- In the first 11 months of 2020, Emmet Peppers, who grew $30,000 in 2010 to more than $70 million today, generated 10,000% in gross returns for his incubator hedge fund.
- Peppers, who had successfully predicted the COVID-19 market crash and placed early bets on stocks such as Facebook and Tesla, is now officially launching his first fund — the Accelerated Opportunities LP Concentrated Growth Fund.
- He breaks down his turnaround trade prior to and during the COVID-19 market crash and shares what led to his early bets on Facebook and Tesla.
- Visit Business Insider's homepage for more stories.
In a career spanning personal fitness training, sorting bins of returned mails, and servicing hedge funds, Emmet Peppers has hustled his way into becoming a newly minted hedge fund manager with a formidable track record.
Like many independent investors, Peppers started trading in his individual retirement account in 2010 with less than $5,000 and two years later opened his personal account with a $25,000 deposit.
Today, his trading accounts — including an incubated version of his hedge fund which generated 10,000% in gross return from January to the end of November alone, have ballooned to over $70 million in assets.
"I know those types of returns will never happen again. It's been an incredible year for me with opportunities in the market moving up and down and me getting them right," Peppers said in an interview. "But I still think my investment philosophy will significantly outperform the S&P 500 over the long term."
Peppers' confidence stems from consistently reaping massive rewards from identifying opportunities ahead of the market.
In fact, his foresight and research gave him the conviction to execute a turnaround trade this year that catalyzed the launch of his hedge fund Good Soil Investment, which on Tuesday is unveiling its first fund — the Accelerated Opportunities LP Concentrated Growth fund.
The fund, which will focus on investing in early-stage US disruptive companies, is also pioneering a fee structure that will divert half of its 2% management fees and 20% performance fees to select charities.
A turnaround trade that grew his net worth 10-fold
Before Peppers became a hedge fund manager championing "capitalism for good," he was a prime brokerage salesmen at Interactive Brokers, a stable and high-paying job that he loved.
"A year ago, my net worth might have been like $3 million," he recalled. "I was living a good life and working a good job, and I was happy."
But then January of 2020 came. News of COVID-19 spreading around the world and potentially wreaking havoc on the global markets and economy started to emerge.
"I'm really plugged into social media and Twitter, and I've learned how to use Twitter to curate information very well," he said. "In early January, I had caught wind of some of the citizen journalism on the ground about the coronavirus outbreak in Wuhan."
While the US was still adopting a fairly cautious tone about the virus spreading domestically at the time, Peppers could already see a market crash coming as COVID-19 had spread to Italy and Iran.
As a result, on January 27 when the Invesco QQQ Trust closed at $218.10, he bought $206 strike puts on the QQQ for $1.40 per contract that would expire in 3 weeks. Those puts expired worthless as the market had gone up instead.
But Peppers was convinced, expecting a major market crash to be imminent. On February 21, when QQQ closed at $230.27, he bought puts again at $1.37 per contract with a $200 strike price and an April 17 expiry date.
"And then, sure enough, the markets crashed over the following month," he recalled. "So I sold the QQQ put options position on March 17th for $29.00 when it closed at $182.14."
Having decided that was the market bottom, Peppers then deployed the profits from the trade to buy long-term call options on stocks that he believes could rebound well and benefit from the work-from-home mandate, including Square (SQ), Peloton (PTON), Palo Alto Networks (PANW), Slack (WORK), and Tesla (TSLA).
At this point, Peppers could already live comfortably on his profits, but a reading of 'The Parable of the Sower' gave him a new perspective.
"It hit me that the good soil … that's kind of my investing philosophy," he said. "If I have this insight and ability to spot these types of opportunities, maybe I should do something good other than just selfishly for my own personal net worth. It inspired me to think differently, maybe I can start a hedge fund to do good with capitalism."
Facebook, Tesla, and the Roblox IPO
Despite having received hundreds of inquiries for participating in his new fund, Peppers is appreciative but wary of smaller accredited investors who wanted to invest a significant amount of their net worth in his fund.
"I know my investment strategy or philosophy can be volatile and they can go up or down a lot," he said. "I don't want to be stressed out by having someone put a significant amount of their life savings in my fund and take them out at the wrong time."
An example of the riskiness in Peppers' strategy is his preference for using long-term options to express his views on companies and market conditions.
"Because the fund is trying to accelerate returns based on the best investment ideas I have, I typically use options. I have bought stocks sometimes when there aren't great options available for what I'm looking for," he said. "But the majority of the fund is longer-term options. They can be a tax-efficient vehicle. If you hold options for at least a year and you sell the options a year out, it's long-term gains treatment."
The two early opportunities in which he used options to maximize returns are Facebook (FB) and Tesla.
"Although Facebook's IPO didn't go well, I knew that in the future Facebook's going to be around for a long time especially for the older generation," he said. "And once they figure out how to monetize it with advertising and big data, it could become a big winner."
In 2012, Facebook's IPO launched at $38 on May 18. Despite the stock then falling significantly to as low as $17.73 on September 4, Peppers bought $50 strike call options for $3 per contract that would expire two years out.
"Sure enough, Facebook went up to like $200, so that was like a 50x return on a couple of tens of thousands of dollars," he said.
But Peppers' biggest winning trade is Tesla. As an early adopter, he has not only been buying the stock and call options but also the various models of the cars since 2014.
"I bought each of the Tesla products early on to experience them firsthand, to increase my conviction and make sure the product is far superior than anything else out there," he said. "I could barely afford the car, but it was enough to help reinforce my conviction and stay long Tesla from 2014 to 2019 when the stock price was stuck in this $150 to $300 range pre-split."
Opportunities like Facebook and Tesla are hard to come by, but Peppers sees similar potential in gaming platform Roblox, which filed for its initial public offering in November.
"I am very interested in the Roblox IPO and I'm very curious to see what their market cap valuation is trading on day one," he said, adding that the company reminds him of the science-fiction novel 'Ready Player One' where people navigated life in a much more fun and dynamic "Metaverse."
"I kind of see Roblox bringing that as our reality," he said. "It is going to be a big player in the upcoming metaverse, which will be pretty clear as the decade goes on."
Source: Read Full Article