Carl Icahn’s life lessons for Investors and Traders
Robert Schiller invited Carl Icahn as a guest speaker to yale. This article is a commentary on Icahn’s life experience on Wall Street.
” The career you’re asking about, I, I went down to Wall Street back in, way back
in the 60s, and I thought I was really I had gone to Princeton, a really good school.
I was the first to go from my high school.
Nobody believed I’d they, they never took an Ivy League the
Ivy League didn’t take anybody from the school I went to.
But any, but anyway, I went, got in, and left there.
And I thought I was a real smart guy,”
Without strong self-confidence, nobody would step in Wall Street. But in many cases, strong self-confidence turns in overconfidence and wishful thinking.
” to cut it short, went down to Wall Street and worked with Jack Dreyfus.
And I was playing the market in 1961 that shows how old and
in a, in a bull market, you make a great deal of money by doing leverage. “
“It’s a little bit like today with all the leverage that we had and now might be coming to fruition.
But I was, I was borrowing money and bought
all these convertibles and I thought I was a genius.
Jack Dreyfus said, you’re going to lose all your money.
I had made a few bucks playing poker, and that’s how I started with about eight to $10,000.
And I made all this money by borrowing at 90%, and I would go out
and I was making a lot more in, in, in two weeks than my father made in two years.
And my father said, well, you know, put the money away.
I said, no Dad, and I’m going to really make a fortune here.
So I went out, I remember once I bought a Galaxy convertible, that was a beautiful car.
I had a beautiful girlfriend. She was a model, it was just pretty nice.
But but what happened, the crash came in 1962.
I was wiped out in one day, I didn’t even have the poker winnings left.
And I tell you, I can’t recall if the car left first or the girl left first, but it was pretty,
it was pretty close.“
Leverage works only in a bull market and wipes out the investment account when markets crash. During the crash in 1962, he realizes that he needs a better strategy:
“And after that, I learned, you have to learn something.
And I became an expert in options.”
Being an expert in a special field is a precondition to becoming successful. Only then you can compete with others. All investors and traders have to choose their own personal strategy which fits their personal character at best.
“And after that, I built a following and, and built a big a big following
and, and a big commission base by just learning one area very well.
Probably, I knew that area better than almost anyone on Wall
Street not too sound to presumptuous, but very few people knew it.
We built up a big following and then in 68, bought the seat on the stock exchange with the help of one of my uncles and by that time I saved a pretty big amount of money for those days.”
After he found his niche and became an expert, money followed him. If you are successful then people will want to participate in your successful business and they will invest with you.
“And then I got into arbitrage, but not mergers bonafide.
And that’s something else you can learn.
Where you can where you can do, you still do it today,
but it’s much tougher with all these computers, so I don’t do it.
because I don’t understand the computers. They’re beyond me.
So I don’t,
I don’t work with them too well.”
So, working with computers doesn’t fits his personality, he doesn’t like it and therefore he left arbitrage trading. This is important to understand because it underlines a very fundamental principle for success: without passion, there is no success.
“I’m being a little facetious, but not too facetious.
So, you, you could buy different convertible bonds and short the stocks against them.
You had no risk, but you could make a lot of money, and eventually, we did really well with that.”
There is no such thing: “no risk”. The risk is unavoidable but you don’t make money by taking a risk, you make money despite risk.
“And what I do today is still, is pretty much the same idea.
You buy stocks in a company that is cheap.
And, and you look at the active value of the companies that you buy the stocks in.
And it becomes a little more complex.
But basically, you look for the reason that they’re, really cheap.“
At the end, he becomes a value investor because the easiest way to make a wealth is investing in a successful business, not just in papers.
“And the major reason is often and usually very poor management.
So in a sense, it’s like an arbitrage.
You go in, you buy a lot of stock in the company, and you then try to make changes at the company.”
Here, he plays his advantage as a big investor: he can intervene with management. Small investors have also their advantages. Every investor has to be aware of own competitive advantages and he should improve them, i. g.: one can be an expert in new technologies.
“……….we’re trying to do the same thing at Motorola.……We’re trying to get them to change the structure of the company.
We think the board is very, is a very poor board there.
……………. and most people in America don’t realize:
How, how poorly most of our companies are run in this country.
With many exceptions.
They’re, they’re really very poor. And when you get inside the companies, you realize it.
And, and the, the real reason is,
there’s no accountability, there’s no corporate democracy.”
In the rest of lecture, he complains about corporate America.
For the List of Corporate Analysis, click here
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No Investment or Financial Advice.
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