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buy when others are fearful

buy when others are fearful

hedge a portion of your potential gains to narrow potential losses in risky trades
February 15, 2022
4 min read
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buy when others are fearful

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it’s 2008. the global financial market is having a meltdown. Lehman Brothers have collapsed and the share price of all major US Banks is in a downward spiral. 

big names like Citigroup, JP Morgan, and Bank of America have lost a significant value for their shareholders and are trading at only around 11.7 times price-to-earnings estimates for 2009. as fear and uncertainty rule the markets, many believe that the US Economy might fall into a depression.

but even in such dark times, there are optimists. like David Tepper, who believed that things would soon bounce back. Tepper, the co-founder of Appaloosa Management, a global hedge fund based out of Florida which specialised in distressed debt. 

when others were fearful, Tepper saw the 2008 market crash as an opportunity to buy bluechip financial stocks at a deep discount. he was confident that the economy wouldn’t completely collapse and banks would make a comeback. 

US Banks were trading like penny stocks. it is reported that Tepper bought Bank of America at levels of $3.34/share and Citi at $0.79/share. at present, they trade at around $50/share and $68/share respectively.

as Tepper expected, the government didn’t let the banks fail, they recovered handsomely, and netted him a huge profit. in 2009, his hedge fund made $7 billion of which $4 billion went to Tepper’s personal wealth, making him the top-earning hedge fund manager that year.

while many like Dr Michael Burry made money during the 2008 crisis by shorting the market, expecting it to crash, there were also people like Tepper, who saw the crash as an opportunity to buy and go long on certain stocks.

over the years, Tepper has moved away from managing other people’s money to enjoying life as the owner of the Carolina Panthers of the National Football League and Charlotte FC in Major League Soccer. but his bold bets are still considered by many to be amongst the greatest hedge fund trades of his generation.