Investing: Carl Icahn: Better than Buffett?
BY ANDREW FEINBERG Kiplinger News Service
Monday, January 21, 2013
Related Story: Insider overview: Rockwell Automation
Carl Icahn, 76, is arguably one of the great value investors of all time, and his Icahn Enterprises, launched in 1987 as American Real Estate Partners, has an impressive record. Despite a staggering share-price decline in 2008, the units (the firm is set up as a master limited partnership) returned an annualized 18.4 percent over the past ten years, according to Morningstar. That clobbered the stock of Berkshire Hathaway by an average of 12 percentage points per year.
Like Berkshire, Icahn Enterprises is both an investment vehicle and a conglomerate. It is the majority owner of, among other companies, CVR Energy, a refiner and fertilizer producer; Federal-Mogul, an auto-parts supplier; American Railcar Industries, which sells and leases railroad cars; and Tropicana Entertainment, the casino operator. It owns all of PSC Metals, a processor of scrap metal, and WestPoint International, a maker of home textiles.
Once known as a corporate raider, these days Icahn is often a shareholder’s best friend. He buys stakes in underperforming companies and suggests strategies to boost their value. To many investors, though, much of what he buys looks as appetizing as roadkill. He bought Forest Labs in May 2012, two months after its top drug, the antidepressant Lexapro, went off patent. He repurchased Chesapeake Energy in May 2012 as natural gas prices crashed and it looked as if the company might drown in debt. Icahn recently made headlines by buying a 10-percent stake in Netflix for $460 million. The purchase mystified some Icahn watchers because the stock isn’t cheap on the basis of classic value measures. They assume he’s betting that a tech giant will swoop in and buy Netflix.
Icahn says he still gets a thrill from being right when others are wrong. “When you see a good investment, you know it instinctively,” he says. “It’s like the feeling Paul Newman described in ‘The Hustler,’ a kind of click.” And, like Buffett, he believes that it takes a certain temperament to beat the market. For one thing, it’s crucial that investors not confuse luck with success. “When victorious generals came back to Rome,” he says, “they used to have a man behind them saying, ‘All glory is fleeting.’”
Perhaps Icahn would be better known and more admired if he had left a paper trail akin to Buffett’s annual letters to Berkshire shareholders. He seems less interested than Buffett in enlightening other investors -- although his son, Brett, 33, has turned into an outstanding investor.
The bottom line: Icahn is underappreciated and often misunderstood. Luckily, that gives you a better chance to make money by mimicking his moves. Or simply by buying shares of Icahn Enterprises.
Andrew Feinberg is a contributing editor to Kiplinger’s Personal Finance magazine. To send him a question or comment, go to tulsaworld.com/kiplingerfeedback.
