Career Advice from David Tepper
David Tepper's advice to budding investors on getting started, process, mistakes, and life
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One of the Best
David Tepper, Carnegie Mellon University, 2007
“We were in Russia in 1996. That was a crazy time. I don’t know if anybody is a history person at all, but 1996 was crazy. And when it’s a little bit dangerous, it’s a lot more exciting. We were supposed to have a meeting with this guy, Boris, who was a big deal investor in Russia at the time. And Boris was trying to take over some companies in Russia which was kind of dangerous in 1996. He had a brokerage firm and we were going to go up to his office. We go to this office and at the bottom of his office, there’s all these guys with machine guns. We’re like, what the heck’s going on? I happened to have taken two years of Russian when I was in high school, so I can speak basic Russian. I try to see what’s going on, tell them who I am and who we’re going to see. They let us go up to the office and when we got up to the office, there was almost nobody there. One guy.
He says Boris can’t get back in the country because they took away his visa so I’m going to meet with you. And he said we have the guards downstairs because Boris’ car was bombed last night and the reason we don’t have any people here, is we have a bomb threat in the office. I said to the guy, you could have called us up and we could have had breakfast in the hotel”.
This isn’t an excerpt from the latest Bond movie; it was David Tepper recalling one eventful evening in Russia during the mid-90s. Tepper, arguably one of the greatest hedge fund managers of his generation, is a son of Pittsburgh, Pennsylvania, born in 1957. He would graduate from the University of Pittsburgh in 1978 as an economics major and later complete an MBA from Carnegie Mellon in 1982.
Tepper had known that he “wanted to be in investing somehow” as early as high school, where he endured his first 100% equity loss. During his undergrad years, he worked as a security analyst for Equibank and traded options with “whatever money [he’d] made on the side” which he admits “wasn’t a lot of money on the side”. At this stage, he was continuing to acquire insight into the profession, but didn’t yet “know how it all tied together”.
Tepper quickly became head trader at Goldman’s junk bond desk
Before rushing to Wall Street after graduation like his peers, Tepper joined Republic Steel, an American steel manufacturer, during a particularly challenging time. Despite being over 100 years old, the company had run into distress. In the two years that Tepper was there, Republic Steel “did more financings than the previous 100 years of the history of the company”. He recalled the period was “fun” and one that nurtured his early analytical ability. Being exposed to distressed debt would provide Tepper with the experience that later shaped his career, and would form part of the strategy of his own hedge fund.
After a brief stint at a mutual fund, he joined Goldman Sachs. Six months later, he was the head trader at Goldman’s junk bond desk, where he would spend the next eight years.
“If any of you guys know anything about economic history or Wall Street History, I was on the other side of Drexel Burnham, run by a guy by the name of Mike Milken. So I was there early in the junk bond era at Goldman Sachs”.
Tepper’s hedge fund generated a CAGR of 25% over 26 years
In 1993, he would go on to found Appaloosa Management, which became famous for Tepper’s aggressive style and confidence. The performance also became a factor in the fund’s recognition. Between inception and 2019, when the fund converted into a family office, Appaloosa is reported to have compounded in excess of 25% per year, net of fees. This made Tepper an extraordinarily wealthy man but he remained grounded; claiming he is “just a regular upper-middle-class guy who happens to be a billionaire”. That doesn’t mean he excludes himself from doing ‘billionaire things’. Today Tepper continues to run the family office, and owns two sports teams; the Carolina Panthers (NFL) and Charlotte FC (MLS), and engages in philanthropy. One of the recipients of his philanthropinism, Carnegie Mellon University, has been gifted upwards of $125 million. The university has meaning to Tepper and is a place where he has returned several times to give presentations and share advice with students passing through the institution on their way to adulthood. In the year prior to the great financial crisis, Tepper found himself giving a Q&A session with business students of the undergraduate program.
There, he would discuss; starting out in the industry, setbacks, the perks and downsides of having wealth, how to sell yourself, gauging political risk, and balancing work with life. Today, I have curated the lessons those fortunate pupils were given.
When you’re starting out, there are no bad choices.
To become a great hedge fund manager, does it matter whether you jump directly into Wall Street from college, or would you be better off going the long way around, like Tepper?
“You know what, when you’re starting out, there are no bad choices. I really do believe that. You just keep driving at what you want and even if you don’t go to Wall Street right away, and you still want to, then you still can go there”.
Despite admitting that his own path made him the success he became, there are no bad decisions for young investors in their early 20s. There are wrong ones; but it’s all about absorbing experience, finding mentors, and recognising there will be mistakes along the way. This is not advice exclusive to investors. Tepper remarks that kids today are “so much more uptight about this stuff” because of the pressure placed upon them from early education; “they’re uptight in high school, SATs and that stuff; much more uptight than we were when we were young”. If stress-inducing academic pressure was more noticeable back in 2007, one can only imagine how much worse it has become sixteen years later.
“You know what, it’s okay if you don’t know what you want to do exactly right now. It’s not as good if you don’t know what you want to do when you’re 30, but right now, you can be a little confused and try to figure it out and you can have a lot of different paths. I kind of knew I wanted to do investing. I wasn’t sure, I was leaning that way so I kind of knew where I wanted to try to get to. So if you do, just don’t stop driving there. You don’t have to settle. Just keep driving at it and it will come”.
Throughout my twenties, people have told me it’s the decade to experiment, travel, have fun, and not worry too much about having life all figured out. I struggle to be motivated when I am not in a pressurised environment, so I try to keep an element of that in my life, but at the same time, I find humility allows me to not take life so seriously. Humility to realise how insignificant your ‘problems’ are in the grand scheme of things. A useful barometer for gauging the true importance of anxiety-inducing life events is asking whether or not these things will matter in one to five years’ time. The death of a loved one is a tragedy whose permanence will accompany you forever. The weight and pain may subside with time, but it will always be with you. Deciding which job offer to accept, being unsure about the correct route into a desired profession, or being stood up by a Tinder date, are inconsequential. Within months, events will have unfolded that render these anxieties a distant memory.
When I was a freshman in high school, I would look at seniors and be grateful that my life was absent from the responsibilities of exams and university preparation. When I became a university student, I would look at 30-year-olds with kids and be thankful I was not so old and burdened with such responsibility. Now that I am 26, thirty doesn’t seem to be so old anymore. We often mistakenly perceive that the past is better than the current; partly due to loss aversion and the way our memories splash a coating of rose tint over everything. A college student longs for the freedom of high school. The first-year graduate wishes they could sleep until 11 am and have one lecture to occupy their day. The newfound parent fondly remembers what it was like to be able to sleep 8 hours a night. The ageing grandparent wishes they could possess the blissful ignorance and youth of a first-time parent.
When I left university, I was certain which direction I wanted my career to take. I took a quasi-related job and studied for a designation to bolster my employability. But two years later I found myself doing something that would make 18-year-old me scrunch up his face and look puzzled; I left my job to write full-time. I’d never wanted to be a writer before. A year later, I began working for a fintech start-up. I was enjoying myself more than ever, despite contradicting the plans my younger self had put in motion. Come June, I will be taking another step in my career, and the new challenge excites me yet again.
Life will consistently blow you off track, maybe onto entirely different paths altogether. It’s come to the point where I can’t imagine what I’d be doing if I stuck to the same path. Humans will adapt to whatever situation they are in, so I am sure I will have survived. What I later realised, is that I was no longer anchoring my decisions to thin desires. “Thin desires are highly mimetic, socially derived, fleeting, easily blown away in the mimetic winds of the present moment”, writesburgis, author of Wanting.
“In the context of careers, thin desires lead us to jobs that sound better than they feel, the types of jobs that people accept for their prestige rather than the experience of actually doing them. Thick desires breed career decisions grounded in our values, not the changing tides of others’ perceptions”.
Because careers can be so fragile, I frequently remind myself not to tie my self-worth to work. I am sure we all know a handful of people whose personality is coupled with their work. Setbacks can hurt these people tenfold. They are not only losing a job; they are losing a chunk of their personality which has been forcefully ripped from the fabric of their being. These people will likely face higher highs and more excruciating lows. It’s harder to be flexible when your work is so closely tied to your personality.
“It wasn’t just about my job; it was about my identity. It was about how I’d answer the question “What do you do?” which I took to mean “Who the hell are you?” I worked more than I did anything else. More than I ate. More than I slept. More than I saw my friends. Annie Dillard’s famous words, “How we spend our days is, of course, how we spend our lives” echoed in my head like an admonition.
It’s important to conceive of your career as part of, but not the entirety, of who you are. Much as an investor benefits from diversifying the stocks in their portfolio, we too benefit from diversifying the sources of identity and meaning in our lives”.
Life can be both tragically and wonderfully random and unpredictable. Tepper himself describes the sequence of events that equipped him with the experience to eventually be hired by Goldman. His experience in distressed debt only materialised because the company he worked for, Republic Steel, was in dire straights. This made him attractive to Keystone Mutual. His accumulated experience then made him a candidate for Goldman and their newly minted junk bond division. Sometimes, as Tepper suggests, it’s better to be lucky than smart.
At times, luck can feel as though it was fructified from thin air, but there is always a sequence of events, a butterfly effect if you will, that culminates in a lucky outcome. A lottery winner had to first purchase a ticket. A new hire had to apply and have the prerequisite skills. The underdog in a World Cup final who wins due to a last-minute penalty had to first qualify, get out of the group stages and win a quarter and semi-final. The spectrum of how lucky something appears to be, i.e. how much work was put in beforehand, is wide. I am not sure that luck itself can be manufactured, but there are certainly ways to increase one’s chances of being the benefactor of luck.
If life were an ocean, and luck was embodied by fish, then Earth’s populants would be a series of fishing vessels with their nets traipsing behind them as they migrate through the waves. Luck will inevitably snare itself in random nets from time to time, but if the vessel has a larger net, the likelihood of catching fish increases. The harder you work towards your desire, the more luck you seem to attract. Your net is expanding.
How, then, do you prepare for luck and its evil cousin; misfortune? I believe it helps to acknowledge that both can enter your life, at any point, without warning. I believe it’s also important to recognise the influence of luck during personal triumphs. Particularly with regard to investing; being right for the wrong reasons can lead to some misinformed takeaways that may bite you in the ass years later.
Imagine an open field, with a cinder block in the centre that is shackled to the ground. Now imagine this field is plagued by a perpetual gust of high-speed wind that swishes and twists, and hammers every which way.
The stubborn cinder block, in its refusal to budge, will eventually be chipped away by the wind and erode into a pile of rubble. Now imagine the cinder block is as light as a feather and as malleable as latex. It would be carried by the wind as though it accepts that resistance to such an uncontrollable force is futile.
Having a north star to march towards is important, but rigidity in the face of change can create friction burns. As a thought exercise, think back 3-5 years. Now reflect on what you deemed to be important back then, and what were some of your largest struggles, goals, and anxieties. I suspect the contrast may be greater for younger adults, but I would have reasonable confidence that they are not the same as today.
Sometimes life calls for stubbornness, but flexibility goes a long way. Tepper believes that whatever you do, you must sell yourself. And by sell yourself, he means be yourself.
Setbacks are another way to say opportunity
Tepper discusses two of his biggest mistakes
At one point, a student asks Tepper about some of his biggest mistakes, to which he quickly replies that he has “made a lot of mistakes” but singles out two. One, related to the importance of office politics at Goldman. The other, a liquidity faux-paus in emerging markets during the late 1990s. In 1998, the same year Long-Term Capital went under, Tepper’s hedge fund was heavily invested in emerging markets. Thanks to misplaced confidence in liquidity and some ill-informed position sizing; “when Russia hit and when ’98 hit, not only did the liquidity disappear, the spreads widened out”. Appaloosa lost 20% that year. Not to be deterred by negative response bias, Appaloosa doubled down on their emerging markets bet following 1998.
“For us, it was just doing credit analysis of the different countries. In Russia’s case, it was cheap when we went in.You know, we lost a lot of money in ’98. But then we went further into Russia because everybody was selling out of Russia. It got so cheap on the fundamentals because banks wanted it off their balance sheets by the end of the year. So we bought a lot. In Korea’s case, it had incredibly industrious people and an incredible export machine potential. With the falling won at the time, that just created what we thought would be the ability to get reserves real fast”.
While that may have been one of the most costly mistakes Tepper admits to, he recalls a more interesting admission from his Goldman years. Fresh out of an analyst role at Keystone Custodian Mutual Fund, Tepper was the first outside hire for Goldman’s new junk bond department in the early 1980s.
“I was there for six months as an analyst and the trading effort was really screwed up, so they moved me into trading and at six months I became the head trader”.
Pretty soon he was eligible for partner. The first time around it was deemed he was too young, so they passed him over. The second time around, the junk bond market was in the midst of crashing, so the timing meant he would miss out on becoming partner once more. By the time the third opportunity came, he had developed “a lot of relationships throughout the firm and was making a lot of money”. Bob Rubin, who later became the Secretary of the Treasury, was the head of fixed income at Goldman as Tepper rose through the ranks. Anytime Tepper wanted to make a big move, he’d talk to Bob.
“I liked Bob Rubin because he came from risk arbitrage, and junk bonds are kind of like equities. So I would go into Bob Rubin’s office and talk about the markets. And if I wanted to take a big position, I’d go into Bob Rubin’s office and say, hey, I want to take a big position and we’d talk about it”.
However, Rubin soon became Vice Chairman of Goldman Sachs and while he remained situated on Tepper’s floor, his role as head of fixed income would be taken by a man named Jon Corzine.
“Jon Corzine was a treasury trader and knew nothing about corporates, so I would never talk to Jon Corzine. I was still a young guy. I wanted to get the answers fast because I just wanted to get my job done and I went to the guy that had the information”.
For years after Corzine showed up on Tepper’s floor, he would continue to go to Bob Rubin’s office with his ideas. But this would ultimately lead to him being passed over as partner for a third time.
Fortunatley, it worked out for Tepper in the end. As implied, he went on to make several multiples more in compensation than he would have done at Goldman, without being a corporate slave.
“Life takes funny turns. That’s really important for you guys. You’ve got a long life. Don’t get upset by setbacks. Setbacks are another way to say opportunity”.
Managing work and life
The perks and downside of having money
I’ll depart with some sentiments on work and life balance. A student asks Tepper what the advantages of having so much money are; to which he replies “you get your calls returned”. Being large enough to be involved in the “main calls really helps you and we’re big enough that anybody will come into our office if we ask them to come in”. If you are smaller, those opportunities don’t happen; having money in the investment industry means having access. As for disadvantages, it can limit the opportunity set because the “money could be too big for the investment opportunities” at certain times. But the most important disadvantage is that managing big money means big responsibilities, which begin to tip the scale of the work-life balance. He admits that this is part of the reason why he left Goldman.
“If you skip some family thing, you won’t get it back. If I do a trade, I’ll do another trade. I can always do that. But if I miss some big family event, I can’t get it back. You think you can get it back when you’re younger. When I was at Goldman Sachs it was hard to get home for things; that’s one of the reasons I decided to leave, too”.
This is particularly important today, as the world becomes more isolating. The entrepreneurial or hustler lifestyle is often idolised. Young people try to emulate Elon Musk’s sleep-on-the-office-floor attitude or believe that working until 10pm justifies a big salary. Maybe it does; success doesn’t come without sacrifices. But there has to come a time when you decide what takes first priority.
“You can’t always do it, but if you can do it, I think it has to be first priority because you can’t get it back. And the things in your career you can get back. Sometimes I can’t do it all, but if I can, I’ll do it. I think that’s been a great decision in my life. It really is a good decision, to really put personal things, family first, if you can do it. And sometimes you just can’t, okay. You really just can’t, but you know, make it up if you can’t. Try to make it up, because that’s what life’s about”.
Tragically, Tepper and his wife of 30 years would divorce seven years later.
I saw a tweet a week or so back that said something along the lines of “don’t fall in love from 22-29, there’s too much to lose. Your career will thank you”. It’s a sad sentiment to have, really, and sounds like it comes from someone who has never experienced a healthy relationship. But it’s not as black and white as it may seem. The author was attempting to argue that having a stable career before welcoming children into the world was his message; which is perfectly fine.
But to compartmentalize love in such a way, and to assume that life will wait ten years for you to get your shit together contrasts with my own view of the world. There is a saying that goes; the only people who remember how much time you spent on your career are your kids and loved ones.
Thanks for reading,