Today's Investment thought

 Investing for Survival

            12 things I learned from David Tepper: #1

1. “We have this saying: The worst things get, the better they get. When things are bad, they go up.”

This is David Tepper’s version of Warren Buffett’s view that the time to be greedy is when others are fearful. The principal cause of significantly mispriced assets is when Mr. Market is fearful. If you can be brave and aggressive at such times perhaps you have one of the attributes of a successful distressed asset investor. The problem is that vastly more people think they can be brave and aggressive at times like this than actually can do so. While Warren Buffett and David Tepper view the same phenomenon (fear) as an investing opportunity, the way they capitalize on the opportunity is very different. Both Tepper and Buffett know that Mr. Market is bi-polar, but they operate in different ways (e.g., operate in different time scales, with different circles of competence; different systems; different temperaments).

Most everyone should buy a diversified portfolio of low-fee/no load indexed investments. The fact that a very small number of people like David Tepper exist does not change that fact. Some fund managers find it easier to give advice by pretending that people like David Tepper don’t exist since it makes their narrative simpler and their job easier. Academics are often hired to deliver a simple message which basically says: “It is impossible to beat the market. It can’t be done.” This approach is attractive since it means that no client must be told that they are lacking the skills or temperament to succeed as an active investor. A message delivered to a client that essentially says “it is impossible to beat the market” goes down a lot smoother than: “it is impossible for you and most everyone to beat the market.” Many clients benefit from hearing this message since otherwise they would try to beat the market and inevitably underperform. The motivation of the fund saying “you can’t beat the market, period” is arguably not improper. It benefits most all people to say this.

The reality is that investors like David Tepper do exist. But the bad news is: 1) the small number of people like him most likely won’t take you on as a limited partner and 2) you are very unlikely to be able to do what investors like David Tepper, Seth Klarman or Howard Marks can do on your own.