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Facebook's IPO Filing: Here Are The Numbers That Stood Out To Me

Facebook_ipo_growth

(image credit: readwriteweb.com)

In the year of Internet IPOs, the big juggernaut of them all, Facebook, finally filed for its IPO this week. The best place for a wide variety of analysis was Techmeme. 

I had some time to go through their S-1 this morning though and here are the numbers that stood out to me:

  • 2011 Net Income was $1B on $3.7B in revenues
  • 57% of Facebook’s monthly users worldwide use the service daily
  • 70% of Facebook’s growth last year came from outside the U.S., Canada, and Europe
  • Facebook recorded $4.39 in revenue and $1.18 in profit per user last year
  • Zynga accounts for 12% of Facebook's revenue (Related: Zynga's IPO Filing: Analyzing the S-1)
  • Pandora is mentioned twice, Twitter twice, Microsoft five times, Google fourteen, and Zynga twenty four. MySpace isn't mentioned at all.
  • 3,200 employees as Dec 2011
  • Facebook is currently available in more than 70 different languages
  • Over $3.9B in cash on hand. And they will raise $5B more.
  • 845MM monthly active uniques
  • 425MM monthly active uniques on mobile 
  • The worldwide online advertising market is projected to increase from $68 billion to $120 billion from 2010 to 2015
  • The global mobile advertising market was $1.5 billion in 2010 and is expected to grow at a 64% compound annual rate to $17.6 billion in 2015

I've reviewed the IPO filings from all of the big Internet companies over the past year (see: LinkedIn, Zynga, Groupon, Yelp, Millenial Media) and Facebook is unsurprisingly the most impressive of the bunch. 

As somone who lives in the advertising world, I have seen firsthand the growth in Facebook advertising over the past few years. What once accounted for a small part of a client's ad buy is now a must-have along with search. From a marketer's perspective, you just can't beat the reach, targeting and cost efficiency that Facebook provides. 

Facebook is a true networks effects business. The market opportunity is enormous. And they have executed fabulously. For these reasons, I agree with Bill Gurley that Facebook clearly belongs in the highly coveted 10x revenue club. 

Also: Why I'm Buying LinkedIn

Filed under  //  IPO   investing   mobile   venture capital  
Posted
 

Millenial Media's IPO Filing: 5 big takeaways

Millenial_media_ipo
Millenial Media, the largest independent mobile ad network, has filed to go public, aiming to raise up to $75 million. Here's a link to its IPO filing.  

I’ve gone through much of Millenial's IPO filing. Here are some key points:

  1. Revenue is growing rapidly and its loss is shrinking, but Millenial is not yet profitable.  The company is now doing about $100M of annual revenue, generating $70M in revenue in the first nine months of 2011, from just $6.2M in 2008. While not yet profitable, their net loss improved from $5.4M to $417,000 during the same period.  
  2. Millenial is the #2 player in the huge mobile advertising market and its growth is taking away from Apple. The mobile advertising market is forecasted to double this year to $3.3 billion and be a $20.6 billion market by 2015, according to Gartner. And while Google/AdMob is the leader in the market, with nearly a quarter of the market share, Millenial ranks No. 2, with nearly 17% of share. Millenial's growth is also coming at the expense of Apple/iAds, who comes in at No. 3 with 15%. 
  3. The mobile app market is just exploding. Gartner forecasts that the total number of downloads from mobile application stores worldwide will increase from 17.7 billion in 2011 to 108.8 billion in 2015. That's a compound annual growth rate of 57%.
  4. Millenial is BIG and growing pretty fast. In December 2011, Millennial reached 200 million unique users. They also processed a whopping 40 billion ad impressionsin December too. In terms of apps, more than 28,000 have Millennial integrated across more than 7,000 different mobile device types and models. 
  5. The executives at Millennial are all in their late 30's and 40's. I point this out only to highlight that much of Millennial's success so far is because of seasoned executives, not fresh-faced hackers out of college that we so love to glamorize here in Silicon Valley. Speaking of which, chalk up another big win for non Silicon Valley or New York startups -- Millenial is based in Baltimore. 

Bottom Line: Millennial is growing fast and going after an enormous market opportunity. If they can continue executing well, they will be an important, independent player for years to come.

Also: Zynga's IPO Filing: Analyzing the S-1

Filed under  //  IPO   investing   mobile   startups   venture capital  
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The Groupon, Angie's List and Yelp IPOs Proved One Thing: Local Is Really, Really Hard

Yelp_ipo
Damn, local is tough. 

That's the one thought I'm left with after reading through the S-1's of Groupon, Angie's List, and Yelp.

Let's dig into the numbers. Here's a look at the losses and revenues for each:

  • Groupon 
    • FY 2010: a loss of $456M on revenues of $713M. 
    • Q1 2011: a loss of $146M on $644M in revenue.  
  • Angie's List
    • FY 2010: a loss of $27.2M on revenues of $59.0M. 
    • First six months of 2011: a loss of $25.8M on $38.6M in revenue. 
  • Yelp
    • FY 2010: a loss of $9.51M on revenues of $47.7M. 
    • First nine months of 2011: a loss of $7.6M on $58.4M in revenue. 

 

And what's the main driver of these losses? 

  • Groupon
    • $208M spent on marketing in the first quarter of 2011 and another $178M on sales people and the rest.
  • Angie's List
    • $48M spent on marketing (of which $35 million was on TV ads) and $22M on sales.
  • Yelp
    • $38.5M, or nearly two-thirds of its revenue, spent on sales and marketing.

So a very large contributing factor to the losses for each of these companies comes down to marketing and sales. The marketing side of this is pure customer acquisition (read: advertising). And the sales side is simply feet on the street. Or warm bodies hitting the phones.

As Rocky Agrawal noted in his analysis of Yelp, there is very stiff competition in the small business advertising market so earning and keeping their business is difficult and expensive. 

Of course, there is a good reason why these companies are putting so many bodies behind the phones: the local advertising market is massive. So massive in fact that when I tried to find a number for the size of the local advertising market I came across a range from $14 Billion all the way up to $130 Billion. Companies realize that "to the winner go the spoils" so they're dedicating lots of resources to local in order to get out ahead of the competition. 

Indeed, local advertising is such a big market that my own company Pandora is aggresively going after it as well. Although it's a slightly different market in that we're going after local radio dollars specifically -- an area where I think we're well primed to gain market share in.

There are of course many strengths in all of the above businesses. The rate that each of them has grown revenues is no easy feat and should be applauded. I am personally a huge fan of Yelp the product. It's by far the most comprehensive source of reviews out there and the best place to go when I want to find a new restaurant. I am no longer a Groupon subscriber because the emails got to be too much but I've been impressed by their efforts with personalization. And I've bought deals through Groupon Now a couple of times too and been happy with the experience. Marc Andreessen nailed it when talking about Groupon recently in his predictions for 2012:

I've always felt that the criticism of Groupon has been unwarranted. People have really underappreciated what Groupon has done, which is they've created a way for small businesses that aren't online to spend money online and be able to dial up customers on demand. That's a really big deal. 

But investors have to look for the strengths AND the weaknesses of a company. One weakness (if big enough) is enough to cripple even the best company despite its many strengths.

The question, that we've asked before, is can these companies get their marketing and sales costs down even in the long term? I'm of the opinion that a more automated solution is the answer. I know it might be sacrilege for a salesperson to say so, but if a local advertiser wants to book $1,000 worth of ads, should they have to go through a sales rep in order to do so? At some point it is just not scalable.

More importantly, the question gets put back startups: is there a better way to do things in local?

Also: Two Opposing Views on Groupon

 

Filed under  //  IPO   groupon   investing   pandora   yelp  
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In This Market, What's An Intelligent Investor To Do?

The-intelligent-investor-notes
The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham

By all accounts, it looks like we are in for a wild week. A lot of factors are coming into play at once giving rise to a lot of uncertainty in the markets:

With so much uncertainty, it's a good time to reflect on what makes an "intelligent investor." It's been a while since I've posted some reading notes (the last were for Born To Run) and the timing worked out well since I just finished reading The Intelligent Investor by Benjamin Graham. I recommend getting the version with updated commentary by Jason Zweig.

The Intelligent Investor is the one, must-read book that Warren Buffet recommends to any beginner investor. And for good reason. Anyone serious about investing in stocks should give it a read. It gives a great overview of "value investing" -- which shields investors from error during downturns as well as from their greatest enemy, themselves. 

It is also a timely book to keep in mind since this is the year of Internet IPOs. Graham makes the clear distinction between investing and speculating (see below) and regards IPOs in the clear camp of speculating as the companies don't yet have a history of strong performance. It's a challenge I routinely have to remind myself on (see related post: Why I'm Buying LinkedIn).

The markets are in for a bumpy ride this week (and months?) but as with all downturns there will be some very real buying opportunities presented to us. As Warren Buffet famously said, 

We should simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

I think if you stick to the basic tenets of Graham (high value, strong financial history, low P/E ratio, good dividend, etc.) then you will be fine in the long run. And if you invest intelligently in this downturn, then well, you could even make out like a bandit. 

 

Here are my notes:

  • The investor’s chief problem-and even his worst enemy-is likely to be himself
  • The Intelligent Investor dreads a bull market and welcomes a bear market
  • An investment operation is one in which, upon thorough analysis promises safety of principle and an adequate return.
  • The defensive investor should allocate his holdings 50-50 between equities and high-grade bonds, unless one asset class has a better outlook and/or valuation
  • If proper market conditions exist, this 50-50 ratio can be altered up to 25-75 for either equities or high-grade bonds
  • Note that investing, according to Benjamin Graham, consists equally of three elements: you must thoroughly analyze a company, and the soundness of its underlying business, before you buy its stock; you must deliberately protect yourself against serious losses; and you must aspire to “adequate”, not extraordinary, performance
  • An investor calculates what a stock is worth, based on the value of its businesses. A speculator gambles that a stock will go up in price because someone else is willing to pay more for it
  • Benjamin Graham’s rules for speculating are that you must never delude yourself into thinking that you’re investing when you’re speculating, speculating becomes more dangerous the moment you begin to take it seriously, and you must put strict limits on the amount that you are willing to wager. And ALWAYS keep it to a separate account
  • Bond funds are great way to get bond exposure with keeping a diversified approach
  • On defensive investing: Benjamin Graham’s four rules for defensive investors are there should be adequate diversification of between ten and thirty stocks, each company selected should be large, prominent, and conservatively financed, each company should have a long record of continuous dividend payment, and the investor should impose some limit on the price he will pay for an issue in relation to its average past earnings
  • One must make a clear choice on whether to be a defensive or enterprising investor
  • Enterprising investors must (1) must meet objective or rational tests of underlying soundness and (2) must follow strategies different from those followed by most investors or speculators in order to obtain better than average results
  •  Buying relatively large companies that are currently unpopular is one way to make large returns
  • The only certainty in the markets are that there will be large and volatile swings in pricing
  • Two ways to take advantage of the price swings are through timing and pricing
  • What this means is that timing is of no real value to the investor unless it coincides with pricing - that is, unless it enables him to repurchase his shares at substantially under his previous selling price
  • Focus on companies that are trading at or close to tangible-asset value
  • Additionally, desirable stocks must also have a satisfactory P/E ratio, strong financial position, and the prospect that its earnings will be maintained over the years
  • Portfolios of strong companies trading around book value can neglect the day-to-day changes in market pricing and may even put let the manager take advantage of pricing irregularities
  • The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage
  • That man would be better off if his stocks had no market quotation at all, for he would be spared the mental anguish caused him by other persons, mistakes of judgement. 
  • True investors use price fluctuations to either purchase or sell shares of a company
  • Stock quotations are there for convenience and can either be taken advantage of or ignored
  • Mr. Market is like a partner that tells you every day what he thinks your interest is worth. Imagine he is manic depressive and lets his enthusiasms AND fears run away with him 
  • Mr. Market’s wild pricing inconsistencies can wildly undervalue or overvalue equities
  • You do not have to trade with Mr. Market just because he constantly begs you to
  • But investing isn’t about beating others at their game. It’s about controlling yourself at your own game
  • Later in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffet
  • When finding the right fund, first evaluate its expenses, then evaluate its risk using a prospectus, and then look at the manager’s reputation and past performance of the fund
  • Low-cost ETF’s are worth looking at for investors looking to gain exposure to specific areas
  • Look for companies with large competitive advantages, companies that consistently grow earnings at a steady pace (10% pre-tax long-term), and that spend on R&D
  • For the defensive investor, Jason Zweig advocates they should keep at least 90% of his money in an index fund: “By owning the entire haystack you can be sure to find every needle, thus capturing returns of all the superstocks. Especially if you are a defensive investor, why look for the needles when you can own the whole haystack”
  • The seven quality and quantity criteria that Graham for picking individual equities are (1) adequate size, (2) strong financial condition, (3) earnings stability, (4) consistent dividnd record, (5) continued earnings growth, (6) moderate P/E, and (7) moderate price/assets ratio
  • A small percentage of investors can excel at picking their own stocks. Everyone else would be better off getting help, ideally through an index fund
  • Although there are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go
  • The market scoffs at Graham’s principles in the short run, but they are always revalidated in the end. If you buy a stock purely because its price has been going up- instead of asking whether the underlying company’s value is increasing- then sooner or later you will be extremely sorry. That’s not likelihood. It’s a certainty
  • The amount that companies are giving out in dividends has greatly decreased from the publication of the book to the modern day. Graham believes that a company should definitely pay a dividend if it has the means to
  • No wonder, when he was asked to sum up everything he had learned in his long career about how to get rich, the legendary financier J.K. Klingenstein of Wertheim & Co. answered simply: DON’T LOSE
  • Graham averaged a return of close to 20% per year, an amazing feat for anyone during anytime
  • Investing, too, is an adventure; the financial future is always an uncharted world. With Graham as your guide, your lifelong investing voyage should be as safe and confident as it is adventuruous

Also: Why Apple Even Now Is Still Very Cheap

 

Filed under  //  books   investing   stocks  
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Why Apple Even Now Is Still Very Cheap

Apple_cheap
Apple (AAPL) closed yesterday at $392 a share. Many people view this as an expensive stock because of its high share price. However, it's not. On the contrary, it's actually still very cheap in comparison to many other stocks in the market. Let's look at why.

On a trailing price to earnings ratio, usually the most used metric in judging what makes a stock expensive, Apple sits at a very reasonable 15.5. Here is a chart of Apple's share price and P/E ratio over the last year:

Apple-stock-cheap
via businessinsider.com

Let's look at a few other tech companies for comparison:

  • Amazon - 92.6
  • Netflix - 65.9
  • Salesforce - 420.9
  • Google - 21.7

And those are just tech stocks. It gets better when you look across other industries. 

The kicker is that Apple's revenue is actually still accelerating. Their revenue growth on a year over year basis is an astounding 82%. 

Where do other tech companies stand?

  • Amazon - 51%
  • Netflix - 48%
  • Google - 32%
  • Microsoft - 8%

It's actually kind of silly when you compare these growth rates to the P/E ratios above. With these growth rates, Apple is still very much a growth stock. So it's no suprise that some analysts think its stock will reach $1,000. And he's not the only one. 

Other than these purely financial metrics, here are a few other reasons why I am bullish on Apple:

With all these bullish signs going Apple's way and looking at the stock's fundamentals, it is clear that Apple is still dirt cheap. 

Needless to say, I am buying. If the institutions / big boys want it badly, then I want it badly too. I plan on buying and holding while also trading the swings. In fact, just yesterday I picked up some Jan '12 option calls. 

To the folks that say, "oh I don't have a lot of money to invest and you need a lot of money to buy Apple for it to be worth your while", I say that's simply not true. It doesn't matter about the share price, just the percentage gain. You could buy one share at $400 and if it goes up to $500 you have still made 25% on your dollars in. And honestly I don't see a surer thing in the market. 

Also: Why I'm Buying LinkedIn

Filed under  //  apple   iPad   iPhone   investing   stocks  
Posted
 

Why I'm Buying LinkedIn

Linkedin_nyse

I've written before about how this is the year the Internet IPO returns.

Well today LinkedIn is going public. And it will be a doozie. In fact, at $45 per share they have priced at the top of their price range.

This values the company at $4.25 billion. However, even with the lofty valuation and the real risks, I plan on buying LinkedIn (LNKD) stock today and over the next couple of weeks as the stock fluctuates. Here are the main reasons:

1. It is a True Network Effect Business - LinkedIn becomes more valuable the bigger it gets. Not only to the members themselves but more imporantly, to recruiters. The larger the talent pool is, the more valuable LinkedIn is for finding potential job candidates.

2. The Market Opportunity is Enormous - LinkedIn is in one of the largest and untapped markets. The worldwide talent acquisition market is estimated to be at $85B. And the hiring solutions market is estimated to be at $27B. Compare this to LinkedIn's ~$100mm revenues from "Hiring Solutions", and you see their market penetration is very small. So there is a lot of room for LinkedIn to grow. 

Moreover, as the chart from SAI below shows, hirings solutions is LinkedIn's fastest growing business (see point #1 as to why). 

chart of the day, linkedin revenue, may 2011

3. It is Becoming a True Platform - LinkedIn is slowly becoming a true platform. Just as Facebook and Twitter have done, LinkedIn is creating a platform that allows their data to be accessed by 3rd parties via APIs. As the company has matured, so has their APIs. This should open up all sorts of possibilities to other developers and solidifies LinkedIn as the Internet's "professional graph."

Platform companies are very rare. As LinkedIn becomes more ubiquitous around the Web, the platform will start to manifest itself in the financials eventually.

4. Valuation is More Reasonable at a Second Glance - As this anonymous institutional money manager explains, LinkedIn's valuation is much more reasonable when viewed in light of these platform / network effect / hyper growth companies (hint: see OpenTable):

To account for the rapid growth, we need to look out a few years and see where earnings can be to derive a target for the stock in a few years. It seems that the industry expects the company to generate over $950m in revenues, EBITDA margins near 25%, and EPS of > $1 of EPS in 2014. However, I think these estimates may prove conservative, as a company typically gives guidance to its bankers that it feels is readily achievable (so it is more likely to beat Street estimates). 

Hence, I think that the company can probably do over $1b in revenues in 2014, likely still growing >20% for $1.2b in revenues for 2015.  At a 27% margin (the company said long term margins should be > 30%), that would equate to ~$325m of EBITDA, EPS > $1.60 and FCF >$210m. Quality Software as a Service (SaaS) companies like Salesforce or Concur can trade anywhere from 5-7x forward sales. So with $1.2b in revenues in 2015, a 6x multiple would imply an Enterprise value of $7.2b in 2014 - adding in the cash and cash flow over that time and that would be a over an $8b equity value for >$80 a share 3 years from now.  That would imply over 125% return from the IPO if done at $35. Similarly, applying a 50x forward PE multiple (reasonable as EPS should still be growing 50%+ at that point) to the EPS of $1.60 in 2015 would imply a target >$80 a share.  Applying a similar free cash flow multiple would also support this level.  Lastly, the top SaaS names can warrant a forward EBITDA multiple of 20-30x.  Applying a 25x forward multiple would also derive a stock greater than $80 in 2014.

via businessinsider.com

5. The 3 Largest VCs are not selling any shares - It should be a telling sign that the 3 largest venture capital investors are NOT selling their shares. Very little management is selling either. These folks are very experienced investors who are in it for the long haul - and so am I.

Summary. LinkedIn is a unique platform company with strong leadership that is executing well in a very large market. While LinkedIn's stock may look expensive in the short term, I think it is a great long term investment. The valuation is certainly lofty but I think it is one that LinkedIn will easily grow into.  

Filed under  //  IPO   investing   linkedin   startups   venture capital  
Posted
 

The 7 Tech Megatrends according to Ron Conway

Megatrends
Silicon Valley's most famous early stage startup investor Ron Conway and his firm SV Angel put together a report for investors listing 7 tech "megatrends" for startups. TechCrunch first reported it.

According to SV Angel, the megatrends are:

  • Social
  • Real-Time
  • Location Based Services
  • The Urban Entrepreneur
  • Mobile
  • Flash Sales
  • Behavior & Transactions

The list isn't terribly surprising. However it's a great overview for any would be entrepreneur of what's hot right now in tech.

Below is the full list of megatrends via the Business Insider. Check out SV Angel's explanation of these trends and the companies that are most relevant to each:

Social

  • The web is now truly social via the explosive growth and wide adoption of FaceBook, Twitter, and other social media.
  • Openness and willingness to share: users are sharing more with each passing quarter.
  • Consumer behavior is becoming more "forgiving" when it comes to privacy and disclosure.
  • ...this is in no small part due to mobile devices and smartphone devices being ideal for social web and instant sharing.

Relevant companies: Twitter, Blippy, DailyBooth, Zynga, Facebook

Real-time

  • A corpus of time-relevant data is being created and used in new ways.
  • Twitter led the charge, and now numerous companies are integrating time-relevancy into products.
  • Collective wisdom and crowd-sourcing: with the real-time trend, people are continuing to provide services that are made more interesting/valuable by piecing together bits of unstructured information that can then be used for a new services mashed up on top of these layers.

Relevant companies: Twitter, Foursquare, all the LBS players, and other services where the analog status of users, and analog movement of individuals in various places are being turned into digital, real-time streams.

Location-based Services

  • "Check-ins" are the new 'status message."  The "Check-in" will be a very important piece of structured data.  It is a precise update, which allows for trending locations, awareness of friends' location, and ultra-relevant location-based ads.
  • Local discovery includes alerts for traffic jams, turn-by-turn directions, finding the nearest ATM or coffee shop, and ordering tacos from the best  Mexican restaurant in town.

Relevant companies: Foursquare is leading the charge, and Gowalla, Yelp, Loopt, Brightkite, Google Latitude, Rumble and other social networks to follow.

The Urban Entrepreneur

  • A new field of entrepreneurs is developing where key insights are coming from founders in large cities.
  • "Behavioral entrepreneurs": low cost to computing and open source tools of technology have led entrepreneurs to find innovation in behavior rather than technology, at least within social media.
  • Winners will be companies that utilize these important trends/technologies to provide services where users get massive value (output) from simple input.

Relevant companies: Jack Dorsey, San Francisco - Twitter; Dennis Crowley, New York - Foursquare; Jon Wheatley, London - Daily Booth; Bump Team, Chicago

Mobile

  • Mobile is deeply intertwined with real-time data.  Mobile's pervasiveness amplifies sharing and increases the potential of collective wisdom.
  • The power is shifting from hardware to those who can master: content, monetization, access, and the cloud.
  • Mobile is especially important for consumer-facing social products, as mobile is quickly becoming the initial or most common interface for many new products & services.

Relevant companies: Apple and Google will continue to be the leading app platforms.  HTML5 will lead the app-like mobile websites in the future.

Flash Sales

  • Online shopping experiences ranging from high-end "invite-only" clubs to mass adoption deal sites have gained rapid momentum and revenues.
  • Daily deal sites, like Groupon, have finally unlocked the potential of local, connecting the online world (via mailing lists) with local businesses.
  • Targeted Groupon clones will continue to crop up as the economics of the business are so attractive.  Sites like Yipit will help users navigate such long-tail players.

Relevant companies: Gilt Groupe, Rue La LA, Groupon, Ideeli, One Kings Lane, HauteLook, Totsy, Editors' Closet, Beyond the Rack, and many more.

Behavior & Transactions

  • In 2010-2015 we will see analog transactions and behaviors rapidly convert into real-time feeds of data and services.
  • Search algorithms are no longer the lifeblood of IP.UI and UX are becoming increasingly important in social communities and products-- that is the "new IP" driver-- "Social Engineering" is replacing "Algorithmic Engineering."
  • Initial product cycles are about finding key insights in shifting behavior trends and patterns.

Relevant companies: Posterous, Hipmunk, Foursquare, WePay, TweetDeck.

What do you think of these trends? Agree or disagree with any? Any other trends you're seeing?



 

Filed under  //  investing   startups   trends   venture capital  
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Guy Makes Billions Betting On The U.S. Economy. Go Figure.

David Tepper bet big on banks.

Mr. Tepper's hedge-fund firm has racked up about $7 billion of profit so far this year—with Mr. Tepper on track to earn more than $2.5 billion for himself, according to people familiar with the matter. That is among the largest one-year takes in recent years.

Behind the wins: a bet worth billions of dollars that America would avoid a repeat of the Great Depression.

Through February and March, Mr. Tepper scooped up beaten-down bank shares as many investors were running for the exits. Day after day, Mr. Tepper bought Bank of America Corp. shares, then trading below $3, and Citigroup Inc. preferred shares, when that stock was under $1. One of his investors insisted more carnage loomed. Friends who shared his bullish beliefs were wary of aping his moves amid speculation that the government was about to nationalize the big banks.

"I felt like I was alone," Mr. Tepper recalls. On some days, he says, "no one was even bidding."

The bets paid off. A resurgent market has helped Mr. Tepper's firm, Appaloosa Management, gain about 120% after the firm's fees, through early December. Thanks to those gains, Mr. Tepper, who specializes in the stocks and bonds of troubled companies, manages about $12 billion, a sum that makes Appaloosa one of the largest hedge funds in the world.

"This is ridiculous, it's nuts, nuts, nuts!" Mr. Tepper recalls saying to Michael Lukacs, one of his partners, on the firm's small trading floor. "Why would the government break its word? They're not going to let these banks go under, people aren't being logical!"

via online.wsj.com

 

Filed under  //  investing   optimism  
Posted