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A Presentation by David Tepper

to Undergraduate Business Students
at Carnegie Mellon University
November 12, 2007
This transcript has been condensed and edited for clarity.

Introduction:
I think you all know who David is.
Hes of course the benefactor of our
school and what you probably dont
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 thats
successful, so Im 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, its 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.
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 hours
worth of material that hed 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.
David Tepper: citizens. Theres some BS like that,
Thank 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
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 theres
some feeling here about second class
and that is BS. We think you guys are
really important.
In fact, I told Ken that theres 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.

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David Tepper: I think theyre always going to hire a
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 didnt go
right into Wall Street. Then 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 weve been doing it for 15 years.
Weve 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. Weve
had Donald Trump in my office and
we could talk about Donald Trump if
youd 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 youd 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
youd 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. Its
unfortunate, but hey, its just the way it
is and you know, hopefully itll all work
out and you have a long life, and it will
[work out], because youve got a great
education here. I really, really believe
that.
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 its a
very tough market right now. Were
probably in the biggest percentage cash
weve ever been in my fund.
The other thing you should ask is about
life and family and whats 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 thats really important
in life and will always be important and
you guys should know that.
Anyways, Ive given you a bunch of
different things that Im going to try to
open up for questions.
Student: to work at Republic Steel afterwards,
Ill start off with an easy one: you seem
like youve realized all your ambitions;
youre very successful, but what were
your ambitions when you were an
undergrad?
David Tepper:
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 LSATs
and I took the GMATs. 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 youre the best
actor in your high school, you think
youre 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.
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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.
Then I went to work in their trust
department as a stock analyst. I really
wanted to be an investor. Thats what I
really wanted to do.
Actually when I was an undergrad,
I was trading stocks for myself with
whatever money Id made on the side.
And coming from Peabody High
School, I didnt 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 dont know what its
called now; probably three take-overs
ago. I was a security analyst over
there, but I really didnt 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 doesnt totally answer your
question, but Im going to sell the
school a little bit even though I went
when I went to Wall Street, I was just
so far in front of other people, like with
options theory.
Student:
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 youre more
knowledgeable?
David Tepper:
There 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 didnt 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

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
didnt 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
cant 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. The company went
bankrupt absolutely wiped out, but
maybe thats 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 wasnt a continuous function, it
was an anomaly in the marketplace
and I actually made more money than I
eventually lost.
Student: stuff is true.
You started out working at Republic
Steel and you went through their
whole distress, their kind of downfall,
which is where Im 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?
David Tepper: a lot of relationships throughout the
You know, its 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
previous 100 years of the history of the
company. It was a really great time.
Ill 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 Tepper,
But things kind of work out after a
time.
Student:
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?
David Tepper:
Yeah, I think so. You know what, when
youre starting out, there are no bad
choices. There are no bad choices right
now for you guys. There really arent;
I really do believe that. You just keep
driving at what you want and even if
you dont 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
You know whats 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, everybodys uptight. I look at
my neighborhood; theyre uptight in
high school. SATs and that stuff; much
more uptight than we were when we
were young.
Maybe its that much more competitive,
but you know what, its okay if you
dont know what you want to do exactly
right now. Its not as good if you dont
know what you want to do when youre
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.
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Presentation with David Tepper | 3
I kind of knew I wanted to do investing.
I wasnt sure, I was leaning that way so
I kind of knew where I wanted to try
to get to. So if you do, just dont stop
driving there. You dont have to settle.
Just keep driving at it and it will come.
Student:
Youre 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?
David Tepper:
Oh, I made a lot of mistakes. Ive got
to pick which one. Ill 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. Its 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 its 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. Then the junk bond market
crashed the second time I was up for
partner and that didnt work. But the
third time I was up for partner, I had
firm and I was making a lot of money.
But a funny thing happened on the
way to the partnership at Goldman
Sachs. This guy by the name of Bob
Rubin who later was the Secretary
of the Treasury he was the head
of fixed income when I was there. I
liked Bob Rubin because he came

from risk arbitrage, and junk bonds are
kind of like equities. So I would go
into Bob Rubins office and talk about
the markets. And if I wanted to take
a big position, Id go into Bob Rubins
office and say, hey, I want to take a big
position and wed talk about it.
Well, Bob Rubin became Vice
Chairman of Goldman Sachs and he
was still on my floor and the new head
of fixed income was a guy by the name
of Jon Corzine, whos now governor of
New Jersey.
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 a year,
I continued to go to Bob Rubin. Bob
Rubin should have said, Hey, idiot, go
and talk to Jon Corzine, hes the new
head of fixed income. But I think Bob
Rubin liked to have the conversation.
So when Jon Corzine was the head
of fixed income and then it came to
the next partnership, Jon Corzine
said, Okay, Teppers not one of my
boys. Hes one of Rubins boys. So he
never let me become a partner. Even
though Im not a real political person,
youve got to be aware. You know, Jon
Corzine was the head of fixed income,
he was up the ladder. When I was
taking positions, I should have gone to
see Jon Corzine. That was probably a
mistake.
That was a mistake, but heres how life
goes. I could have gone there and gone
to see Jon Corzine, right, and maybe I
would have been a partner at Goldman
Sachs. I would have had worked long
hours, I would have had more wrinkles,
been miserable. Or I could have started
a hedge fund and made seven times, or
a hundred times more money than I
would have made at Goldman Sachs,
so whats bad is good and whats good
is bad, right?
Life takes funny turns. Thats really
important for you guys. Youve got a
long life. Dont get upset by setbacks.
Setbacks are another way to say
opportunity.
That was a mistake [at Goldman
Sachs] though; in your career, dont do
that. Thats stupid, okay. And I wasnt
trying to skip over [ Jon Corzine], I was
just nave.
David Tepper: year and look at the years 2005/2006,
The biggest mistake I made when I
had the hedge fund was [when] we
were really caught in Russia in the
meltdown in 98 when Long-Term
Capital [Management] went down.
We lost 20 percent or something that
year, which was a really bad year for us.
We were very involved in emerging
markets; Russia, Brazil, the whole
thing. When Russia hit and when 98
hit, not only did the liquidity disappear,
the spreads widened out. Youre seeing
some of that right now again in the
marketplace.
So that was a mistake, a false liquidity.
We thought the liquidity was there. I
thought the liquidity would be there,
would always be there and I was not
careful about my position size at the
time.
Student:
What do you think of the housing
market?
David Tepper: The money could be too big for the
What do I think about it? It sucks.
You know, Ill tell you the truth we call
it the slowest moving train wreck ever.
It just has so many implications and its
moving so slow and its still not done.
Youre right now in the period where
you have these option arms resetting.
Youre going to see many more defaults,
or many more people not paying their
mortgages, because theyre done with
their teaser rates.
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Presentation with David Tepper | 4
It has broad implications for the
economy. You see even a company like
Cisco, thats just reported that theyre
seeing weakness in financials and
weakness in autos, because of order
rates. I think youre going to have a US
economy thats going to be slower than
it otherwise would be for the next two,
three years. Not just sub-prime, its just
all mortgage lending. If you look at the
charts if anybody goes and looks at
how many houses were bought year by
its off the charts. Youre coming back
down off of that.
And thats going to have some effects on
the economy, not just in the mortgage
market. Were spending a lot of time
in the sub-prime market now, trying to
figure out if we should buy anything.
Another mistake I made was, we
should have been shorting that market.
We didnt short that market and it was
like a free option to short some parts
of that market. It was so ridiculous in
retrospect. I knew about it, because I
had some people telling me about it
and I was too busy, or too unfocused
to look at it, but I dont know if that
answers your question or not?
Student:
What are advantages or disadvantages
of managing so much money?
David Tepper:
I guess the advantage is you get your
calls returned. The disadvantages are
investment opportunities at different
times. Were a fund that will give back
money, which is kind of unusual in this
world. A lot of funds will just be asset
gatherers. Were more pure investors.
It swings both ways though. Getting
to be in the main calls really helps you
and were big enough that anybody will
come into our office if we ask them to
come in. If youre small, that wont
happen, so you have incredible access
at this size.

But you know, you can be too big and
miss certain opportunities, because you
have so many things youre looking at.
Student: Russian. I try to see whats going on,
You mentioned that you have to sell
yourself all the time, what do you think
are the best ways to do that and be true
to yourself ?
David Tepper: 98. But then we went further into
Well, you already answered it. Just be
yourself. I think the best way to do it
is to just go in there, know what you
want, okay, and be true to yourself. If
you know what you want, then people
will come through. I generally think
that. If you dont know what you want
and youre faking what you want that
will also come through, I think. I think
youve got to be true to yourself. Know
what you want and [do] not be afraid
to go after it, full stop.
Student: professional goals? Where do you see
[Did you know you wanted to be an
investor when you were in college?]
David Tepper: With the falling won at the time, that
I probably just liked investing, so this
was the purest form. Its funny, I got
into junk bonds by accident when I
was at Republic Steel. It was having
financial trouble and we were junk bond
issuers. Then I got hired at Keystone
because I had that experience. When I
was at Keystone, I was pretty good at
it and then Goldman Sachs hired me
when they started the department. So
it was kind of lucky. It is not bad to be
lucky, by the way. Better to be lucky
than smart, if you ever heard that, or
lucky than good, or whatever they say.
When I was at Goldman, I knew I
wanted to invest. I liked investing and
you know, junk bonds. I just fell into it
and it was kind of hot. But it was what
I liked. I wanted to invest and Im still
doing it and I like doing it, so youve
got to do what you like.
Student:
You talked about being one of the first
investors in Russia and Korea. How do
you gauge political risk and instability?
David Tepper: tell them who I am and who were
For us it was just doing credit analysis
of the different countries. In Russias
case, it was cheap when we went in.
You know, we lost a lot of money in
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.
You do the analysis of the country just
like you do a corporate analysis to see
what the ability to pay the debt back is.
We were debt investors so you want to
see the basic ability of the country to
pay its debts at that time. It was just
fundamental analysis, deciding if the
stuff was cheap enough or not.
In Russias case, [it had] incredible
natural resources. In Koreas case, [it
had] incredibly industrious people and
an incredible export machine potential.
just created what we thought would be
the ability to get reserves real fast.
Ill tell you a funny story of Russia, this
is a true story. We were in Russia in
1996. That was a crazy time. I dont
know if anybody is a history person at
all in here, but 1996 was crazy. And
when its a little bit dangerous, its a
lot exciting. Ive got a couple of great
Russia stories Ill tell you a story.
We were supposed to have a meeting
with this guy, Boris [unintelligible]
who was a big deal investor in Russia
at the time. And Boris [unintelligible]
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 theres all these guys with
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Presentation with David Tepper | 5
machine guns. Were like, what the
hecks going on? I happened to have
taken two years of Russian when I was
in high school, so I can speak basic
going to see. They let us go up to the
office and when we got up to the office,
theres [almost] nobody there. One
guy.
He says Boris [unintelligible] cant get
back in the country because they took
away his visa so Im going to meet with
you. And he said we have the guards
downstairs because Boris car was
bombed last night and the reason we
dont 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.
True story.
Student:
What are your personal and
yourself in five years?
David Tepper:
You mean, what do I want to do when
I grow up, is that what youre asking?
(Laughter.)
You guys are right at the beginning
[of your careers], its really great to be
you. I still have one kid in high school.
Professionally Im trying to [hire] some
other people in the firm so that they
can do other things and I can actually
do some more outside interests. I was
actually trying to hire somebody before
I came up here today. (Laughter.)
Ive always tried to have a balance, so
Ive kind of met some of those goals. I
want to continue to have a balance. I
always promised myself Id be a social
worker. Its what I always say Ill do
when I grow up, so I probably want
to get a little bit more involved with
different charities.

Student: Student: Im not short, because Im nervous
What kind of advice do you have for
students that arent pursuing a career in
Wall Street, or in finance?
David Tepper: David Tepper: a hedge. You can learn anything you
Like I said before, just figure out what
you want to do and do it. I mean, a lot
of people who go to Wall Street, they
hopefully want to do that or have some
inkling about markets and arent doing
it for money. Not that moneys a bad
reason to do it, but its good to have
some inkling of what you want to do.
And like I said before if you can figure
out what you want to do, go for it and
if you cant, youll figure it out at some
point and then go for it.
Student:
What would be your advice on
managing your time between family
and work?
David Tepper: so expensive, because theyre losing
If you skip some family thing, you
wont get it back. If I do a trade, Ill
do another trade. I can always do that.
But if I miss some big family event, I
cant get it back. You think you can get
it back when youre younger. When I
was at Goldman Sachs it was hard to
get home for things; thats one of the
reasons I decided to leave, too.
You cant always do it, but if you can
do it, I think it has to be first [priority],
because you cant get it back. And the
things in your career you can get back.
Sometimes I cant do it all, but if I can,
Ill do it. I think thats 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 cant, okay.
You really just cant, but you know,
make it up if you cant. Try to make it
up, because thats what lifes about.
Any thoughts on todays markets,
how is Appaloosa investing and
[unintelligible]?
Right now were pretty cautious. We
actually have the biggest cash position
weve ever had. Were probably about
40 percent in cash and we never run
cash. The reason Im that way is because
I do think margins are shrinking. A lot
of industries started with sub-prime.
So Im pretty cautious, and on the other
hand, Im nervous to be short, because
theres so much liquidity and the Fed
may continue to ease rates, so you can
get a liquidity-driven market.
I actually think that were in this period
similar to like 98, 99, 2000, when the
NASDAQ bubbled up. This bubble
right now is happening in Hong Kong,
in Brazil, in their stock markets
Chinas stock market. You get this
bubbling up thats caused by our
monetary policy.
So were in cash, because I dont
like margins coming down. I think
profitabilitys going to be hurt, but at
the same time, Im nervous about the
Fed easing. If it was a normal easing
period you could be in there, but I think
youre in that 98, 99, 2000 period. In
that period, you had over-capacity in
tech companies because of easy money.
We talked about the crisis in 98 before,
and Y2K. They eased money further,
so you had money flowing in from the
Fed. You couldnt say it was a policy
mistake of some sort. Money flowed
in and the NASDAQ bubbled up and
then it crashed. And it crashed mostly
because of over supply capacity. Im
of the opinion that you could have a
similar situation right now, that even
though you have margins down, you
could have so much liquidity from
Fed easing in our market. And whats
happening is theyre building too much
capacity in China in everything.
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Presentation with David Tepper | 6
about the liquidity. The market can go
up, so thats why I have this cash, which
is a great hedge. Ill tell you this: its
the best hedge; nothing else is as great
want at Carnegie Mellon, Im telling
you right now, you cant hedge yourself
like being only cash at a time.
Student:
What do you think about the airline
industry right now? I mean, do you
have airlines at all?
David Tepper:
We used to own 5 percent of
Continental at some point a few years
back. We generally, in a way, like the
airline industry. We like it. In the
United States youre talking about,
right? High jet fuel prices are a little bit
of a drag and the economy is a bigger
drag if you have a problem with people
not having money, because heating oils
their houses; that can be a problem too,
you know, for that investment.
But the reason we kind of liked it is
because the order backlogs so big right
now. The domestic industry cant order
planes, so it will keep supply a little
bit tighter. Whats happened in the
domestic industry over a time period
has been that theyve always over-
ordered and their margins got killed.
Because theres such a queue, because
of emerging markets, right now they
cant get planes, so its keeping supply
tighter so they can charge more,
effectively.
Countering that is high oil prices.
Much more problematic is Im going
to point to the sub-prime guy again.
Potentially theres job losses, people
losing their houses thats going to
affect the consumer demand.
If youre looking at the industry, look
at their planes and I dont know where
it is; I havent looked at the industry
 Presentation with David Tepper | 7

for about six months now, but look

at that, where the queue is for them
ordering planes. And try to figure out
how our consumer demand is. Not
consumer demand just for [air travel],
but consumer demand just generally in
the economy.

David Tepper:
Alright, thank you guys.

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