David Tepper and his $7 billion profit from stocks

David Alan Tepper is an American hedge fund manager and the founder of Appaloosa Management. His investment specialty is distressed companies.

In early 2009, David Tepper bought severely depressed shares of big banks like Bank of America (NYSE: BAC) and Citigroup (NYSE: C). By the end of 2009, Bank of America quadrupled in value and Citigroup tripled in value from their bottoms earlier in the year.

That was good enough to earn Tepper's hedge fund $7 billion. His personal cut was $4 billion.

Tepper's background is in investing in distressed assets and that's exactly what he did in his biggest score to date.

In early 2009, everyone knew Bank of America and Citigroup shares were cheap, but they were too afraid to buy because, among other concerns, they were afraid that these banks would be nationalized.

Tepper bet they wouldn't be. While this trade seems like a wild gamble, Tepper's excellent track record in distressed investing proves otherwise.

A more likely explanation is that Tepper kept his cool while everyone else lost theirs with worries about a coming depression, a collapse of the global financial system, and other 'the-world-is-ending' scenarios.

What's not so impressive about Tepper's trade is the caliber and exclusivity of the analysis because everyone knew about the factors at stake, i.e. whether big banks would be nationalized.

But Tepper deserves credit because he did what one else dared to do and made a lot of money doing it.

Read more:

• PAUL TUDOR JONES: The next recession will be ‘frightening’
• Jim Rogers about the bubbles, emerging markets, Asia and something else
• Linda Raschke on Twitter: “So nice when someone sums up timeless guidelines with such a well organized layout”
• Ray Dalio: “The World Has Gone Mad and the System Is Broken.”
• Bill Gross: Cheap is not always cheerful in value investing