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to pay for his tuition David Tapper was desperately looking for a way to make money competent in mathematics Tapper knew he could become an exceptional Trader and soon enough he found a profitable pattern in the late '70s options were relatively new he found that certain option prices are always bit slow to adjust to the change of their underlying Securities Tempa sees this as a perfect opportunity for an Arbitrage with this pattern he was able to generate consistent income to pay for all of his expenses in graduate schooler started the firm 26 years ago and is said to have generated 25% annualized Returns on average since then growing up in a port family in Pittsburgh Pennsylvania Tapper always wanted to get rich a better life he knew it wasn't going to be handed to him he immersed himself in study hoping to finish in 3 years in college in order to save money and while also keeping a part-time job out of all the hedge fund billionair David tuer really is the one that started from the bottom not only that he suffered a lot of uh childhood trauma despite these good things about my dad he had a bad side too he was physically abusive to me in my young life there was nothing more terrifying there was no greater adversity but I pray to God that I would never be the same to my children after earning an MBA degree from car G melon David taer got a job in the treasury Department at Ohio's Republic Steel but the company was in financial trouble these guys are out of work why that's the question you just said why there he was introduced to the junk bond market in early 7s investor Michael milin put a wild Theory into practice by pioneering a huge market for high yel bonds aka the junk bonds teer quickly realized he had a talent for trading junk buns which eventually helped him land a job at the infamous Goldman Sachs he made a lot of money for Goldman saxs but in the Bol Market virtually everyone can do well the real test is how well you can perform during a bar Market the law of gravity hit Wall Street today and financial markets around the world for that matter as stock prices plunged even more than they did on Black Tuesday of 1929 during the market crash of 1987 virtually all Traders lost money at Goldman Sachs all but David terer he saw the crash coming and set his entire portfolio as short he makes so much money by betting against everybody else Goldman Sachs has a competitive culture David terer was not well-liked at the firm but when I came up for partner I got shot down and I was incredibly upset finally teer had enough he started trading aggressively on on his own account preparing to make enough money to launch his own fund using his connections and golden Sachs taer raised $57 million for his new hedge fund Appaloosa started my own company 25 years ago in 1993 called Appaloosa and ended up doing something that was a lot more fun and made my life better in so many ways as soon as he started his fund opportunity came knocking on the door in the midst of Latin America crisis in early 90s taer purchased many Bank Debs in Argentina right before the country started to recover as a result the fund made 30% return in 1995 David Humber is a different kind of value investor so he's very much like Seth claran if they find something that is undervalued they will bet really big on it teer kept making phenomenal returns during his early years until this happened in 1998 the Central Bank of Russia defaulted on this debt sending shock waves to the world like many investors at the time keper put hundreds of millions of dollars in Russian bonds thinking it was impossible for a country to default its debt but he was wrong when Russia government failed to pay their debt tyer lost $80 million then tyer did the unthinkable he realized since the incident the market has become overly pessimistic about Russian bonds making them extremely undervalued he will lawn on the same bonds once again by the end of 1990 he gained 61% as a result of his bets recouping his previous losses and make much more distressed debt has become a goldm for contrarian investors like terer in 2001 teer generated 67% net return by focusing on distressed bonds but he would invest in anything he thought to be undervalued either for shortterm or for long term so appal and Palamino will do do anything he also has made huge profits Year bye by investing in under the radar companies such as myand and Energy company but none of it compared to the opportunity brought by the financial crisis of 2008 the largest financial disaster in decades in this country and perhaps the end like everyone else terer took a hit in 2008 his fund was down 28% but he was enchanted because he sought so many undervalued opportunities he knew his losses were just temporary he was not going to let emotions dictate his trading if your thinking and your emotion is the same as everybody else's then you cannot do the outthinking and what I call the second level thinking which is required to act against the herd the common word is contrarian to sell at high prices which are high because other people are optimistic and buy at low prices which are low because other people are depressed so appala quickly began buying all the common preferred and Junior subordinated dead it could get his hands on paying as little as 5 cents on the dollar for Securities of AIG Bank of America and City group as predicted his best paid off Bank of America gone up more than 330% and City Group more than 220% but the biggest pricee was AIG he made a billion dollars from AIG alone as humans we suffer from various cognitive biases people tend to find patterns that aren't there with Robin Hood a lot of people are coming into this stock market casino with David Tapper it is possible that his success is due to luck but there are two things that he does repeatedly that might be helpful for us to learn he always trades with a large margin of safety and uses no leverage how much leverage none none none none what do you need leverage for when Washington Mutual was on the verge of bankruptcy temper bought their debt at 5060 cents on the dollar second his strategy was more or less event driven not only an asset had to be undervalued David tuer always tried to figure out why it is undervalued and what events that will happen in the future that will trigger value realization Seth claran called these events the catalysts which trigger value realization started as a date Trader in college with a dream of becoming rich keer has come a long way building one of the most successful hedge funds in the world
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