Carl is a renowned businessman, founder of Icahn Enterprises and one of the most successful investors of Wall Street. Popularly known as ‘Corporate Raider’, he was listed as No. 31 on the list of 400 Wealthiest Americans by Forbes in 2018 and was No. 11 on the Forbes List of highest earning hedge fund managers in 2019.
Icahn began investing in stocks when he was still in college. He also learned the game of poker and used shrewd playing tactics to make $2,000 every summer. After completing his education, he became a stock broker.
Icahn soon mastered the art of arbitrage trading and exploited the price difference in stocks across markets and made a profit on each trade.
In the 1980s, he became a shareholder activist and bought large amounts of shares in companies after which he forced positive managerial and leadership change in those companies for the benefit of ordinary shareholders.
Many young investors study his investment style and seek his guidance in pursuit of trading success.
What investment strategy does Icahn follow?
Icahn holds a long-term approach to investing and believes in following the value-investing strategy. He targets a company whose stock is trading below current price and where stock prices reflect poor price-to-earnings (P/E) ratios or book values that exceed market valuation.
“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,” he said in an interview whose video is available on YouTube. .
Icahn lists out some strategies that can help investors achieve success in the long run.
Study business potential before investing
Icahn says investors should approach investing with the mentality that they are buying the share of a business, and not just a piece of document. He advises investors to take out time and make an effort to understand the businesses whose stocks they want to buy if they want to be successful in investing.
Focus on pricing power of a business
Icahn says pricing power is one of the major indicators of productivity of a business. He says it is important to understand how this pricing power works, as this changes over time and affects the productivity of a company. If one can understand pricing power and use it to his benefit, s/he can become a successful investor.
Beware of the 2 cardinal sins
Icahn said investors should be wary of two cardinal sins: acting impulsively and not acting at all. “In life and business, there are two cardinal sins. The first is to act precipitously without thought and the second is to not act at all,” says he.
An investor should stay calm and patient and not make an investment decision impulsively. At the same time, s/he should also be highly aggressive when it is time to perform. Icahn says investors can miss valuable opportunities if they sit idle and not react to potential investment choices.
Avoid herd mentality
Investors should avoid herd mentality in the world of investing, as something that is popular among the masses may not always be a correct investment bet. He warns against falling into the trap of this form of shared collective opinion, and says if one goes along with a popular trend, the momentum will eventually fall apart and leave him/her in trouble.
“When most investors, including the professionals agree on something, they’re usually wrong,” he says. Thus, he suggests investors to buy shares in companies that are not currently popular and even recommends stocks that have fallen out of favour with the market.
Further he advises investors to be greedy when others are afraid and be afraid when others are greedy. This kind of contrarian trading can be very profitable if one can make the right calls.
Invest in undervalued assets
Carl Icahn says one should try and invest in undervalued assets. Many times, an asset is undervalued and the trick to becoming successful is to find such underpriced assets and invest in them. He says when the market realises their value and stock prices surge, that’s when one needs to cash in and make a fortune.
He says it is important to pick stocks after careful consideration and also be right about these bets so as to perform better than the market average. Icahn feels the magnitude of success in investing matters a lot more than the frequency of the success.
Bet big on your best ideas
Investors need to have some bold conviction behind every stock purchase that they make. If one are sure of some investment bets, s/he should go all out and make huge purchases of that stock to make a profit from it. Icahn advises investors to let their conviction drive their investments.
Be a long-term investor and an active investor
Icahn says investors should not only be active traders but have long-term investments too. Investors can be active traders and long-term investors at the same time. He says investing for the long term is wise and profitable and one can generate solid returns by holding an investment for the long time. He says one should be willing to take some risks in the short term just for the purpose of profit as taking short positions for a profit is as wise as taking long ones.
Be flexible & adapt to the situation
Icahn says although having a plan makes it easier to deal with various market situations, one needs to be flexible with those plans as the market is very unpredictable. He says investors need to be ready to adapt to different situations and act accordingly in real time. He also advises investors to be open to opportunities as they arise, as they may help them stay flexible and reap the results of new information coming in.
Enjoy the investment journey
It is more important to enjoy investing than just thinking about making money. Icahn advises investors to love what they do and relish the art of investing. “I enjoy the hunt much more than the ‘good life’ after the victory,” says he.
Icahn has set a benchmark with his smart investing techniques which are studied by investors all over the world. He never shies away from taking bold decision and invests in any company he feels can generate profit. The tips he shares can help investors grow wealth and achieve long-term success.
(Disclaimer: This article is based on various videos of Carl Icahn available on YouTube)