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Carl Icahn’s biography: What is his investment style?

3 min. reading
Carl Icahn / 8 July, 2021

Edgar Mondragón Tenorio Journalist

“In life and in business, there are two deadly sins, the first is to act rashly without thinking, and the second is not to act at all.”

Carl Icahn

A non-conformist guy

The mythical figure of Carl Icahn has inspired at least two endearing characters in Hollywood movies; and his investment character has earned him fame as the most ruthless man on Wall Street.

Born in Far Rockaway, Queens (NY), on February 16, 1936, as the son of two teachers of Jewish descent, Carl lived an uncomplicated childhood and youth.

Contrary to what anyone would think, Icahn graduated from Princeton University with a degree in philosophy. He then returned to his home state and entered New York University, now in medical school. He abandoned these studies two years later and decided to enlist in the army.

The beginning of the legend

After almost ten years of continuous growth in the stock markets, something happened in 1961 when stock prices began to fall suddenly, even though there was no panic selling of stocks. It should be remembered that 1961 was the year that John F. Kennedy assumed the U.S. presidency, just in January of that year.

Named Kennedy Slide, just because of the irony that, in January 1961, President Kennedy had promised another ten years of growth and bonanza, and in December of that same year and until June 1962, there came a period of sharp falls in the stock markets. It was against this backdrop that Carl Icahn began his journey through the financial world.

After leaving the army, Carl Icahn joined Dreyfus & Co. as a stockbroker exactly in the last bullish phase of the market before its “sudden collapse”, which helped him to learn to navigate in the storm and come out afloat.

Taking advantage of what he learned, in 1963 he joined the ranks of Tessel, Patrick & Co. as a financial options manager and, just a year later, his talents were called upon at Gruntal & Co. where he also headed the options department.

All the experience he accumulated, both handling financial instruments and convincing clients, helped him convince a relative to lend him $400,000 to found Icahn & Co, his own firm dedicated to risk arbitrage and financial options.

The corporate predator

Icahn’s specialty is acquisition arbitrage. This means that he speculates on the shares of troubled companies in order to acquire a majority stake, take control of the company and then sell its assets, part by part, to obtain the highest profit.

During the 80’s, Icahn built a reputation as a shark because his nose for companies with problems, but with a great “hidden value”, as he calls them, did not discriminate against any industry or sector.

With his methodology, he acquired and fractured companies of all types, from processed food, oil, financial, telecommunications, cosmetics, entertainment, tourism, record companies, household appliances, and many others. In this way he managed to forge his name and fortune on Wall Street.

What is his investment strategy?

Carl Icahn defines his own strategy as not very different from that of other investors such as Warren Buffett, concentrating his acquisition decisions on the search for value companies (value investing).

The big difference is that, through the exhaustive study of the financial statements of these companies, he concentrates on finding the hidden value of troubled companies. In other words, he looks for companies with problems today, whose shares nobody wants to buy, but which have a promising future.

His philosophy is clear, he likes to buy something when no one else wants it, as long as the risk/reward ratio is favorable, the profit covers the bet he made and, if necessary, he has room to cut losses.

Carl Icahn today

On the verge of 90, Icahn has a reputation as a ruthless businessman, but he is also a philanthropist with several foundations that support homeless children or give shelter to single mothers. He has also made significant donations to education.

Icahn is a legend who has inspired not only other investors, but also fictional characters in film productions. As one of the richest men in the world, he has promised to donate half his fortune to charity when he dies.

 

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