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David Tepper's 2007 Presentation at Carnegie Mellon

David Tepper's 2007 Presentation at Carnegie Mellon

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David Tepper's 2007 Presentation at Carnegie Mellon
David Tepper's 2007 Presentation at Carnegie Mellon

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Tis transcript has been condensed and edited for clarity.
A Presentation by David Tepper to Undergraduate Business Students at Carnegie Mellon University 
November 12, 2007
Transcription of this presentation provided by 
 very small in the undergraduate school. I guess the biggest class is like 150, is that right?  You know, one thing I want to mention to you guys was that your program is always on our minds here. We constantly talk about it, we constantly talk about recruiting. You guys are  just as important. I know there’s some feeling here about second class citizens. Tere’s some BS like that, and that is BS. We think you guys are really important.In fact, I told Ken that there’s a really high regard – at least in my world on Wall Street – for people out of this undergraduate program and undergraduates have a little bit of an edge on Wall Street, but this year it may be tough all around.Now, this is just kind of an open, free forum, an opportunity for you to ask questions and hear answers from David. He does not have an hour’s  worth of material that he’d prefer to talk about, because he wanted to give  you lots of time to ask questions. So do make sure that you ask questions.  Welcome, David.
 Tank you. I had a great time when I was a grad student here at Carnegie Mellon. And one of the reasons was Ken and one of the reasons was this place, being as small as it is, as intimate as it is, as friendly as it is. For me, this place was, in a way, almost life changing. I had a great time here and it really gave me the education I needed. It kind of filled a gap for me, moved me to the next level. My grad school class  was 120, I think. Your classes are still
I think you all know who David is. He’s of course the benefactor of our school and what you probably don’t know and may not know, is that he grew up in Pittsburgh and went to Peabody High School. He then went to the University of Pittsburgh for his undergraduate degree, worked for a year or so and then came back here and got his MBA and graduated with his MBA in 1982. He was one of my students back then.  You know, everybody always claims and attaches themselves to anybody that’s successful, so I’m claiming that a lot of his success must have been due to those courses he took from me, because he took a number of them (laughter). So anyway, it’s great to have David here. Very much appreciate you coming in especially to do this today and I know the students will appreciate it as well.
Presentation with David Tepper | 2
I decided on business at some point  when I went to work for a bank in Pittsburgh in the credit department.  Ten I went to work in their trust department as a stock analyst. I really  wanted to be an investor. Tat’s what I really wanted to do.  Actually when I was an undergrad, I was trading stocks for myself with  whatever money I’d made on the side.  And coming from Peabody High School, I didn’t have a lot of money on the side.I knew I wanted to be in investing somehow. Although, even working at Equibank -- that was the name of the bank -- I don’t know what it’s called now; probably three take-overs ago. I was a security analyst over there, but I really didn’t know how it all tied together and when I came here [Carnegie Mellon], I had some ideas, but this place really gave me everything I needed. I guess this doesn’t totally answer your question, but I’m going to sell the school a little bit – even though I went to work at Republic Steel afterwards,  when I went to Wall Street, I was just so far in front of other people, like with options theory.
 As an undergrad when you were investing on your own, what kind of strategies did you have and, as a follow-up, what strategies would you advise undergrads to have right now about investing, now that you’re more knowledgeable?
 Tere was this strange thing at the time. I was playing options, actually. It was really, really early in the options market, I mean, it was just really beginning and I didn’t know what the heck I was doing, to tell you the truth. Options used to trade at 1/16 increments so I figured that I just put I think they’re always going to hire a certain amount of people from here, but it is a tough year and there are a lot of firms losing money and top guys losing money, and losing their jobs. We can talk about the current market right now, if you want. I think it’s a  very tough market right now. We’re probably in the biggest percentage cash  we’ve ever been in my fund.  Te other thing you should ask is about life and family and what’s important.  You know, one weekend that I was going to come up here, I was stuck on the runway. We actually had my reunion – it was my 25th reunion – and I was going to go home the next morning and come back the next night because my daughter had a - I think it was a county match – for volleyball,  which is the stuff that’s really important in life and will always be important and  you guys should know that. Anyways, I’ve given you a bunch of different things that I’m going to try to open up for questions.
I’ll start off with an easy one: you seem like you’ve realized all your ambitions;  you’re very successful, but what were  your ambitions when you were an undergrad?
 When I was an undergrad, I was trying to figure out what I wanted to do,  whether I wanted to go to law school, or go into business, so I took the LSAs and I took the GMAs. I decided on business school.  And I thought about acting. Like a lot of people, I was the best actor in my high school. When you’re the best actor in your high school, you think  you’re going to be a famous actor until  you meet the other 100 people that are best actors at their high schools when  you go to college.
I want to talk a little bit about what I do and when I started [my career] so  you guys have some feel for that. I came out of school in 1982 and I went to work for Republic Steel. I didn’t go right into Wall Street. Ten I went to a mutual fund and then to Goldman Sachs. I was the head trader at the junk bond desk for Goldman Sachs and I did that for 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 [which was] run by a guy by the name of Mike Milken. So I was there early in the junk bond era at Goldman Sachs.  When I left I started a hedge fund called Appaloosa Management.  Appaloosa was a fairly early hedge fund and we’ve been doing it for 15 years.  We’ve invested in distressed debt and  we invest around the world. We were one of the first investors in Russia and I was in Russia in 1996 when Yeltsin  was on the tank. We can talk about that, if you guys would like to. We’ve had Donald rump in my office and  we could talk about Donald rump if  you’d like to. [Laughter] Appaloosa was the first non-Korean to buy Korean treasuries. We were there in the Asian meltdown in 1998, so we can talk about that if you’d like. We  were big in 2002 scandals Adelphia and WorldCom and different business scandals. We were big in some of those companies, investing in them on the  way up and we can talk about that if  you’d like. If you like we can talk about the job market on Wall Street this year, which is going to be a little bit tougher for  you guys coming out, you seniors. It’s unfortunate, but hey, it’s just the way it is and you know, hopefully it’ll all work out and you have a long life, and it will [work out], because you’ve got a great education here. I really, really believe that.
Presentation with David Tepper | 3
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.
 You’re very successful, but you must have made some mistakes along the  way. Could you share with us one of your biggest mistakes, how you overcame it?
Oh, I made a lot of mistakes. I’ve got to pick which one. I’ll give you one career one from Goldman Sachs. I  was at Goldman Sachs, I mentioned, for eight years. When I started there, I started there as an analyst out of Keystone Custodian Funds – mutual funds. I was the first outside hire for the junk bond department and I was hired to help start the department.I was there for six months as an analyst and the trading effort was real screwed up, so they moved me into trading and at six months I became the head trader. It’s one of those great stories, I mean, Horatio Alger lives sort of stories, right? So you have Republic Steel, mutual fund, head trader Goldman Sachs – it’s a really nice little story. I was there and I had a pretty good career and I was up for partner pretty fast. I was up for partner, but I was kind of young and they skipped over me. Ten the junk bond market crashed the second time I was up for partner and that didn’t work. But the third time I was up for partner, I had a lot of relationships throughout the firm and I was making a lot of money. But a funny thing happened on the  way to the partnership at Goldman Sachs. Tis guy by the name of Bob Rubin who later was the Secretary of the reasury – he was the head of fixed income when I was there. I liked Bob Rubin because he came previous 100 years of the history of the company. It was a really great time. I’ll tell you a funny story, actually. I  was at Republic Steel and I was there probably seven weeks and they did an across the board pay cut of 7 percent. Everybody got out of grad school and talked about what they made. So then, seven weeks after I got out, 7 percent pay cut. I think I got calls from one third of my class. ‘Good choice epper,’ But things kind of work out after a time.
Do you think that, to become a great hedge fund manager 15, 20 years down the road, that that was better than going to Wall Street to start out as an analyst right out of undergrad?
 Yeah, I think so. You know what, when  you’re starting out, there are no bad choices. Tere are no bad choices right now for you guys. Tere really aren’t; 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. Republic Steel to a mutual fund, to Goldman Sachs, I mean this stuff is true.  You know what’s funny about you guys now versus me then, or people my age then? You guys are so much more uptight about this stuff. I mean, really, everybody’s uptight. I look at my neighborhood; they’re uptight in high school. SAs and that stuff; much more uptight than we were when we  were young.Maybe it’s that much more competitive, but 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. in orders to buy the 1/16. Buy at 1/16 and sell at 1/8, buy at 16th and sell at 1/8. And you could just do that. I had it automatically happening; I didn’t have to do anything. 1/16 and 1/8, 1/16 and 1/8. It worked really great, until the market started taking off and then I went bankrupt basically. So you know, you have to be careful about that sort of stuff.I first invested, actually, when I was in high school. I invested in this company called Career Academies because I looked at the stock chart and it was  way down from where it was before. I can’t remember what year it was in high school, but I think the stock was trading at two dollars a share. Somehow, I had money saved and I had my dad invest $200 with me. Te company went bankrupt – absolutely wiped out, but maybe that’s why I liked bankruptcies after that (laughter).But if I had a strategy, that was it and that worked really well, because there  was nobody else kind of doing it. It  just wasn’t a continuous function, it  was an anomaly in the marketplace and I actually made more money than I eventually lost.
 You started out working at Republic Steel and you went through their  whole distress, their kind of downfall,  which is where I’m guessing you got  very familiar with distressed debt. Do  you think that helps you more, or do  you think you would have been just as  well off to start with a hedge fund?
 You know, it’s an interesting question. I  was investing when I was at Equibank.  When I was at Republic Steel, it helped me as an analyst, because I was talking to banks and the company was in trouble at the time. I was at Republic Steel only two years and they did more financings [when] I was there than the

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