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The Man Who Made $3.5 Billion Last Year

Think professional athletes get paid a lot? Wait until you learn what hedge fund managers made last year, and how one of them did it.

The big winners
Institutional Investor's Alpha magazine recently announced that the 25 highest earners running hedge funds brought home $21 billion last year.

The man on top, David Tepper of Appaloosa Management, led the way for a second year in a row, with a paycheck of $3.5 billion.

In total, he's made a staggering $5.7 billion over the last two years alone, continuing a remarkable run since 2009 in which his net worth skyrocketed from $3 billion to $10 billion. 

And while Tepper isn't yet a household name like Warren Buffett, there is one thing to learn which they both share.

One of Warren Buffett's better known quotes is:

Be fearful when others are greedy, and be greedy when others are fearful. 

And this is one Tepper lives by.

While the market was up nearly 20% in 2009, Tepper's firm posted an astonishing 129% return. How'd he do it? He bought in to Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , and Citigroup (NYSE: C  ) when no one else would.

The stock market plummeted through the first three months of the year on fears all the biggest banks would collapse. But Tepper understood the government simply wouldn't let that happen. He knew the Treasury Department had committed to holding up the biggest banks, so he poured money into the market.

He said at the time:

The whole market and the whole world were in pure panic. Everyone was too scared to do anything. 

As a result, Tepper began buying into Bank of America and Citigroup after he was confident they would survive. And the firms saw their stocks rise by 330% and 223% in a little more than six months' time. This catapulted him to the top of the hedge fun world, and he netted more than $4 billion in 2009 alone. 

Tepper Busines School Source: Flickr / sksachin.

A long history of success
After a time spent in other industries, Tepper's career took off in helping to start the junk bond desk at Goldman Sachs in the middle of the 1980's. He's noted that while he got into the junk bond business "by accident," it was there he excelled. He went on to highlight examples, like buying Korean and Russian bonds, where he dove into the markets when no one else was willing to. 

In essence, his entire career and fortune has been made through understanding Buffett's principle of not being overcome by fear when investing. Remember, Buffett still owns $21 billion worth of Wells Fargo and nearly $11 billion of Bank of America. Both of which were stockpiled in years following the financial crisis. 

What we all can take away
Tepper has had remarkable success doing things many individuals are too scared to do. However, we can all see how vital it is to independently evaluate investments not based on what the market says or does, but instead on what the true value of a business is worth.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2014, at 9:08 PM, Damocles wrote:

    BCA is an upholstered sewer, in addition to the predictable inflation beginning to rear it's predictable ugly head. Perhaps Mr. Tepper should get a wheel barrow and soon just to go shopping or pick up a bottle of milk and a newspaper.

  • Report this Comment On May 19, 2014, at 1:17 AM, Hfish1212 wrote:

    You dont make that big a bet without knowing a little inside info.

  • Report this Comment On May 19, 2014, at 9:44 AM, NeedaClue7 wrote:

    Tepper made $5.7 billion off the investors in his hedge fund, likely through the notorious 2%/20% fee structure such funds are known for. Meanwhile, investors in Berkshire Hathaway paid Buffett $100k per year. I'll stick with Buffett, who's long-term performance will likely crush the greedy, egomaniacs that run hedge funds.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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