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Pro Analysis

3 ways to invest like hedgie legend David Tepper

David Tepper
David Orrell | CNBC
David Tepper

Editor's note: This is PRO Strategy, a column on how the smartest minds on Wall Street invest.

David Tepper is one the most respected and legendary investors in the hedge fund business, generating impressive gains for his clients across decades. Here's how we can learn from his success and apply his investment philosophy.

Tepper didn't start out as a master of the universe right away. After receiving his MBA from Carnegie Mellon University, he took a position in the finance department of Republic Steel, which was then followed by a stint at Keystone Mutual Funds. He then joined Goldman Sachs' high-yield bond trading desk and worked there for eight years, before founding his hedge fund Appaloosa Management.

From inception in 1993 through 2015, Tepper's main fund generated annual returns of 25 percent compared to the S&P 500 at 9.5 percent, according to market sources. In total, Appaloosa Management has $18.5 billion of assets under management.

"Dave Tepper is by any measure the best investor in the industry and has been since the launch of Appaloosa in 1993. I have had the privilege of knowing many great investors during my nearly three decades in the business but Dave resides at a level above all, attributable to a number of factors," said Short Hills Capital Partners' chief investment officer, Stephen Weiss.

"He is able to expeditiously distill market-moving information from all the noise and data, with a level of conviction and clarity before others."

Here are three key themes of Tepper's philosophy: