Tepper

[merkhet]

 

 

 

WEB was 31% gross versus 9% for the market for the life of his partnership (see attached). Tepper is 40% gross versus probably 5 to 10% for the market since inception.

 

 

And yet, WEB's record was only 13 years long versus Tepper's 17 year long record (as of 2010). Alternatively, if I've compounded at a gross 50%+ for the last two years versus 20% for the market, does that make me as good as or better than Tepper?

 

See the point I'm trying to make?

 

 

I feel like you just made my point but I must be missing something.

 

Tepper generated at least 30% alpha over 17 years versus 20% alpha for WEB over 13 years - how is that not better than WEB? And why would your 30% alpha over two years even be comparable to either of those track records? Yes if you do that for the next 15 years, you would be on par with Tepper....but again, I doubt you are managing billions (aren't you up to 3 or 4 million?).

 

 

I'm trying to say that context matters in all things, and there's a lot of variables. Here are the things I'm not sure you're considering:

 

(1) Tepper's career is not longer than WEB's. Let's not forget that WEB has been managing money for 56 years and not 13 years. -- That's the comparison I was trying to make w/ myself versus Tepper.  You've taken a short record and compared it to a longer record, and then you've declared a winner. What happens if Tepper puts up goose eggs for the next 36 years?

 

(2) Tepper's 17 year career happened to encompass both the 2001 crash and the 2009 crash. Investing (perhaps outside of activist investing) is largely a function of your available opportunities -- you can be a great value investor, but if your career is from 1994 to 1999, you're not going to look so hot.  Did WEB get to benefit from two huge crashes during his 13 year partnership record?

 

(3) Moreover, if Tepper's career was helped by a couple 100% years from T+14 to T+17, then perhaps you are short changing WEB's record -- would you have been comfortable making the same comparison when Tepper's record was only 13 years old? What if WEB had four more years to pick through the wreckage of the early 70s?

 

(4) Additionally, let's not forget that WEB switched investment vehicles AND styles. This means that there's restrictions on the things he can buy (probably can't take similar risks w/ an insurance company as when he was managing a partnership) AND let's also not forget that when you go buy and hold, your "returns" can be lower than other people but your "total return" can be higher. If Tepper's turnover is 100% a year, then his "total gross return" is 20% and not 40% per year based on a 50% effective tax rate.

 

Do you understand my point now? Your comparison seems specious at best... (but to be fair, most of these types of comparisons are going to be specious at best...)

[bmichaud]

Good thoughts. Here's what I would say.

 

(1) Tepper's career is not longer than WEB's.

 

I was trying to compare Tepper's 17y career to WEB's 13y hedge fund career, not WEB's entire career. Absolutely Tepper has a long way to go to match WEB's entire career record.

 

(2) Tepper's 17 year career happened to encompass both the 2001 crash and the 2009 crash.

 

This could go both ways. I look at it as Tepper has had to weather pretty poor market environments (remember he has had pretty significant down years multiple times throughout his career), whereas WEB in a way quit before the going got tough.

 

(3) Moreover, if Tepper's career was helped by a couple 100% years

 

Same kind of thing as I pointed out above - Tepper also had down years where WEB never had one.

 

 

Tepper has stated many times that he "holds stuff" for long-term cap gains. So might be difficult to compare based on turnover.

 

 

Overall my point was quite simple: Tepper has out-managed "hedge fund WEB" by a significant margin with a significantly larger asset base.

[jay21]

Where did you see Tepper's returns?

[link01]

Overall my point was quite simple: Tepper has out-managed "hedge fund WEB" by a significant margin with a significantly larger asset base.

 

when you cite a significantly larger asset base, are you comparing them on an inflation adjusted basis? if not then its still apples to oranges.

[Kraven]

Query whether hedge fund Buffett if sprung out of the womb 30-40 years ago and was operating his partnership today would have the same outperformance on a relative basis compared to his peers that he had back in the day.  No doubt that he is brilliant and so on, but many of the things the "Graham crew" did were the result of information arbitrage.  They knew where to look and how to do things that others at the time didn't.  Nothing wrong with that at all, but in today's world thousands would be turning over those same rocks.  The competition would be much fiercer.  If somehow one was able to clone Buffett and have a younger version available today running hedge fund money in the same amount as Tepper, I'd invest with Tepper if that was my only choice.

[merkhet]

 

Overall my point was quite simple: Tepper has out-managed "hedge fund WEB" by a significant margin with a significantly larger asset base.

 

 

My simple point is that such things aren't so simple. :)

[cubsfan]

Where did you see Tepper's returns?

 

Here are Tepper's returns:

 

http://www.gurufocus.com/profile/David+Tepper

 

 

[bmichaud]

Overall my point was quite simple: Tepper has out-managed "hedge fund WEB" by a significant margin with a significantly larger asset base.

 

when you cite a significantly larger asset base, are you comparing them on an inflation adjusted basis? if not then its still apples to oranges.

 

Good question.

 

Tepper started with $57 million in 1993, which is $18.5MM in 1955 USD at 3% inflation. At BPL's largest in 1970, it was ~$200MM - 3% p.a. for 40 years is ~$650MM. 13 years into Tepper's career, he alone was worth over $1B - AUM in 2006 was north of $10B.

[Guest wellmont]

we don't know how much leverage tepper has used. my guess is he has employed some. buffett never did to my knowledge. In fact he usually always operated with a cash balance. so to be somewhat eggheadish, we need to adjust these returns for risk. I think you have to tax adjust the returns as well. I don't think there has been a more efficient tax minimizer than Berkshire. Finally Tepper could blow up. It's a really low probability. I don't believe Buffett would ever be out of business. Tepper made a big shake hands with the government bet that paid off huge in 2008. That was the right strategy. But there was a small chance the gov would not reach out and "touch" you.

 

Tepper really is a master trader, and market analyst. Not sure if he's an exceptional business analyst, or if his skills could translate to owner operator like Buffett and Lampert's do. In that sense he might be more comparable to Soros and Druckenmiller. One thing is for sure. He will tell you he is bearish 3 months after he has re-positioned his fund to exploit lower prices.

 

[bmichaud]

Buffett pretty explicitly utilized leveraged as an offset to "workouts", up to 25% of BPL's net worth. Tepper mentioned 1.4X leverage in 1998 during the Russian crisis, but FWIW said it's been 0% since.

 

No doubt Tepper does not appear to be a WEB-type "business analyst", but he's certainly not momentum driven from the standpoint of his event-driven investments. He's buying distressed assets with a huge margin of safety and holding for long periods of time. That's what I find so unique about him is that he appears to be a WEB/Graham-MOS investor overlayed with Soros-like macro precision.

[plato1976]

Do we have a previous evidence for this ?

 

"One thing is for sure. He will tell you he is bearish 3 months after he has re-positioned his fund to exploit lower prices."

 

In my memory this guy has been pretty consistent - he's just bullish

 

On the other hand, I never understood his strategy and how he got such an amazing return streak

 

we don't know how much leverage tepper has used. my guess is he has employed some. buffett never did to my knowledge. In fact he usually always operated with a cash balance. so to be somewhat eggheadish, we need to adjust these returns for risk. I think you have to tax adjust the returns as well. I don't think there has been a more efficient tax minimizer than Berkshire. Finally Tepper could blow up. It's a really low probability. I don't believe Buffett would ever be out of business. Tepper made a big shake hands with the government bet that paid off huge in 2008. That was the right strategy. But there was a small chance the gov would not reach out and "touch" you.

 

Tepper really is a master trader, and market analyst. Not sure if he's an exceptional business analyst, or if his skills could translate to owner operator like Buffett and Lampert's do. In that sense he might be more comparable to Soros and Druckenmiller. One thing is for sure. He will tell you he is bearish 3 months after he has re-positioned his fund to exploit lower prices.

[mcliu]

Why does it matter who's better?

 

This feels like comparing whether Michael Jordan or Michael Phelps is the better athlete.

[fareastwarriors]

 

Tepper: Have cut equity exposure to 60% from 100% 6 months ago

 

 

http://www.cnbc.com/id/101674055

 

 

 

"I'm not saying go short, I'm just saying don't be too fricking long right now," the head of Appaloosa Management told a few thousand of his colleagues Wednesday at SkyBridge Capital's SALT 2014 conference in Las Vegas.

[bmichaud]

I'd love to know when he started to cut exposure, and what truly has changed since last year. I know he has a trader's mentality, so he likely has been cutting all year long, but still....

 

Just last November he was saying we could have another 20 to 30% year this year and that he feels bad for his hedge fund friends that are forced to have short exposure on. I could have just as easily seen him saying at SALT something similar to his "My Cousin Vinny Market" interview last May on CNBC...

 

1. US economy is accelerating

2. Inflation is low so the Fed doesn't have to worry about tightening

3. The Fed is pumping so much money into the economy that it HAS TO taper

4. The ECB is easing

5. Japan is easing

6. US interest rates aren't going up for a long time

7. The US is "on the verge of an explosion of economic greatness"

[wisdom]

His concern at this point is deflation in Europe. He thinks ECB is already behind the curve and if they do not start printing by June then it will be too late to arrest deflation.

 

He also believes policy is tight in China and is of the belief that US growing at under 2% cannot pull the world by itself. He stated he had expected the US to be growing faster.

 

He seems to be moving into the FFH camp.

[bmichaud]

Great note on Tepper.

 

http://www.thereformedbroker.com/2014/05/15/the-apotheosis-of-david-tepper/

[PatientCheetah]

http://nymag.com/news/features/establishments/68513/

 

Great profile on Tepper. Key characteristics of his success IMO:

 

1. Distills complexity into several common sense bullet points

2. First mover into distressed situations

3. Takes concentrated positions

4. Zero use of leverage - buying at 20 or 30% of FV provides natural leverage!

5. Appears to wait for some type of floor to be in place before buying equities - govt backstop of banks in March 2009, QE2 in September 2010, LTRO in September 2011, QE3 December 2012, Japan whatever it takes proclamation late 2012 - whereas distressed debt has a natural MOS via post-BK recovery

6. Naturally optimistic

7. Appears to respect economic momentum and how a bad econ environment can mess up even the cheapest situation

 

 

Absolutely phenomenal stuff. This guy is a Buffett on steroids with a track record far outpacing WEB while managing sums WEB has historically deemed virtually impossible to generate such returns!!

 

Great summary, I am putting this on a post-it

[Guest wellmont]

he's still net long and could turn on dime (more bullish) if he sees what he wants to see out of EU. His comments drove  his shorts lower and gave him a chance to buy more of his longs cheaper. He said the perfect thing for someone who was slightly net long, and understands what he says will have impact. Cooperman put it pretty plainly. the market is well within it's zone of reasonableness.

[bmichaud]

Wellmont - do you believe in the zone of reasonableness theory? Margins at ATH, PS ratios above 2007?

 

Buffett gave some dumb non answer. If forced to own bonds or stocks over next thirty years, he'd take equities all day long. No shat Sherlock. So would Hussman...

[Guest wellmont]

I like the way Larry Robbins looks at things. It's about the "opportunity set", and he is constructive about this year. So is james dinans and cooperman. At my asset size there are plenty of things to do....

 

regards

[bmichaud]

Roger that

[bmichaud]

Some interesting comments by Jeff Burbank...

 

http://video.cnbc.com/gallery/?video=3000274407

 

I'm wondering if the SALT conference theme of de risking topped off by Tepper's commentary, combined with what appears to be a very weak June action by the ECB (i.e. no all-out QE, Japanese style) won't cascade into a much larger than expected correction.

 

Institutions and large speculators are still very complacent (bulls/bulls+bears Rydex funds still extremely bullish), and sentiment readings haven't gone this long without an oversold condition since the late 90s bubble. In other words, lots of pent up selling pressure remains.

 

Small caps, banks underperforming and the SHUT index, treasury bonds outperforming perhaps trying to tell us something?

[PlanMaestro]

Talking my blog.

 

http://variantperceptions.wordpress.com/2010/11/20/david-tepper-on-investing-under-uncertainty-theory/

http://variantperceptions.wordpress.com/2010/11/20/david-tepper-on-investing-under-uncertainty-practice/

[Phaceliacapital]

Thanks!

 

You should update it more often!

[MrB]

Thanks!

 

You should update it more often!

+1