Being an old school guy in the age of Amazon, Tesla, GameStop, and Bitcoin

Carl Icahn’s fund has lost money in five of the past seven years. He hopes to turn things around with big bets on Occidental, Bausch Health, Cheniere Energy, Newell Brands and Xerox

In October 2013, when Carl Icahn started selling his important position in Netflix, many believed that the much-vaunted billionaire investor had done it again. The company has successfully transitioned from DVD rental by mail to video streaming, and Icahn achieved a 457% return on investment in just 14 months.

“As a hardened veteran of seven bear markets,” Icahn said, “it was time for him to” take some of the chips off the table. ” Icahn’s son, Brett, begged his father not to sell. In 2015, Icahn was out, cleaning up
$ 2 billion in profit on Netflix. But since his departure, the title has increased tenfold. If Icahn had kept it, his profit would have been $ 19 billion.

Icahn’s failure on Netflix was no fluke. Last year, as the US stock market returned 18% during a volatile pandemic bull market, Icahn’s hedge fund plunged 14%. In 2019, it fell 15%. In fact, the great trader has lost over $ 5 billion in the past seven calendar years. His hedge fund has suffered so much that its average annual return since its inception in 2004 has fallen to 3%, compared to 10% for the S&P 500.

Icahn’s struggles illustrate a major shift happening on Wall Street. In the age of Amazon, Tesla, GameStop, and Bitcoin, growth, momentum, and investor psychology are the most important drivers of success. But at 85, Icahn is sticking to the fundamentals. He’s one of the last OG corporate raiders on Wall Street, and he still likes asset-rich, cash-rich companies that need a reshuffle. “I’m a good guy, and the activist model is always the best model if you can find a company with hidden value and the board doesn’t take advantage of it,” Icahn insists from his new office in Florida. “It’s still the best on a risk-reward basis, but you need a lot of patience.”

Wall Street still believes in it. Shares of Icahn’s largest asset, Nasdaq-listed Icahn Enterprises, which invests in Icahn’s hedge fund and owns companies like the CVR Energy oil refinery and auto parts retailer Pep Boys, are are trading at around $ 60, up 20% over the past 12 months. The underlying assets, measured by net asset value, are only worth $ 14.70 per share. Icahn Enterprises’ net asset value increased from $ 9.1 billion at the end of 2013 to $ 3.5 billion. During this time, Icahn mainly received dividends in shares, doubling the number of shares.

Icahn’s 92% stake in Icahn Enterprises accounts for the bulk of his estimated net worth of $ 15.8 billion. If Forbes had used IEP’s NAV for his net worth instead of his market price, Icahn would be worth $ 6 billion today. The rest is the Icahn bounty. And in the long run, that makes perfect sense: Icahn Enterprises stock has grossed six times the S&P 500 over the past 20 years.

Icahn’s recent trading problems stem from an overweight in energy and a short sale in the market, including growth stocks. Its short positions alone have generated $ 7 billion in losses in five years. “I focused too much on some of the energy stocks – they were cheap and the management wasn’t good, and I just kept piling up,” Icahn says with the unmistakable accent of one person. born in Brooklyn and raised in a working-class neighborhood in Queens. district. “The bottom fell from the energy market. You grit your teeth and you get away with it. Icahn also insists that Icahn Enterprises’ net asset value understates the intrinsic value of his company’s assets. Take Icahn Automotive Group. Icahn is quick to point out the ongoing buyout talks for Mavis Tire Express Service, which is in a similar business and has a similar number of stores. Mavis is valued at $ 6 billion, nearly four times the value for which Icahn Automotive is listed on Icahn Enterprises’ balance sheet.

Even big energy bets like Occidental Petroleum are starting to look more promising, as the price of U.S. crude fell from less than zero during the pandemic to $ 60 a barrel recently. In February, Icahn took a major stake (and two board seats) in Ohio’s FirstEnergy, a utility whose performance fell after one of its subsidiaries became embroiled in a racketeering affair. federal. Icahn wants this to be resolved quickly. Another new purchase for Icahn is Canadian medical device and pharmaceutical company Bausch Health, which owns eye care and contact lens giant Bausch & Lomb. Bausch has been in the midst of a turnaround since 2013, when he called himself Valeant Pharmaceuticals. Icahn wants to split the company in two. “In positions like Bausch Health and FirstEnergy, we are part of the board and can help make a difference,” he says.

Icahn is scared of massive US federal spending, but believes there are still opportunities in this market. “We are in uncharted waters and we will pay the price for huge deficits and lose money in the future,” he said, “but that time has not yet come – and although I am somewhat overcast, I’m pretty optimistic. ”

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