The David Tepper Interview

The majority of the discussion surrounding David Tepper's appearance on CNBC had to do with his bullish outlook. The part I found most fascinating was when he said that it would not be a big deal if we went off the fiscal cliff and the market took a 5% dive. He is long so extrapolating further that would mean that his fund would take a hit. Most hedge fund managers use jargon like "risk control" and would never say something to the effect of, "So what if we lose some money. It happens."

It is common sense that 30% a year returns cannot be achieved without taking risk. Obviously those risks need to be intelligent and David Tepper believes his upside is much greater than his downside.  But he realizes there will be times when hes wrong and will lose money. Many hedge funds are so focused on avoiding losses that they do not allow themselves to make any money. Hedge funds worry that if they suffer a draw down investors will redeem. So they play not to lose and end up suffering losses by a thousand paper cuts. I believe that this behavior has played a large role in the underperformance of the hedge fund industry in recent years. Many hedge funds would be wise to take something from the David Tepper interview other than the fact that they can now buy with reckless abandon.

3 comments:

Thursday links: avoiding losses - Abnormal Returns | Abnormal Returns said...

[...] Tsachy Mishal, “Many hedge funds are so focused on avoiding losses that they do not allow themselves to make any money.”  (Capital Observer) [...]

Sam Kang said...

Those hedge funds should give their money to me.  I will turn it out.

-OL DAWG

Tsachy Mishal said...

Good to hear from you OL DAWG. A blast from the past. All it took was some talk about money to get you back here.