By Phil Newell / evaqiu

David Taber (David Tepper) is a smart and lucky fund boss, he once said: "I would rather be lucky than smart, but you have to be smart enough to become lucky." "

The name David Taber may not be familiar to Chinese investors, but the financial crisis that swept the world in 2008 is known to everyone. He resolutely bought bank stocks at a low price during the financial crisis, made a huge profit of 132%, and his annual income reached 4 billion US dollars, making him one of the most famous fund managers on Wall Street.

Life experience: from ordinary to extraordinary

Tabor was born in a very ordinary American family. His father is an accountant and his mother is a school teacher. From an early age, he was a shy man with a great talent for mathematics. When he was four years old, he was called to school by her sister to help her with her primary school math homework.

Taber, who was before college, did not show his amazing talent for investment. In high school, Taber tried to invest: he bought a 100-share "workplace college" for $2, but the company went bankrupt and all of his assets were liquidated.

After graduating from high school, Taber was admitted to the University of Pittsburgh to study economics, working in the library while investing his salary to accumulate experience. Finally, Taber, who graduated as an honorary student, received a job offer from Procter & Gamble Co, a leading fast-consumer company, but he, who likes stocks, chose to work as a credit stock analyst in Pittsburgh. Two years later, the unforgettable Taber entered Carnegie Mellon for an MBA and later donated $55 million to the business school, which later changed its name to Tepper School of Business.

1985 was the turning point in Tabor's life. After entering Goldman Sachs Group, he encountered the investment asset that made his life successful: junk debt. Taber spent six months studying junk bonds at Goldman Sachs Group and was quickly promoted to chief junk bond trader, completing one junk bond investment after another during Goldman Sachs Group's time. Finally, after doubling his $3 million to $7 million within eight years, he took the $50 million raised to set up his own fund: Appaloosa Management.

Founded in 1993, the company, headquartered in New Jersey, USA, focuses on areas where other hedge funds are rarely involved, including distressed company stocks and bonds, debt, warrant swaps, options, futures, junk bonds, etc.

Taber's investment strategy, similar to Buffett's, uses value investment strategies, focusing on the company's fundamentals, and then distinguishing potential undervalued investment assets. Since its inception, the company has maintained an average annual compound growth rate of more than 25 per cent, and the size of management has grown from $50 million to $16.5 billion.

Looking back at Appaloosa Management's extraordinary growth history, we can see the shift in his investment paradigm from three stages:

1) find value in places where there are few people: junk debt

2) Jedi fight back in times of market chaos: financial stocks

3) follow the trend at the peak of the market: technology stocks

First, tap value in places where there are few people: junk debt

Appaloosa Management's initial investment style continues Taber's best investment asset in his job: junk debt. Junk debt is called "junk" debt because it comes from small and medium-sized enterprises with low commercial credit capacity, or companies with huge bad debts. Junk debt is characterized by high risk of default, so it can only attract investors through extremely high bond interest, which is a high-risk investment project.

But Tabor is a man who can find treasure in garbage.

In 1993, Algoma Steel filed for bankruptcy protection and issued preferred shares. Taber carefully studied the company's information and found that the company's headquarters and factory were mortgaged in the preferred shares issued by the company. These huge mortgage assets convinced Taber that the company was solvent and bought the unwanted preferred shares for 20 cents and then sold them at 3-4 times the price in a year.

Buying the company's junk debt at a low price became Taber's early main household wealth tool. He chose large companies that had been cut in value because of bankruptcy or broken cash flow, and bet a lot of money on the company's preferred stock and debt. On the one hand, it helps the company regain its cash flow, and on the other hand, it allows Taber to benefit from the value-restored company.

To sum up, Taber's main points in choosing corporate bonds are:

1) Enterprises with heavy assets

2) products belong to market necessities

3) the company can continue to generate profits

These features are also demonstrated in another classic investment event: world Telecom. WorldCom understated its income to Volkswagen in early 2000, resulting in non-repayment of corporate debt, resulting in losses of $7.6 billion for debt investors. Taber quickly rushed to buy the corporate bonds of World Telecom and threatened: "I spent only a little money today to buy a large company that can continue to generate profits, and I will definitely make money in the end." "

In 2003, Appaloosa Management's earnings reached an all-time high of 148 per cent by rescuing WorldCom, which was on the verge of bankruptcy. Such incidents were numerous in Taber's early days, repeatedly "helping" companies on the verge of bankruptcy, making Taber's hedge fund one of the highest-yielding hedge funds in the United States.

Second, the Jedi fight back in times of market chaos: financial stocks

What really made Taber famous was the financial crisis of 2008.

In early 2009, America's big banks were also at a historical bottom line, and all investors were sceptical that the US government would nationalize them and liquidate their shares. Although David Taber shares Volkswagen's belief that the government will not let the big banks fail, he thinks the Fed will come out to rescue the market and not nationalize the banks. As a result, bank stocks, which fell 97.33%, deviated far from their original value.

"now that you have a firm mind, you should pay more attention to it." Tabor is an investor with this style.

In the first quarter of 2009, he bought 47.55 million shares of Bank of America Corporation at an average price of $3.72. then as the price rebounded, Taber slowly reduced his position and sold at an average price of $15.79 per share. At the same time, he also bought preferred shares of Bank of America Corporation and Citibank, both worth just 12 cents and 19 cents. Ten months later, the big US banks fully recovered after the government's "financial stability plan", and David Taber earned $7 billion for his fund in this war, with a yield of 132.7%.

In 2009, Taber's annual personal income reached 4 billion US dollars, equivalent to 27.984 billion yuan, or 27984 1 million yuan, that is, buying 2665 houses in the central district of Shenzhen in a year (the average price is 105000 / ping).

According to Appaloosa Management's position data, the proportion of the company's financial assets doubled in Q1 in 2009, reaching 91.87% in the Q2 quarter, and gradually reduced in subsequent quarters. In the 2008 financial crisis, the government and banks worked together to perform a classic: too big to fail. Banks that are too big to fail are exactly what Taber wants to invest.

Tabor is a gambler, and he will put more yards into it as long as it is something he believes in. The final results show that a large number of studies are indeed David. Tabor brought luck and profit. Whether it's junk bonds or financial stocks, Taber's core investment philosophy is to invest in companies that can repay their debts, no matter how miserable they are now.

So back to the question at the beginning, apart from having the same judgment as this fund boss, how can ordinary people who lack information keep up with this car? According to the position chart, we can find that when Taber has a heavy position, a big opportunity may be brewing.

Third, follow the trend at the peak of the market: technology stocks

May 2019, David. Taber has publicly announced that it will return most of its fund shares to investors and intends to turn Appaloosa Management into a family fund manager.

At the same time, Taber gradually moved away from the debt and preferred stock he had always been familiar with, and instead began to actively participate in and evaluate the macro-market economy. Taber's name has frequently appeared in mainstream market magazines such as the Wall Street Journal and the Financial Times in recent years. In May 2020, after four circuit breakers in the United States in March, Taber issued a declaration on CNBC: "after the 1999 US stock bubble, this is the second most overvalued stock market in history. "

Compared with companies that once bet on "undervalued" companies, Taber now holds most of his positions in technology stocks, and his top three positions are Amazon.Com Inc, BABA and Alphabet Inc-CL C. The latest purchase of Twitter, Netflix Inc, Sprint (American Telecom) and other companies inclined to the real estate economy. Technology stocks now account for more than 65% of Appaloosa Management positions, followed by the service industry.

How could an investor who allocated $1 billion to buy corporate bonds nearing bankruptcy in 2002 choose to buy these leading low-growth technology companies in 2020?

Taber believes that most companies are now overvalued, so he can only choose the companies that are correctly priced in his investments to avoid risks. Among them, Amazon.Com Inc, Facebook Inc and BABA are the technology companies he thinks are correctly priced.

Second, Taber has decided to turn Appaloosa Management into an American family office, which is intended to operate for the long-term development and planning of household assets, rather than seeking high returns. Therefore, the high-risk investment target will not become the first choice of Taber now, the steady growth of technology blue chip is.

Even the "changed" Taber still has an accurate eye. Taber bought Twitter, Netflix Inc and Tesla, Inc. at the end of March. The average purchase price for Twitter is $24.56, and the average purchase price for Netflix Inc is $375.5. Tesla, Inc. 's purchase price is $524. So far, the shares of the three companies are trading at $34.57, $552.15 and $1504.73, up 28.95%, 31.99% and 187.16%, respectively.

I have to sigh that the ability to attract chips at the bottom of the boss market is indeed outstanding, which has laid a solid foundation for this year's performance.

Summary

From joining Goldman Sachs Group in 1985 to the present, Taber has transformed from an ordinary financial "migrant worker" into a fund "boss" braving the wind and waves in 35 years. Tabor is like a pirate captain who guides the crew to look for treasure in the storm. Every time he is calm in the face of opportunity, he is convinced by his years of experience and research.

His investment style: no turning back in chaos, creeping forward in stability.

According to the 2020 Q1 position report, Appaloosa Management's position in high-tech stocks (information technology and communications) has exceeded 65%, reaching an all-time high. This makes investors wonder: is a new technological peak coming? This answer will be left with a question mark.

Combined with David Taber's comments in May 2020 that the US stock market was overvalued: he may have chosen liquid blue chips in the trade-off to seize the market trend and avoid risky stocks with high valuations. Or Taber is sitting on the technological leader of steady growth, picking new deterministic opportunities in the capital markets.