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Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

Carl Icahn Wins Title of 'Guru of the Year'

The guru bases an activist strategy on Graham & Dodd principles

Carl Icahn (Trades, Portfolio) has won Guru of the Year for 2015.

The investor garnered 43.9% of GuruFocus reader votes, almost twice that of the leading competitor. Other gurus who earned nominations this year were Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B)’s two money managers Ted Weschler and Todd Combs, Lou Simpson (Trades, Portfolio), John Malone and Bill Nygren (Trades, Portfolio).

Icahn commanded public spotlight this year with a barrage of activist moves, at companies like Cheniere Energy (LNG), Pep Boys (NYSE:PBY), AIG (NYSE:AIG), Freeport McMoRan (NYSE:FCX) and Xerox (NYSE:XRX). He also made waves with bold proclamations, with an op-ed in The New York Times called “How to Stop Turning U.S. Corporations Into Tax Exiles,” a video warning of a bubble called “Danger Ahead” and insights into energy with oil baron T. Boone Pickens, in which Pickens designated him the possible “No. 1 voice in corporate America today.”

Icahn, an activist investor since 1980, founded his diversified holding company, Icahn Enterprises L.P., in 1990 and implemented a full activist strategy there in 2000. As of November, he believed the corporate environment still held significant opportunity for his brand of activism.

“Many major companies have substantial amounts of cash,” he said in an investor presentation. “We believe that they are hoarding cash, rather than spending it, because they do not believe investments in their business will translate to earnings.”

Icahn bases the first part of his activism strategy on Graham & Dodd thinking, seeking companies with depressed prices relative to their intrinsic value. But instead of buying and holding shares until the market recognizes a discrepancy, he jumps into management to incite changes to enhance value. Often he catalyzes acquisitions, friendly or hostile, of smaller companies in the same industry, one of the best uses of companies’ excess cash to improve earnings, he said.

Regarding performance, Icahn Enterprises LP (NASDAQ:IEP) boasts a cumulative return of 1,104% since January 2000, versus 77% for the S&P 500. Icahn Investment Funds since inception in November 2004 returned 221% in total, with a compounded average annual return of about 11%.

The past two years have proved more challenging for Icahn. After five straight years of double-digit gains, his investment funds slumped 7.4% in 2014. Through the first nine months of 2015, they declined 2.8%, compared to an 8% loss for the S&P 500, mainly due to losses in some of the largest long equity positions.

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Icahn’s Apple (NASDAQ:AAPL) was down 3%, Cheniere Energy (LNG) was down 34%, Chesapeake Energy (CHK) was down 63% and American Railcar Industries (ARII) was down 31% for the nine months.

Icahn does not seem to have plans to change his tack any time soon.

“During the next several years, we see a favorable opportunity to follow an activist strategy that centers on the purchase of target stock and the subsequent removal of any barriers that might interfere with a friendly purchase offer from a strong buyer,” he said.

See Carl Icahn (Trades, Portfolio)'s portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days.

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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