Carl Icahn’s Investment Strategy
Carl Icahn, a billionaire investor, followed a straightforward strategy to become one of the notable investors in the world. His investing strategies have helped many new investors to achieve success. In this post, we will talk about how he could beat the stock market consistently.
On a quick note, Carl Icahn was 11th on Forbes “Highest-Earning Hedge Fund Managers 2019” listing. This gives hint you the type of success he achieved.
Carl Icahn is a corporate raider, he buys large stakes and manipulates his targeted company’s decisions to increase shareholders’ value. Mr. Icahn was able to occupy leading positions virtually forced his targeted companies to buy back their stocks, from him, at premium prices. or influence their decisions to increase shareholder value.
Simply put, Carl Icahn is a smart investor that actively impacted the leadership and management of many companies; while he helped in building some, he forces many companies to dance to his tunes.
Carl’s primary investing is his publicly-traded Icahn Enterprises; however, he has an investment fund that he runs using his personal money and that from his business, Icahn Enterprises.
Carl Icahn has been active in markets since the 1980s and followed his principles to amass the level of success that puts him on various “top x lists” of wealthy/influential people in the world.
“I look at companies as businesses, while Wall Street analysts look for quarterly earnings performance. I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations.”
Mr. Icahn is one of the most successful figures on Wall Street. He became popular as a vulture capitalist in the 1980s – due to his idea of taking good positions in public companies to influence their decision and operation tactics.
A couple of investors Carl Icahn’s strategy to buy into businesses he had focused upon. Icahn’s style of investing, which usually causes an increase in stock prices to improve shareholder value is widely known as the “Icahn lift.”
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Carl Icahn’s Early Investing Approach
“In takeovers, the metaphor is war. The secret is reserved. You must have reserves stretched way out ahead. You have to know that you could buy the company and not be stretched.”
Icahn took over the Tappan Company through a proxy vote in 1979 and occupied a good position on the board. Soon after that, he pioneered the sale of the company, which made him good ROI, he got double his initial investment.
Mr. Icahn also targeted Phillips Petroleum and Marshall Fields, occupied good positions in the companies, and made significant ROI when both companies tried to round off his control.
Again, in 1985, Icahn tried his investing with TWA and overthrown-ed Howard Hughes. The aftermath of Icahn’s management principles to control the airline saddled the company into a $540 million debt, while he was able to recover almost the $469 million he had earlier invested in the company.
He had left the company in the first quarter of 1992 but negotiated for airline vouchers in place of the $190 million he was still being owned.
TWA accepted his negotiation on the basis that he wouldn’t sell out the tickets through travel agents; however, Icahn went on to launch LowestFare.com, where he sold the tickets and triggered a new revolution in the travel industry.
The billionaire investor said,
“My investment philosophy, generally, with exceptions, is to buy something when no one wants it.”
What Mr. Carl does is quite simple to understand, he notifies companies with poor price-to-earnings (P/E) ratios or book values that surpass the current market valuation and then buys a strong position in the company.
Usually, he purchases positions that give him the power to call for the re-election of the company’s board of directors or sell out the company’s assets in a bid to offer more shareholder value.
His major focus is usually on CEO compensations. Mr. Carl believes that CEOs and other top executives in corporations are overpaid compared to the company’s stock performance.
“CEOs are paid for doing a terrible job. If the system wasn’t so messed up, guys like me wouldn’t make this kind of money,” Carl Icahn.
Carl’s Investment Strategy
Pretty much has been said already in this article, and if you’re yet to decipher the Carl Icahn investment strategy, here is what you seek.
Icahn’s strategy is to accumulate large positions in underlying companies – corporations that he believes are undervalued. He primarily considers companies with poor price-to-earnings (P/E) ratios or book values that exceed market values.
Carl Icahn would go on to purchase a significant position in the company (usually buys his way to become the largest shareholder) so that he can influence the company’s decisions with hopes of making big gains in the end.
There are many lessons and guidelines newer investors can get from Carl Icahn. However, to invest like Carl Icahn, you need good capital. Also, it is imperative to say that Mr. Icahn failed, at some time, in trying to buy into strong positions and influence decisions.
A perfect example is a scenario from the battle between Pennzoil and Texaco.; Carl had purchased over 13% of Texaco’s stock but failed in his attempt to lead the board. The entire scenario saw him experience a financial windfall when the litigating corporations, Texaco and Pennzoil, landed an agreement that increased their stock prices.
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Investment Tips and Guidelines To Learn From Carl Icahn
Ben Graham said, “Beating the market is easier said than done.”
John Bogle said, “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”
George Soros said, “To be in the game, you have to endure the pain.”
So, what does Carl Icahn have to say to newer investors and traders looking to follow his paths?
1. Become an Active Trader
One of the ways to beat the market is to stay active. Carl Icahn has been an active trader since the early 1980s. He goes all in to purchase the highest shares to gain control over a corporation or purchases a significant position to be among the top decision-makers.
Carl goes on to propose and enforce rules to transform the leadership style of his targeted companies, all in a bid to make substantial profits in the end.
As a young investor or trader, this method, Icahn’s style of investing, is still feasible and profitable. It is profitable because, when you purchase a significant position and then the stock rises to a “good level,” you could sell your shares and smile home with the profits.
In 2012, Icahn purchased Netflix shares and then made a positive statement regarding the company; his statement earned Netflix more value and the stock prices rose – as a trader, Mr. Icahn sold off his shares, in 2015, and made over up to $1.6 billion profit.
2. Embrace Value Investing
Just as Benjamin Graham, who is commonly referred to as the father of value investing, Carl Icahn was, seemingly, a value investor.
Mr. Icahn is a value investor because he doesn’t look at securities as though they were “mere”, instead he viewed them as shares and sees himself as a co-owner of the companies he bought their shares.
Icahn believes that to be a successful trader or investor, you need to make out time and study your target companies.
Thus, a trader or investor needs to perform sturdy research before putting his money into the market to invest in an asset, stock, or corporation. In summary, it all points down to viewing your investments as “Shares” and not just mere investments.
3. Popular Stocks Are Not Always Profitable
Jesse Livermore said it, Ben Graham said it, and many other successful investors all said it – popular stocks are not always the best investment.
Most of them are overpriced because of the company’s influence; thus, many of these successful investing moguls, including Carl Icahn, prefer to go with underlying / undervalued companies or stocks.
Mr. Icahn warns against going with popular/trendy stocks and he also does not believe in group thinking.
His targets were unpopular companies. According to the billionaire investor, a trader needs to be greedy when others are afraid, and in contrast, a trader ought to be afraid when others are greedy. This philosophy has fetched Mr. Icahn’s enormous profits quite many times.
4. Go For Long-Term
Unless you’re a speculator, probably hoping to make a billion-dollar profit as George
Soros did, long-term investing is what most notable investors, including Warren Buffet, engage in. Long-term investing is tagged to offer more profitable returns than betting on market prices.
So, for the trader looking to practice the Carl Icahn style of investing, long-term investment is the basis.
Although Carl’s “long-term” investing is about 1 – 2 years; he hardly keeps stocks for more than two years. Being in-between actual value investing (long-term investments) and speculation, Carl Icahn is best referred to as a “Trader”.
Things To Learn From Carl Icahn
- Carl would never invest in a stock he doesn’t believe would fetch him good profits in the end. To this end, he looks out for poor-performing companies, which he believes would do anything to increase their value; so, he takes advantage of their poor performance, initiates shareholder-friendly rules to increase the company’s stock price, and then sells his portion when he deems it “Perfect” and gainful.
- Mr. Icahn usually does not keep stocks in his portfolio for up to two years. He is more of a trader than an investor. When Icahn targets a company, he goes ahead to purchase the highest shares or a number of shares that would give him a good position to influence the company’s decisions. After her has gotten into a strong position, he tries to implement strategies that would trigger a rise in the company’s stock price within a short while, and once he is able to achieve this, he sells off his shares, count his profits and move on to hunt another corporation.
Carl Icahn has been referred to as a “Vulture Capitalist”, a “Greenmailer”, and a “Gadfly”. However, he is a shareholder activist, and his philosophy, cum investing strategy has not changed over the past three decades. He had risen from being a typical stockbroker to one of the most important persons in Wall Street.
Carl has a multi-billion dollar master limited partnership, Icahn Enterprises L.P. This company has kept on expanding ever since it was launched and now offers additional resources outside Carl’s enormous personal fortune.
Mr. Icahn’s inputs in the stock market would forever be remembered and many newer investors would still love to practice his strategy. Carl Icahn is such an influential investor that he got a name attributed to his stock price manipulation tactics, “Icahn lift.”
Other similar popular investors worth emulating include Benjamin Graham and John Bogle. The stock market is vast and only the smart investor can beat it; however, just as Jesse Livermore said, “No one can beat the stock market always.”