Activist investor Carl Icahn built up his vast fortune by buying significant positions in companies that he thought were run poorly and calling for changes to the management structure.
Born in New York in 1936, Icahn studied philosophy at Princeton University. He worked as a stockbroker and used $150,000 he saved to form Icahn & Co, which concentrated on risk arbitrage and options trading.
He told the story at the DealBook Conference of the first company he dramatically overhauled in 1983, ACF industries.
The company was not making much money, but it had an impressive fleet of rail cars and assets. Icahn bought a substantial stake in the company, which was priced cheaply, in his opinion.
He went into their office building with 12 floors of people and couldn’t establish the role that many members of staff played in the company. He fired all 12 floors worth of staff, and “it was like they never existed”.
“I follow those same principles in a lot of what I do,” Icahn said.
Since then, Icahn has bought and made profits from many companies, including Netflix, Texaco, Marvel comics and RJR Nabisco.
His exceptional investment skills and ability to spot undervalued companies helped him to amass a net worth of $18.5 billion.
His investment principles can be summarized as follows:
- Find what nobody wants – Find a company that has potential, but nobody wants to touch it because it is not making money.
- Acquire a substantial stake – Acquire a stake in the company which allows you to make the decisions necessary to improve performance.
- Be involved –Take an active involvement in the companies where you have a substantial stake.
- Act decisively – Once you have control, do what’s necessary to turn the company around, even if it’s unpopular.
- Stay true to your principles – Icahn stuck with this philosophy, and eventually, a company’s share price would lift when he bought a stake in anticipation of the changes he would make.
Carl Icahn’s investment principles, according to ChatGPT
Daily Investor also asked the artificial intelligence (AI) chatbot ChatGPT about Buffett’s investment principles.
ChatGPT is a chatbot launched by OpenAI in November 2022, which is built on top of OpenAI’s GPT-3 family of large language models.
ChatGPT said that Carl Icahn is a well-known activist investor who has been active in the financial markets for several decades. He is known for his distinctive investment style, which is based on the following principles:
- Value Investing – Icahn follows a value investing approach, which involves buying stocks that are undervalued and selling those that are overvalued. He believes that the market will eventually recognize the value of the stocks he holds, leading to price appreciation.
- Focus on Undervalued Companies – Icahn is known for his focus on undervalued companies that he believes have the potential for significant growth. He is often drawn to companies in industries with favourable trends, and looks for opportunities to increase shareholder value through changes in corporate strategy or operations.
- Active Involvement – Icahn is known for his active involvement in the companies he invests in and is not afraid to take an aggressive approach in order to achieve his investment goals. He often engages in proxy battles and activist campaigns to push for changes in corporate governance, management, and strategy.
- Long-Term Orientation – Although Icahn is known for his aggressive style, he takes a long-term view of his investments and is not afraid to hold onto stocks for years, even decades, if he believes they are undervalued.
- Risk Management – Despite his willingness to take on risk in the pursuit of undervalued opportunities, Icahn is also known for his risk management skills. He regularly evaluates his investments and adjusts his portfolio as needed to minimize risk and maximize returns.
These principles have helped Icahn to become one of the most successful investors of his time, and his investment style continues to inspire and influence many investors today.