At age 84, Carl Icahn (Trades, Portfolio) has seen all kinds of market environments come and go. He rose to prominence in the late 1970s as a "corporate raider," specializing in hostile takeovers and asset stripping of publicly listed businesses. Nowadays, corporate raiders have been rebranded as "activist investors," which has allowed them to argue that their influence on the companies they control is in the long-term interest of shareholders. Today, Icahn has an estimated net worth of $14.2 billion, and his Icahn Enterprises (IEP, Financial) conglomerate has investments in industries as diverse as automobile manufacturing, energy, casinos and food packaging.
But the guru's career wasn’t a straight line up - like any great investor, he had to learn the hard way and make a lot of mistakes. In a 2015 interview, he opened up about his experience of losing the entirety of his savings at the end of the bull market of the 1960s.
Experience can be an expensive education
When he began his career in the financial industry in the early 1960s, Icahn had around $15,000 (just under $130,000 in today’s money) saved, which he promptly began to invest. At the time, the U.S. stock market was going through a booming bull period, so naturally he initially did very well. As Ichan puts it, he "confused a bull market with brains" and, despite advice from legendary investor Jack Dreyfus (his boss at the time), stayed fully invested in the market right up until the Flash Crash of 1962. At his peak, he made around $70,000 (over $530,000 in 2020 money), all of which he lost:
“I had to go through the pain [to learn]. The market is not a gambling casino, and too many people think that it is, especially with low interest rates. So it’s really a dangerous place.”
The pain of going through such a monumental loss had a huge psychological effect on the young Icahn, who went on to manage not only his own money, but also money for clients. After founding his own firm in 1968, he ran into disagreements with his partners who wanted to go into the underwriting business during the hot bull market of the 1970s.
This environment was not unlike the IPO-hungry one that developed over the last decade - lots of investor appetite for new issues of unproven companies, many of which had no track record of profitability. There is a lot of money to be made for an investment bank by being the firm which helps an Uber (UBER, Financial) or Lyft (LYFT, Financial) to make its debut on the public market, and this was no different in the 1970s.
Despite his partners’ protestations, Icahn refused to get involved with what he considered to be a temporary fad, and ended up buying them out. Clearly his experience of losing his life savings a decade earlier made him a lot more cautious and conservative than he might otherwise have been. Icahn may have had to endure the pain of loss to learn his lessons, but you don’t have to - it can be enough to just learn from the experiences of others.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Bill Ackman: Index Funds Will Take on a More Activist Role
- Bill Ackman on What He Learned From Warren Buffett and Charlie Munger
- Aswath Damodaran: The Limitations of Discounted Cash Flow Analysis
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
