Carl Icahn (Trades, Portfolio), the multi-billionaire investor, has been called many things throughout his career. Activist investor, greenmailer, vulture investor and many other names I cannot mention in polite company. He's also been branded a crook and robber baron.
But Icahn was also a value investor, and this is the part of his career that is usually overlooked.
Icahn the value investor
I've recently been reading Mark Stevens' book on Icahn's life, "King Icahn: The Biography of a Renegade Capitalist," a biography of the first part of the billionaire's investment career, up to 1993.
Stevens presents a fascinating profile of a man who is driven by value. Even though Icahn became known as an activist and greenmailer in the 1970s and 1980s, all of his early investments were made in companies that were trading at a significant discount to their underlying intrinsic value.
Icahn made an investment only if he believed that the stock was worth significantly more than it was trading for in the market, giving him a margin of safety and offering a potentially enormous upside if his efforts to try and get the company to sell itself came to fruition, which they did more often than not.
There are many parallels here between what Icahn was doing in the 1970s and 1980s and the way Warren Buffett (Trades, Portfolio) was investing throughout the 1960s. At his partnerships, on more than one occasion, Buffett decided to take an activist approach after he had acquired a significant amount of stock in what he believed was a deeply undervalued company. Some examples include Sanborn Map, Dempster Mill and Berkshire Hathaway itself.
In each of these scenarios, Buffett acquired enough stock to take control of the business and push management to make changes that ultimately led to a value crystallizing event.
Icahn's approach to unlocking value may have been slightly more aggressive, but it was the same in principle. He found deeply undervalued companies and then pushed for the company to sell itself or break itself up to unlock value for shareholders.
The fact that in most cases management believed it was easier to pay Icahn, rather than actually take action to unlock value for investors, speaks more about the quality of managers at the time than Icahn's intentions.
Different routes, same result
I should make it clear at this point that I do not believe Buffett and Icahn are the same. They are both very different investors, with very different investment strategies, different temperaments, and different fortunes. But it is interesting to note that both of these highly intelligent individuals used an activist approach, targeting undervalued companies and then pushing for change, during the early part of their careers. The activist approach worked for both of them, even though they pursued it from different angles.
No matter what you think of Icahn, it is important to consider how he got to where he is today, and the strategy he used along the way (that applies to all investors, not just Icahn). It is fascinating to note that even though Icahn and Buffett have built very different businesses for themselves over the past few decades, they both started in the same place. And in many ways, they are both doing the same thing today. Both investors want to acquire businesses that are trading for less than they think they are worth.
All investors are value investors
There is another lesson to take away here, and that is the fact that virtually all investors are value investors.
It is a common misconception that value investing means buying cheap companies, just because they are cheap. That is not the case.
Value investing is buying companies that you think are worth significantly more than the price you are paying. That's something both Icahn and Buffett know, and by following this path they have built enormous fortunes for themselves.
Disclosure: The author owns shares in Berkshire Hathaway.
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