David Tepper and the next time a hedge fund titan says ‘buy everything’

It should be a quieter day in US markets today because of the stock market closure for Jimmy Carter’s funeral. That gives me a chance to revisit one of the most-memorable financial markets TV appearances of last year.

The date was September 26 and the guest was Appaloosa Management founder David Tepper. Since inception, he’s returned around 25% annually, net of fees, which is spectacular. With his fortune, he bought the Carolina Panthers NFL team and he’s largely avoided controversy.

He deserves the benefit of the doubt.

In September though, he delivered a performance that grabbed a lot of attention when he went on CNBC and said he had gone over his usual limits to load up on China stocks, and that he had bought even more in the previous days after bullish China stimulus announcements.

“This is incredible stuff for that country,” he said of the stimulus. “This has implications in bonds, currencies and stocks.”

“I thought that what the Fed did last week would lead to China easing,
and I didn’t know that they were going to bring out the big guns like
they did,” he said. “I think there’s a whole shift.”

On what to buy, he didn’t discriminate.

“Everything,” he says. “ETFs, I would do futures – everything. Everything.”

In mid-November though, when 13F filings were revealed, they showed that he trimmed his Alibaba position, sold some shares of Baidu and lowered his stake in the FXI China ETF. At the time of his rant, I warned: “The intensity of that pitch makes my spider sense tingle a bit that he might be looking for exit liquidity.”

Critically, it wasn’t good buy-and-hold advice. FXI traded at $32 at the open on September 26 as his bullishness contributed to an opening gap that day. It’s since fallen 7.8% (though for the first week it was certainly a great trade).

Now I may not be being entirely fair here because he did nearly double his position in Q3 in PDD Holdings at prices between $89.17 and $151 (it’s now at $100.59) along with large purchases of JD.com, while Alibaba continued to make up the largest portion of his portfolio at 15.76%, despite some selling.

The real test will come on February 14, that’s when Q4 13F filings are due. That’s when we will see what his holdings were on December 31 or whether he sold into the rally he helped create.

Again, I wouldn’t entirely blame him if he did, not just from a Machiavellian perspective but because facts change. There was widespread enthusiasm for stimulus in September because it looked like China was finally getting the message. Over the next few weeks, it because increasingly clear that Xi wasn’t bringing out the bazooka.

Hopes springs eternal that Beijing will finally deliver in March (and I think there might be an opportunity to front-run that closer to the date) but it’s getting tough to overcome the dour sentiment in China and tariffs won’t help.

What’s the lesson here?

Now I don’t know what Tepper’s motives were in coming on CNBC in September and he’s been quiet since. I give him the benefit of the doubt that he was sincere and his portfolio positioning certainly indicated a belief in China. Those stocks he bought are cheap and growing so there was a reasonable basis to buy them, despite the growing schism with the US.

The lesson for everyone else is to be careful when anyone is on TV or social media telling you to buy something, particularly someone who has the heft to move the market. The latest one is from Bill Ackman, who certainly has a checkered promotional record.

For every guy with honest intentions, there is one looking for exit liquidity. The thinner the market, the higher that risk is. Given the meme-ish nature of markets now, these risks are rising. Beware.

This article was written by Adam Button at www.forexlive.com.