Who Is Carl Icahn and Why Should You Care?
"Some people make money from artificial intelligence I make money from natural stupidity" - Carl Icahn
His Manhattan office has its walls filled with the greatest battles throughout history. At 85 most men would hang up the gloves, but not Icahn he's determined to go out on his shield.
Carl Icahn is easily the most feared and ruthless Investor Wall Street has ever seen, If Wall Street is middle ages Europe, then Carl Icahn is Genghis Khan.
Mismanaged IPO's and lazy CEO's beware, when Icahn comes rolling through the countryside you better pay the ransom or prepare for a long and bloody siege.
Starting life on the mean streets of 1940's Brooklyn not even Carl's parents expected much from there only child.
So how did he become worth an estimated $15 billion dollars? How did he lift himself from poverty to become the most dangerous man on Wall Street?
These are the questions we are going to answer today, without further ado here are 9 facts you need to know about the real wolf of Wall Street Carl Icahn.
Carl Icahn Top 9 Facts:
1 - Early Life
Carl "Celian" Icahn was born February 16, 1936 in Brooklyn New York
The 1930's saw the United States go through a period known as "The Great Depression", during this time millions of people went hungry and thousands starved to death.
"My parents they came from the depression, they where good people and all but they never took a trip, ate at a restaurant, nothing. My mother worked 6 days a week, she also taught Sunday school too " - Carl Icahn
Icahn came from a Jewish family, His mother, Bella was a pianist but left her dream to pursue a more stable career as a teacher. His father, Michael Icahn was a Cantor at the local synagogue, and later became a teacher as well.
Having his two parents as teachers was a serious advantage for young Carl because of this he was extremely studious. As a child Carl would do a lot of reading, unfortunately Icahn's parents didn't see it that way.
"My parents never thought id amount to much, my Father said to me once, look son you really have no talents"
Carl said this about his father
"My father was an interesting guy, sort of an intellectual. He wanted to be a metropolitan opera singer. He was obsessed with his voice but it didn't work out, so he was frustrated. He ended up becoming a Cantor in a synagogue, here's the funny part about that story, he was a dogmatic atheist, so there he is an atheist singing in the temple ." - Carl Icahn
They assumed there bet was safe, as nobody from that area had ever made it into one of these exclusive Institutions.
Icahn can recall one of his teachers telling him "It's not even worth you're time applying", talk about looking out for the next generation.
Other's negative opinions have never seemed to faze Carl, it actually seems to have a positive effect on his actions. Icahn always wanted to be different and the best at everything he did.
Despite the odds Carl was accepted into Princeton and Yale University, the first person from Queen's New York ever to do so.
Carl said this after receiving his acceptance letter.
"My mother would boast to her friends, I'm a school teacher, look what iv done, my son got into Princeton. But in reality they where really worried about spending the money, and remember in those day it was only $750 bucks for tuition and $750 for room and bored"
"My Father pulled me aside one day and said, I'm not gonna go back on my word, id rather you go to Queens because its free, but if you insist on going to Princeton then me and your mother will pay for your tuition.
I said great thanks dad I really appreciate it, then he says, but not your room and bored. I said wait a minute how do I live? How do I eat, He said your a smart kid iv watched you, you'll figure it out. - Carl Icahn
Now that Carl finally made it to Princeton it was time for him to find a place to sleep, and some money to eat. He came across a local beach club and got friendly with the owner who offered Carl a job.
On the side while working Carl sold ice buckets to people on hot days, talk about selling water to a fish, this guy's a genius!
One night he was asked to join the owners Saturday night poker game. Not being one to back down from a challenge Carl accepted and in the process lost all of his wages he had made that week.
This was the last time Carl tasted defeat at the poker table, the day after losing his wages Carl found as many Poker strategy books that he could find. It only took Carl two weeks to read through three poker strategy books.
The next time Saturday rolled around Icahn mopped the floor with everyone at the table.
"After I read those books I realised poker was all mathematics, these guys had never looked at a poker book. I was 10x better than them, and they where drinking and I wasn't, so that made me 30x better, every week id win around $500 bucks. By the end of the summer I had two grand, my room and bored was only $750." - Carl Icahn
After four years of college Carl managed to save $10,000, after correcting for inflation that works out as $88,834 in todays money.
"To this day, I'll never know why my father and mother never asked me where I got the money,"- Carl Icahn
Can we all stop what where doing and give this man a round of applause, when I finished college all I owned was a pack of super noodles and a toothbrush.
Icahn didn't involve himself in sports or social activities, instead spending the majority of his free time reading books on philosophy, only occasionally getting involved in games of chess.
In 1957 Icahn graduated from Princeton University with an A.B. in Philosophy, his senior thesis titled "The Problem of Formulating an Adequate Explication of the Empiricist Criterion of Meaning" won several awards.
Carl has credited his philosophy studies as a major factor in what got him to where he is today. If your interested in Philosophy check out "The Meditations" by Marcus Aurelius, it packed full of useful wisdom.
After Princeton Icahn studied at the New York University School of Medicine, he decided to drop out after two years, here's the words from the man himself.
"I'm a slight hypochondriac, after you start reading about each disease you starting thinking you have it. One day I go down and I'm in the tuberculosis ward, its very contagious and I'm in a room with 10-20 sick people. One of the doctors pulls me aside and says Icahn go over to that guy and give me a diagnosis, I said, what do you mean? He's got TB.
The doc said dont be funny Icahn this is medicine! So I go over to the guy, and he starts coughing all over me, I drop my chart and say that's it! I'm out! The doc said, if you leave now you'll never work here again! I said, sounds good to me. I went down stairs and made them give me every god damn shot in the world. The best thing I ever did for the human race was not become a doctor"- Carl Icahn
Right after this Carl walked out of the hospital, went across the street, and joined the army reserves.
2 - Early Careers
After a short stint with the army Carl thought about his next move, he decided to speak with his uncle Elliot Schall who worked on Wall Street. In 1961 Elliot secured Carl a stock broker position with Dryfus Fund.Inc mutual fund, now called The Bank of New York Mellon.
In 1961 there was a strong bull market which lasted another five years eventually crashing in 1966. Between 1958 and February 1966 the Dow more than doubled gaining 111%.
In 1964 was asked to takeover the options department for Gruntal and Co. Investments.
By 1968 Icahn had cultivated a loyal following in the options market. He would stay up all night selling options by telephone to wealthy individuals from New York to California.
3 - Icahn Enterprises
By 1968 Carl was ready to carve out his own empire, using $100,000 of savings and $400,000 from his uncle Elliot, he was able to buy a seat on the New York stock exchange.
"My all time favourite stock starts a $2.68 a share in the first quarter and sells for $40," he said. "In 2007 it sold for $130. It has great management." He paused. "The management is me, and the stock is Icahn Enterprises."- Carl Icahn
As of 2021 Icahn Enterprises currently own's $20 billion in assets with Icahn himself owning 93% of his company.
It was around this time Carl met his right-hand man, Alfred Kingsley a graduate of the Wharton School, with a master’s degree in tax from New York University.
Icahn was impressed by Kinsley's ability to grasp complex transactions.
Icahn asked him what he knew about arbitrage, “Not a thing”, Kingsley replied.
It didn't take him long to figure it out, soon Kingsley was spending most of his days arbitraging the securities of conglomerates.
So what is Arbitrage you might be wondering?
Arbitrage is when you simultaneously buy and sell an asset that is trading in two or more markets at different prices.
The classic way of doing this is to buy at a lower price and sell at a higher price, by doing so you make a risk-free profit in the small difference between the two.
Icahn and Kingsley made steady gains in options and arbitrage throughout the 60's and 70's. It's not public just how much they made during this period but it is estimated to be in the hundreds of millions.
The realm of investing Icahn and Kingsley were operating in was making some good returns, but it was a small market, and its overall potential finite.
Not too long after this Icahn saw a far larger realm of opportunity emerging in public companies with weak management and undervalued assets and he had just the plan to unlock their potential.
By 1976 Carl was ready to implement his new strategy, from this point on Carl gained his notorious reputation as a corporate raider.
"I have to look out for the shareholder’s interests, and I’m the largest shareholder."- Carl Icahn
Icahn has outperformed the mighty Warren Buffet on more than one occasion. From the year 1968 until 2011, Icahn compounded his initial $100,00 Wall Street investment at a 31% annual rate. Over the same time frame Buffet's Berkshire Hathaway grew 20% annually.
His most famous conquest came in 1985 when he purchased 20% of TWA airlines.
4 - Trans World Airlines
Born in 1930 and taken over in 1939 by the legendary aviator, tycoon and party animal Howard Hughes. During the 1940s, 50s TWA was the American icon for aviation.
Unfortunately slowly Hughes lost his mind becoming an extreme recluse and making some very bazar decisions in the process such as buying 8 Boeings 707s, and stationing armed guards to watch them while refusing TWA access to use them.
By 1960 the company was swimming in debt and filed for bankruptcy, things improved and TWA began to gain momentum but again bad management decisions led to it being cut by its parent company in 1984.
It was the perfect opportunity Icahn was looking for and in 1985 Icahn launched an attack, buying over 20% of TWA stock. Another investor Frank Lorenzo of Texas Air entered the battlefield with his own 20% stake.
This was perfect for Icahn as Lorenzo was hated by airline staff for breaking unions at another airline continental. He was the last person people wanted as their boss.
“Most all of us thought Carl Icahn would be better, everyone was so upset by the way Lorenzo handled the unions. He was more obviously ruthless than Icahn. You couldn’t see any redeeming quality about him.”- TWA staff
Sometimes the devil you know is better than the devil you dont which TWA soon found out the hard way. Icahn promised to "Make the company profitable again", and boy did he deliver on that promise, just not in the way the airline staff probably imagined.
He said to his employees that "TWA needed to grow to be competitive, we took him at his word. It was an opportunity to be with an airline that was poised for growth.”- TWA staff
The courting and honeymoon stage between Icahn and TWA didn't last long in 1987 Icahn cut $600 million annually in labour costs through contract changes, layoffs and an unwillingness to give into strikes.
Out of the 6,000 employees that went on strike 5,000 never returned Icahn replaced all 5,000 jobs with new hires, with a 66% cut in most salaries.
He wanted TWA to be a low-cost, low fare airline this meant cutting cost in every way possible.
Then in 1988 Icahn took TWA private. He received $469 million from this deal, and left TWA with $540 million of debt. Then in 1991 he sold TWA's prized London routes to American airlines for $445 million.
"Selling the London routes was a killer, they were valuable as hell. The other things he did like trying to implement draconian procedures for everything, like having people watch other people, it’s all a hill of beans compared to losing those routes.”- TWA staff
In 1992 TWA filed for bankruptcy when it remerged in 1993, upper management where desperate to bring the Icahn era to a close.
In 1995 TWA came up with a deal called the "Karabu ticket". This 8 year deal would allow Icahn to buy any ticket that connected through St. Louis for 55 cents on the dollar and resell them at a discount.
In the Karabu deal Icahn was barred from selling the tickets through travel agents, but no one at the time thought to include this new thing all the kids are using called the internet.
This mistake would be fatal, Icahn immediately set up "Lowestfare.com" and began to squeeze TWA dry, one low cost ticket at a time. Its estimated that the Karabu deal cost TWA $100 million per year, most of it going straight into Icahn's pocket.
In 2001 TWA was being bought by its old rival American Airlines but then 9/11 happened and the deal fell apart and in 2003 TWA closed its doors for good.
Fun fact, It seems Icahn basically started a whole new online industry centred around low-cost travel.
This was Icahn's most notable win and it wouldn't be the last. He has continued this formula of assets stripping, cost cutting and short term profiting still to this day.
Although now he has been rebranded an an "Activist Investor" instead of "Raider".
His aggressive strategy for making a profit at all costs does lead to gains for the shareholders in the short term, this fact is undeniable.
But these short term profits usually lead to a drop in share prices over the long term, and at the end off the day its usually the employees who pay for this influx of capital.
"We're not about liquidating companies, but if you do that, why is that terrible? We're not blowing up the factories. The person who buys it should be able to make the asset more productive."- Carl Icahn
5 - Netflix
Back in 2012 Netflix shares dropped from $300 per-share down 80% to $58 per-share. This came after a disastrous attempt to restructure the company to include a movie home delivery option (which required a second Netflix account).
When investors of Netflix heard the news they high-tailed it out of there dumping the stock. This time Brett Icahn, Carl's son saw the opportunity to strike he convinced his dad to invest.
October that year Icahn announced he had taken a 9.98% stake in the online streaming giant. He bought 5.5 millions shares at $58.00 per share, for a total investment of $321 Million.
Investors cheered hoping Icahn would fix the mistakes of management and take the company away from its flawed strategy. Netflix top brass didn't take this news sitting down, they already had a plan to deal with Icahn.
After all the corporate raiding in the 80s companies learned defensive strategy's in case someone like Icahn decided to target them. One very effective trick they use is a "Poison Pill".
The name comes from the cyanide pill spy's carried in case they were captured by the enemy.
If a company is the target of a hostile takeover, it can make itself unattractive by allowing existing share holders to buy discounted shares.
Days after the announcement Netflix announced that a new shareholder rights plan would be enacted immediately.
The plan stipulated that any new acquisition of 10% or more allowed existing shareholders to purchase shares at two for the price of one.
Most companies set there acquisition limit higher at 20% but Netflix knew they were dealing a serious threat in Icahn.
The poison pill worked Icahn sold his shares in 2014 making $2 billion in profit. By that time Netflix had heard the message from shareholders and got there act together.
Brett Icahn tried his best to convince his father not to sell the the stock, and he turned out to be right not to sell. If he had kept the shares his profit would be closer too $14 billion.
6 - The Icahn Manifesto
Like a general rousing his troops before battle, Icahn distributed his first of many open letters to prospective investors in 1976.
“It is our opinion that the elements in today’s economic environment have combined in a unique way to create large profit-making opportunities with relatively little risk. The real or liquidating value of many American companies has increased markedly in the last few years; however, interestingly, this has not at all been reflected in the market value of their common stocks.
Thus, we are faced with a unique set of circumstances that, if dealt with correctly can lead to large profits, as follows: The management of these asset-rich target companies generally own very little stock themselves and, therefore, usually have no interest in being acquired.
“They jealously guard their prerogatives by building “walls" around their enterprises that hopefully will repel the invasion of domestic and foreign dollars. Although these “walls’ are penetrable, most domestic companies and almost all foreign companies are loath to launch an “unfriendly’ takeover attempt against a target company."
"However, whenever a fight for control is initiated, it generally leads to windfall profits for shareholders. Often the target company, if seriously threatened, it will seek another, more friendly enterprise, generally known as a “white knight’ to make a higher bid, thereby starting a bidding war.
Another gambit occasionally used by the target company is to attempt to purchase the acquirer’s stock or, if all else fails, the target may offer to liquidate.
“It is our contention that sizable profits can be earned by taking large positions in “undervalued’ stocks and then attempting to control the destinies of the companies in question by, Trying to convince management to
(1) liquidate or sell the company to a “white knight"
(2)Waging a proxy contest
(3)Making a tender offer
(4) Selling back our position to the company.” - Carl Icahn
Those are fighting words if iv ever heard them!
So, what is Icahn's investment strategy in a nutshell? Icahn is the king of contrarian Investing, some of what Icahn buys can appear about as appetizing as a sweaty foot.
He likes to focus on companies that have fallen out of favour with the public and are trading below their true value.
Similar to Warren Buffet, Icahn takes big position's when he finds a stock he likes. This gives him a large controlling interest in the company. Now that he has the company were he wants them he moves onto the next stage of his strategy.
Icahn can really start shaking things up now, all those shares come with a few perks.
Appointment to the bored of directors
With a large stake in a company Icahn can campaign to be appointed to the bored of directors, were he can make changes to management and company direction.
Ability to rally shareholders to his side
When Icahn invests he makes sure everyone knows about it, this leads to new investors loyal to Icahn buying shares. This then gives him more sway in the boardroom to push his agenda.
Launch major turnaround strategies
This can include plans to lay off employees in sectors Icahn deems unneeded, selling off valuable sectors of the company or pushing the company to sell to a competitor.
Toss out executives and bored members
Icahn can call a vote to fire opposing executives that stand in his way, because of Icahn's reputation most would be too scared to argue.
Wage proxy contest
This clever tactic Icahn uses gets competing teams of directors to argue why they would be better suited to run the company and increase shareholder value.
Using one or more of these strategy's Icahn usually gets the outcome he is aiming for
“It is traditional that a corporation should be run for the benefit of its owners, the stockholders, and that to them should go any profits which are distributed. We now know, however, that a controlling group may hold the power to divert profits into their own pockets.
There is no longer any certainty that a corporation will in fact be run primarily in the interests of the stockholders. A lot of people have died fighting tyranny, the least I can do is vote against it"- Carl Icahn
I cant help but admire his absolutely unapologetic selfishness when it comes to making a profit.
7 - Green Mailer
Back in the day Icahn was the king of this now illegal investment strategy, it made Icahn millions at the expense of shareholders, never the corporation.
How does greenmailing work exactly?
The name is derived from "Blackmail" and its no surprise, its a classic rob peter to pay paul sort of move.
The idea is to buy a large number of shares in a company. The next step is to threaten a good o'l family friendly hostile takeover!
Given Icahn's reputation most companies were more than happy to buy back Icahn's shares and only his shares at a hefty premium just to make him go away.
In this situation Icahn couldn't really lose, he either successfully took over the company or made a ton of profit from the company buying-back their own shares at a premium.
Warren Buffet is seen as the Yoda of Investing, using his expertise to make company's profitable long term. Icahn is more akin to Darth Vader, using force choke to squeeze every penny from corporations as efficiently as possible.
Yoda himself Warren Buffet certainly wasn't a fan of these "Green Mailing" tactics back in the day. He described his thoughts on the matter saying this
“In these transactions, two parties achieve their personal ends by exploitation of an innocent and un-consulted third party. The players are:
(1) the “shareholder’ extortionist who, even before the ink on his stock certificate dries, delivers his “your-money-or-your-life’ message to managers;
(2) the corporate insiders who quickly seek peace at any price — as long as the price is paid by someone else;
(3) the shareholders whose money is used by (2) to make (1) go away. As the dust settles, the mugging, transient shareholder gives his speech on “free enterprise,’ the muggee management gives its speech on “the best interests of the company,’ and the innocent shareholder standing by mutely funds the payoff.” - Warren Buffet
He's not wrong its a pretty scummy move from both sides that really only hurts the small time shareholders.
"You learn in this business, if you want a friend, get a dog."- Carl Icahn
8 - Icahn Lift
As history nut like Icahn, I have a feeling Icahn learned this mass psychology tool from the life of the Roman general Julius Caesar.
Caesar was the first man to publicly announce his political intentions on notice broad's he called "Acta Diurna" or "Daily Acts" throughout Rome before each senate meeting.
This was technically the first newspaper system in the world and made him wildly popular with the masses, the popularity also gave him more sway in the senate.
A similar phenomenon occurs whenever Icahn takes a large position in a company. The market expectation is that Icahn will drive the value of the shares higher using his raider/activist tactics.
Icahn first makes a public announcement why he believes the stock is undervalued, for example bad management, avoidable costs being incurred etc.
This causes a rush of new investors keen to make a profit from Icahn's evaluation. He takes it a step further by threatening to take over the company should his changes not be met.
As a result of all this attention the share price of said company increases in the short term, this is what's known as the "Icahn Lift".
There's a pretty good argument to be made that piggybacking of Icahn's investments can bring in serious returns. For instance over the last 40 years Icahn's 30% average return has smashed average SMP500 return of 10.9%.
9 - Net worth
As of 2021 its estimated Icahn is sitting on $15.5 billion, by 2016 Icahn had mostly given up managing other investors money, he now focuses on investing his own vast wealth.
At 85 years old it might appear that the wolf of wall street is finally slowing down, in 2020 Icahn moved his operation to Florida. More than half of his staff, including some of his lawyers and portfolio analysts, moved to the new office near Miami.
Just a bit of fan fiction now back to the facts.
For over a year, Icahn and his son have been negotiating the terms of the agreement, leading to a roughly 90-page contract.
“I don’t think anybody can fill his shoes the way he fills them, But I look forward to continuing to make him a lot of money and continuing to develop my career.”- Brett Icahn
“I’m not going to give up making the real decisions, I’m still in charge, but he’d get a piece of the action.”-Carl Icahn
Now that's the attitude Brett! I hope my son says something like that to me one day. In the words of the man himself.
Anybody that makes me a quarter billion dollars I like- Carl Icahn
Me too Carl, me too
Love him or hate him Carl Icahn will go down as one of the greatest investors who ever lived. I dont see anybody replicating his investment track record anytime soon.
Not many people can say they lived life on their terms but Icahn is one of those people. What are your thoughts on his investment and business practices, did you learn anything worth sharing from the life of Carl Icahn? Let us know in the comment section below.
For more interesting facts on the life of world class investor's check out some other Logikfx articles.
Peter Lynch is also a top hedge fund manager which has amazing facts investors can learn from to improve their trading. On top of this Warren Buffett's business partner Charlie Munger a great investor covers useful principles.
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