid off – Tepper’s firm, Appaloosa, is up 120% through December. That amounts to some $7 billion in profits for Appaloosa this year. Tepper alone should earn around $2.5 billion.
Of course he’s not done.
The Wall Street Journal reports Tepper’s latest bet: Mr. Tepper noticed that investors were dumping holdings of troubled bonds backed by commercial properties. He had never dabbled in these investments, but he and his 10-person team did some research and judged them attractive, with some seemingly safe debt trading at yields above 15%.
It’s risky. Analysts are quick to remind investors that commercial real estate continues to fall.
No wonder Tepper keeps a pair of brass testicles in a “prominent” spot on his desk. He says rubs them throughout the day for luck, and a laugh.