Fortune article on the long time corporate agitator. Apparently he has a 25.3% rate of compounded return since 1990. That will turn a little bit into a whole pile of money.
FORTUNE: Why did you decide to return all of the money from outside investors in your hedge fund, and close the fund to new investors?
Carl Icahn: In 2008 people who invested in hedge funds needed capital badly but many of the funds would not return their money. However I gave money back to any investor who requested it. It was the bottom of the market and a pretty tough time. I thought I would be hurt returning the money but, ironically, it turned out quite well. I didn't want to sell stock held by the fund, so I put up over $500 million of my own money to replace the investors who exited. This turned out to benefit all remaining investors in the fund. In 2009 our fund was up 33%, in 2010 it was up 15% and this year through March the fund was up 10%. Even with the drop in 2008, if you invested on the first day the fund was opened on a net basis you were up 55%. Within the next few years I am concerned we might well see another 2008. It might sound corny, but losing money for people who are not used to market turmoil bothers me more than losing for myself. I am hardened to it. My view is they don't need to go through it again, and it will happen again.
What is your outlook for equity prices and the economy?
Too many people are saying everything is great in the market. However, I believe if we do not instill confidence in business, and the administration is not doing this, we might well have major problems ahead. Today the market is up because of the policies of the Federal Reserve. A great deal of money is available at artificially low rates. This helps earnings and the market because it lowers debt-service costs and more importantly, produces speculation in stocks, but these low rates cannot last forever. Additionally, earnings comparisons are up because CEOs have gotten rid of excess costs, something they should have done years ago, but what can they do for an encore?
I am also very concerned with the specter of inflation. Our country has been enjoying cheap commodities and finished products from Asia but as the middle class continues to grow in Asia, there will be competition for cheap goods and the bargain basement prices the U.S. consumer has enjoyed will end. Inflation will follow, forcing interest rates higher, which will decrease earnings.
Higher interest rates will also stop the artificial flow of capital into the equity markets. Earnings will also be negatively affected because of our high unemployment and the lack of demand for products which will no longer be cheaply priced. Lack of demand will also result when low cost capital is no longer available to the consumer. I am not predicting a collapse in the next week or even month. However, once our huge retirement funds are no longer forced into the equity market because today's low interest rates give them no alternative, I am very concerned that our markets will go into another major downturn, possibly within the next two years.
Link for entire article:
http://money.cnn.com/2011/06/16/pf/investing/carl_icahn_investment_worries_opportunities.fortune/index.htm
FORTUNE: Why did you decide to return all of the money from outside investors in your hedge fund, and close the fund to new investors?
Carl Icahn: In 2008 people who invested in hedge funds needed capital badly but many of the funds would not return their money. However I gave money back to any investor who requested it. It was the bottom of the market and a pretty tough time. I thought I would be hurt returning the money but, ironically, it turned out quite well. I didn't want to sell stock held by the fund, so I put up over $500 million of my own money to replace the investors who exited. This turned out to benefit all remaining investors in the fund. In 2009 our fund was up 33%, in 2010 it was up 15% and this year through March the fund was up 10%. Even with the drop in 2008, if you invested on the first day the fund was opened on a net basis you were up 55%. Within the next few years I am concerned we might well see another 2008. It might sound corny, but losing money for people who are not used to market turmoil bothers me more than losing for myself. I am hardened to it. My view is they don't need to go through it again, and it will happen again.
What is your outlook for equity prices and the economy?
Too many people are saying everything is great in the market. However, I believe if we do not instill confidence in business, and the administration is not doing this, we might well have major problems ahead. Today the market is up because of the policies of the Federal Reserve. A great deal of money is available at artificially low rates. This helps earnings and the market because it lowers debt-service costs and more importantly, produces speculation in stocks, but these low rates cannot last forever. Additionally, earnings comparisons are up because CEOs have gotten rid of excess costs, something they should have done years ago, but what can they do for an encore?
I am also very concerned with the specter of inflation. Our country has been enjoying cheap commodities and finished products from Asia but as the middle class continues to grow in Asia, there will be competition for cheap goods and the bargain basement prices the U.S. consumer has enjoyed will end. Inflation will follow, forcing interest rates higher, which will decrease earnings.
Higher interest rates will also stop the artificial flow of capital into the equity markets. Earnings will also be negatively affected because of our high unemployment and the lack of demand for products which will no longer be cheaply priced. Lack of demand will also result when low cost capital is no longer available to the consumer. I am not predicting a collapse in the next week or even month. However, once our huge retirement funds are no longer forced into the equity market because today's low interest rates give them no alternative, I am very concerned that our markets will go into another major downturn, possibly within the next two years.
Link for entire article:
http://money.cnn.com/2011/06/16/pf/investing/carl_icahn_investment_worries_opportunities.fortune/index.htm
