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The Thesis
In March 2009 at peak financial panic, Tepper bet that the US government would not let major banks fail and loaded up on beaten-down bank stocks at generational lows.
The Story
In early 2009, the financial world was in a state of outright panic. Bank stocks had cratered — Citigroup was trading under $1, Bank of America under $3. Most investors believed the entire financial system was going to collapse. David Tepper, running Appaloosa Management, saw it differently. He reasoned that the government had already shown it would backstop the banking system (TARP, Fed facilities, FDIC guarantees), and that if the banks survived — which they would, given government support — their stocks were absurdly cheap.
Tepper went all-in, loading his fund with Bank of America, Citigroup, and other financial stocks at their depths. The bet paid off spectacularly. As the government's backstop held and bank stocks recovered through 2009, Appaloosa generated approximately $7 billion in profits. Tepper personally earned around $4 billion that year alone, making him the highest-paid hedge fund manager in 2009. The trade demonstrated his core philosophy: focus on what governments and central banks are actually doing, not on the noise and fear in the market.
Key Insight
When the government tells you it will save an industry, believe it — policy signals are among the most reliable indicators in a crisis.
“This is the most hated rally I've ever seen. People are looking at these rallies and they just don't believe them.”
David Tepper
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See how Glen Bradford applies these principles to his own investing. Long Fannie Mae & Freddie Mac junior preferred — conviction meets patience.