Carl Icahn is a legendary investor who began cementing his reputation as a corporate raider in the late 1970s when he took a controlling stake in Tappan and forced the sale of the company to Electrolux—for which he earned $2.7 million (twice his initial investment).
He made several similar deals but really came to the world’s attention in the 1980s, after he stripped the assets (to repay money he owed) of Trans World Airlines, following his hostile takeover.
If you want to invest like Carl Icahn, you should know that his goal is to “buy shares in a company (or the entire company) to force management to fix underperforming operations and create shareholder value.” He often replaces or reshapes the company’s Board of Directors and divests assets he deems to be undervalued.
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Icahn’s track record is legendary and has boosted his net worth to some $4.5 billion, and includes some big wins:
- Apple was forced into a “significant buyback program which increased shareholder value.”
- eBay had to spin off PayPal, which created value for both companies.
- Netflix: Icahn was behind the push into streaming from an unsuccessful attempt to spin off its DVD segment. For his trouble, Icahn netted about $1.9 billion in profits.
- RJR Nabisco was debt-laden in the early 1990s, and Icahn was behind the spin-off that birthed Kraft Foods. Icahn gained 60% on his shares.
Not everything Icahn has touched has turned into gold. He famously lost $1.8 billion in Hertz after the company filed for bankruptcy in 2020.
Then, in the spring of 2023, short-seller Hindenburg Research claimed that Icahn’s company was “over-valued due to paying large dividends using investments from new investors. In addition, the analysis claims that Icahn took out loans against a majority of his holdings and that these have the potential to be called should the stock price move downward.” That caused a rapid decline in the stock, which hasn’t really recovered.
And on top of that, this past August, Icahn settled with the SEC, for $2 million, for “failing to disclose that he had personally pledged his own stock as collateral for margin loans worth billions of dollars.”
Some bad tidings, for sure. Nevertheless, Icahn isn’t in danger of wearing second-hand clothes anytime soon.
And for your perusal, here’s how his investing strategy breaks down and how you can invest like Carl Icahn.
How to Invest Like Carl Icahn
Contrarian—buying assets when they’re undervalued and unpopular, as represented by low P/Es and undervalued book values.
Seek companies that need divestitures of undervalued assets and have excessively paid CEOs.
Greenmail: Pressuring companies into buying back shares at inflated prices to avoid hostile takeovers or proxy fights.
View stocks as ownership stakes in businesses rather than mere pieces of paper. Consequently, he believes in putting in the elbow grease to understand the business.
Focus on the pricing power of a business.
Don’t act impulsively, but act!
Avoid herd mentality; it’s OK to be contrarian.
Bet big on your best ideas.
Be a long-term investor and an active investor.
Boy, a lot of those principles could be taken from a page in Warren Buffett’s playbook, couldn’t they? However, there are a couple of differences between Buffett and Icahn.
Buffett is willing to hold a stock indefinitely, while Icahn will sell to lock in profits once value is realized. And Buffett likes to buy well-managed companies, while Icahn is OK with buying an underperforming business as long as it is trading at a discount to its net asset value.
This post has been partially excerpted from the latest issue of Cabot Money Club Magazine. To read more about the “Highly Effective Habits of 7 Legendary Investors,” join Cabot Money Club today!
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