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than those that I think can be great." Tepper also wants to reduce the number of positions so the firm can focus more on what it has. Generally, Appaloosa has 50 to 70 different types of positions on. At the moment (September 2000), it has 30. He likes the more concentrated approach. Tepper derides the theory of diversification. "You can't make money with a diversified approach. "Typically, about one-third of the portfolio has exposure to the stock market.

In taking a position, he is opportunistic, usually looking for double the return on small caps and perhaps a 50 percent return on larger caps. Tepper says size of the position determines how much a manager can lose. When getting into a position, he also needs to know how they're going to exit.

Tepper, the ultimate trader, is casual and down-to-earth. Gut feeling is important to him. At the moment, Tepper is holding a lot of cash because he doesn't like the markets. He feels the market is not going anywhere and has underlying risk. He believes a high probability exists of a bad outcome. "I don't have the guts now because the probabilities are not there." While he feels the near term is not great, he sees great potential for 2001.

In the quest to be more focused, Tepper sees high-yield bonds, also known as junk bonds, as being the focal point, but the firm won't just invest in junk companies. He sees them as the window to look at and find other opportunities.

VALUE-ORIENTED OPPORTUNISTIC

The core of Appaloosa's business is and has always been high-yield bonds and distressed securities. At the moment, junk bonds and distressed comprise about one-third of the portfolio, but Tepper sees that percentage going higher. He described the approach as value-oriented opportunistic. They take a credit orientation; they analyze the capital structure of a company.

Appaloosa is opportunistic and will be in and out of various instruments and markets. But it will always have U.S. capital structure on the books.

One example was its buying of McDermott bonds. McDermott is an oil driller. One of its subsidiaries, Babcock & Wilcox, went bankrupt due to the asbestos scare. Tepper says everyone was tossing the bonds, but he found it opportunistic to buy them at such a low price.