Carl Icahn is one of America’s most famous investors. Known as an activist investor, he built his fortune by buying stakes in companies and pushing them to make changes that increased their value. His journey to success is full of determination, strategy, and smart decisions. Let’s explore how Carl Icahn started, how he became successful, and the principles that guided him.
Early Life and Education
Carl Celian Icahn was born on February 16, 1936, in Queens, New York City. His parents were both teachers, and they raised him with the importance of education and hard work. Carl was a bright student and went to Princeton University, where he earned a degree in philosophy in 1957. After Princeton, he attended New York University Medical School but dropped out after two years because he wasn’t passionate about becoming a doctor.
Starting in Wall Street
Carl’s entry into the financial world was not instant. In 1961, he began working on Wall Street as a stockbroker. This was his first exposure to the stock market and investing. Over time, he developed a keen understanding of how businesses worked and how stocks were valued.
In 1968, Carl took a big step. He used $150,000 of his own money (borrowed from family and friends) to buy a seat on the New York Stock Exchange. This allowed him to start his own firm, Icahn & Co., focusing on stock options and arbitrage. This was the start of Carl’s rise as a powerful investor.
Becoming an Activist Investor
Carl Icahn’s strategy as an investor was different from many others. He didn’t just buy stocks and wait for them to grow in value. Instead, he bought large stakes in companies he believed were undervalued. Then, he would push these companies to make changes, such as cutting costs, selling off parts of the business, or replacing leadership.
This approach is known as activist investing, and Carl became one of the most successful activist investors in history.
The Turning Point: Tappan Zee Bridge
One of Carl’s first big successes came in the 1970s when he bought a stake in Tappan Zee Bridge, a company that owned toll roads. He noticed the company was undervalued and had assets that could be sold for a much higher price. Carl fought for changes in the company’s management and operations, which eventually increased the value of his investment.
This deal was a turning point for Carl. It showed him the power of buying undervalued companies and making strategic changes.
Famous Takeovers
1. TWA (Trans World Airlines)
Carl Icahn became famous for his corporate takeovers. He earned billions of dollars by buying stakes in companies, making changes, and then selling his shares at a profit. Some of his most well-known deals include:
In the 1980s, Carl bought a controlling stake in TWA, an airline company. He made changes to reduce costs and improve profitability. Though the airline later faced challenges, Carl made a significant profit from the deal.
2. RJR Nabisco
Carl was involved in the famous RJR Nabisco deal, which was one of the biggest buyouts in history. Although he didn’t win the bid, this deal cemented his reputation as a tough and smart investor.
3. Apple & Netflix
In the early 2010s, Carl took a stake in Apple. He believed the company was undervalued and encouraged them to return more money to shareholders through stock buybacks. His involvement contributed to Apple’s rising stock price, earning Carl a huge profit.
Why Icahn Invested in Apple
In 2013, Carl Icahn announced that he had taken a significant stake in Apple, investing around $1 billion. At the time, Apple was a successful company, but Icahn believed it was undervalued. He argued that Apple’s stock price didn’t reflect its potential and the value of its cash reserves.
Icahn was particularly impressed with:
Apple’s growing product ecosystem (iPhones, iPads, Macs, etc.).
Its massive cash reserves (over $100 billion at the time).
The potential for stock buybacks to increase shareholder value.
Pushing for Change
Icahn didn’t just invest in Apple; he actively pushed the company to make changes. He wrote open letters to Apple’s CEO, Tim Cook, urging the company to:
- Increase its stock buyback program.
- Return more cash to shareholders in the form of dividends.
Icahn used his influence and public presence to draw attention to Apple’s undervaluation. His efforts paid off, as Apple expanded its stock buyback program and returned significant amounts of cash to shareholders.
The Outcome
Icahn held his Apple shares for a few years and continued to advocate for shareholder-friendly policies. By 2016, after the stock price had risen significantly, he sold his stake for a profit of approximately $2 billion. Despite selling his shares, Icahn stated that he remained a fan of the company.
Carl Icahn and Netflix (2012-2015)
Why Icahn Invested in Netflix
In 2012, Carl Icahn bought nearly 10% of Netflix for about $321 million when the stock was trading at a low price of around $58 per share. At the time, Netflix was a growing company, but it faced challenges:
Increasing competition from other streaming platforms.
Concerns over its ability to expand internationally.
Investor skepticism about its long-term profitability.
Icahn saw Netflix as a company with massive growth potential due to its innovative streaming service and growing subscriber base. He believed the market had undervalued the company.
Pushing for Change
Icahn didn’t take an aggressive activist approach with Netflix as he did with other companies. Instead, he supported the company’s leadership and growth strategy, believing that CEO Reed Hastings was on the right track. Icahn even suggested that Netflix could be an attractive acquisition target for companies like Amazon or Google.
The Outcome
Netflix’s stock price began to soar as the company expanded its streaming service, grew its subscriber base, and started producing original content. By 2015, Icahn sold his entire stake in Netflix for a profit of approximately $2 billion. His investment remains one of the most profitable trades in his career.
Lessons from Apple and Netflix Investments
- Spotting Undervalued Companies
Icahn’s investments in Apple and Netflix demonstrate his ability to identify companies with long-term potential that the market has overlooked. - Strategic Activism
With Apple, Icahn pushed for changes to unlock shareholder value. With Netflix, he trusted the leadership and let the company grow organically. This shows his flexibility as an investor. - Timing Matters
Icahn’s decision to buy Apple and Netflix when their stocks were undervalued and sell after significant growth highlights his impeccable timing. - Focus on Innovation
Both companies were industry leaders in innovation—Apple with its hardware ecosystem and Netflix with its streaming service. Icahn’s investments show his belief in businesses that disrupt industries.
Net Worth and Legacy
Today, Carl Icahn is one of the richest people in the world, with a net worth estimated at over $15 billion. He has influenced the way many investors think about buying and managing companies. His activism has often led to positive changes in the companies he invested in, benefiting both shareholders and employees.
Philanthropy
Beyond investing, Carl has also been involved in philanthropy. He has donated millions to education and medical research, including a significant contribution to Mount Sinai Medical Center in New York, which was renamed the Icahn School of Medicine in his honor.
Conclusion
Carl Icahn’s journey from a stockbroker to one of the most successful investors in history is an inspiring story of hard work, intelligence, and determination. By taking risks and focusing on the potential of undervalued companies, he built an empire that continues to thrive. Carl’s legacy is not just about the billions he earned but also about the changes he brought to the world of investing.