Carl Icahn is the billionaire owner of Icahn Capital Management. At 80 yeas old, he is worth $16.3 billion and is one of the most successful investors in the world. He is married with 2 children and lives in New York. His story in investing began when he was in college. He dropped out of New York University. He later on resumed his education and graduated from Princeton University. In these early years, he learned the game of poker while playing with rich cabana owners in the Rockaways. Through shrewd playing tactics, Carl made $2,000 every summer. Later on after university, he became a stock broker. This was his job throughout the 1960s.
During this phase of his life, Carl Icahn mastered the art of arbitrage trading. This is where he would exploit the price differences of stocks across markets and make a profit on each trade. In the 1980s, he moved on to become a shareholder activist. In this role Carl bought large amounts of shares in companies. After doing that, he would force positive managerial and leadership change in them for the benefit of the ordinary shareholder. In this role, he was known as one of the most active corporate raiders. Today, he is very wealthy and runs a hedge fund. Many people study his investment style and seek his counsel. Here are 10 lessons we learned from Carl Icahn on wealth and investments.
Strive to become a value investor and not a speculator
One of the things that Carl Icahn understands is that a stock is a share of an actual business and not just a document. Thus, he approaches investing with the mentality that he is buying a share of a business and not just something that other investors want. He advises that if you want to be successful in investing, understand the businesses whose stock you want to buy. This takes time, effort and is well worth it.
Play an active role in the companies that you invest in and you will reap the benefits
The name Carl Icahn is literally synonymous with activist trading. He is very popular for his activist style of trading. He makes frequent trades and eventually takes control of a company. After he does that, Carl becomes a strong advocate for transformation in his acquisition. He champions managerial and leadership changes for the benefit of the company. As the changes take place and the profits soar, so does the stock price. After it has reached a level he is comfortable with, Carl sells his stake and cashes out with a huge profit. For example, he bought Netflix shares in 2012. After that, he made a statement that he thought Netflix could provide significant strategic value to bigger companies if they acquire it. This positive opinion on the company drove up Netflix share prices and in 2015 he sold his stake and made a $1.6 billion profit.
Invest in assets which have good potential for productivity
One of the indicators of the productivity of a business is pricing power. Carl Icahn says that it is important to understand how this power works. Some of the elements in this concept are wholesale transfers and moats. This pricing power changes over time and affects the productivity of a company. If you can understand pricing power and use it to your benefit, you will be a successful investor.
There are two cardinal sins in life, acting impulsively and not acting at all
Carl Icahn lives by this lesson. He says that the best position in life is to be patient in your daily dealings. You should also be highly aggressive when it is time to perform. People who sit on their hands do not exploit opportunity. This lesson teaches us that those who act impulsively and display hyperactivity are bound to fail.
What is currently popular is generally wrong
In the world of investing, if something is popular among the masses, it is generally wrong. This form of shared collective opinion is known as herd mentality. Carl warns against this form of group thinking. He indicates that if you go along with a popular trend, the momentum will eventually fall apart and leave you in ruin. Thus, he often buys share in companies that are not currently popular. He even buys from those that are out of favor with the market. He advises that you should be greedy when everyone else is afraid and be afraid when everyone else is greedy. This is a lesson in contrarian trading and if you make the right calls, it can be very profitable to you.
You can be an active trader and a long term investor at the same time
Many Wall Street billionaires attribute their success to taking long term stock positions. They buy and hold for a long time while keeping their active trading to a minimum. Carl performs differently from them. He has some long term positions in his portfolio. However, he is also an active investor. According to a recent assessment of his holdings, many of them are only 18 months old in his portfolio. This means that Carl is willing to take risks in the short term purely for the purpose of profit. In this way, we can learn that taking short positions for a profit is just as wise as taking long ones for the same purpose too.
To succeed in investing, invest in undervalued assets
Carl Icahn indicates that the system of stocks and investment is not perfect. People make mistakes and underprice a particular asset. In this way, it seems to be less valuable than it actually is. The trick to becoming successful is to find these underpriced assets and invest in them. When the market realizes their value and the stock price rockets, you can cash in and make a fortune. It is important for you to pick these stocks after careful consideration and also be right about these bets so as to perform better than the market average. Moreover, remember that the magnitude of success in investing matters a lot more than the frequency of this success.
Bet big on your best ideas
Make sure that you have some bold conviction behind every stock purchase that you make. This is a lesson in investing that Carl Icahn lives and practices every day. In his portfolio, three investments make up more than 50% of his entire holding. These include AIG, Icahn Enterprises and PayPal. He bought the stock on the idea that these are solid companies with productive futures and that is exactly what they turned to out to be. This shows that the billionaire is ready to make huge purchases of stock if he is sure to gain a profit from them. Also, he makes such purchases if public activism is a major component in the decision. Let your conviction drive your the investment.
Make up your plan as you go along
Carl Icahn confesses that he has made a fortune by not having any plans. He takes life as it comes and adapts in real time. He makes major decisions on his feet and lets investment situations evolve on their own. In doing this, Carl practices the concept of positive optionality. This is where he keeps himself open to opportunities as they arise. In this way, he stays flexible and harvests the results of new information flowing in. This does not mean that he is undecided. Carl picks a position and watches for a new opportunity to come along. If it is better than his current position, he makes the shift decisively. If it is not, he waits patiently and eventually a new opportunity will come along. This is a very important lesson to learn as an investor.
Learn to enjoy the hunt more than the reward
Being a billionaire, Carl Icahn has more than enough capital to live the good life. He can afford literally anything in the world. However, he spends little of his time buying luxurious things and most of it playing the game of business. His billionaire friend Charlie Munger indicated that an extra $2 billion is one of the most insignificant things to an old man. This lesson teaches us that the activity of investing should not be about the money but the love for what you do.
The Important Take Away
Known for an investing philosophy that encourages us to buy an asset when it is unpopular, Carl Icahn has one of the most successful careers in Wall Street. He is a contrarian investor who has gained fame as a vulture capitalist for his corporate raider style of business. He believes in transformation through changes in the board, divestiture and exploiting economies of scale. His lessons of investment are indicated above. Learn and practice them to gain the wisdom required to turn your initial capital into a fortune.