market folly

Continuing his round of rare recent media appearances, Appaloosa Management's David Tepper was on Bloomberg today telling people "to be long equities" as he's bullish.  Last month we highlighted his other interview where he said there's a lot of upside in equities,


Bullish on Equities


Valuation is part of the reasoning for his bullish call on equities as a whole: "If you look at the markets, they are trading at a really low multiple. 13 handle this year, 11 handle next year on the S&P."

Additionally, he simply points to the vast money creation across the globe as a reason to continue to ride the equity train.

He drew attention to an incredibly underweight equities stance by retail investors, pensions and more.  He feels that eventually there will be a shift.  Inflows to equity funds at the start of the year were at higher levels than they have been in quite some time.

Tepper gave a memo to long/short managers too, saying "good luck, because you can't get long enough" in this environment as he feels there will be a 'party like the 90's.'  Arguing potential for 20-30% returns in equities, he feels you don't want to be long risk averse assets like Treasuries, the yen, or the swiss franc.  He says to be long equites and 'equity-like' things.

His most notable soundbite was probably when he said that the US is on the "verge of an explosion of greatness."  Regarding Europe, Tepper feels that the tail risk there is a non-issue, at least for this year.


Likes Citigroup (C)

He pointed out his fondness for shares of Citigroup (C), arguing that it potentially has 50% upside from here, saying the company's foreign business is very valuable. 


Bullish on Airlines

Tepper highlights the reasons to like airline stocks:  a potential strong dollar scenario and oil remains largely flat (due to potential new discoveries etc), you have an industry that will do will in that scenario, and you have a consolidating industry, and you have capacity down this year.  He's looking for some airlines to start returning capital as well.

Our Hedge Fund Wisdom newsletter flagged Tepper's fondness for airlines a few quarters ago.  He owns US Airways (LCC) and Delta Airlines (DAL).


On Position Sizing & Liquidity

While everyone will focus on Tepper's bullish comments, he made a good point regarding position sizing and tracking his hedge fund's holdings.  While Citigroup is one of his larger positions, he mentioned it's only a 1.5% or 2% position compared to his firm's overall AUM.

Tepper says that instead of looking at the position size of the investment relative to his firm's AUM, look at how much of a given company that they own if you're tracking their positions.

He notes that he sizes positions accordingly to how easily they can get in and out.  He says that, "I value liquidity a lot."  So he's a long-term investor but he likes stocks like Apple (AAPL) that are extremely liquid.  He learned a very valuable lesson in 1998 regarding liquidity in Russia and that obviously shapes his decisions to this day.   

He also touched on how he started Appaloosa, something that's explained in more detail in the book The Alpha Masters.  We've highlighted an excerpt from the book in the past that touches on why his firm is named Appaloosa.


Below is the video of David Tepper's interview with Bloomberg:



If you missed it, be sure to also check out Tepper's other recent interview on CNBC as well.