Blog - Page 16 of 16 - Exploit Investing

When it comes to investing you really need to be grounded in reality and focus on what works. This can often be achieved by studying successful inventors. One such Investor is Carl Icahn a legendary activist. King Icahn is a biography about Carl Icahn's life. It goes into detail about many of his stock trades and how he made money by forcing companies to do his bidding. Below I recount my reading of it and some reasons why you should add it to your reading list. Why You Should Read King Icahn “You’re talking about Russian peasants on the Volga River. Why the hell are they going to go from Moscow to Paris? And if they have to go, what the hell do they know or care if its an hour faster?” (pg 295) I absolutely love this quote, it captures the pure intelligence and sometimes unknown to him comedic nature of Carl Icahn's words. Not only that but it is in stark contrast to the beginning of the book King Icahn. Icahn was a middle class Jewish boy and no matter how the book portrays how Icahn’s roots never left him as he accumulated his wealth, the quote above stands in stark contrast and that wealth does indeed corrupt. The Book King Icahn, written by Mark Stevens is a biography about Carl Icahn and his life as a corporate raider. The book follows Carl Icahn into the 80’s and chronicles his raiding of corporate America. When Can I start Buying Companies and Demanding Change? King Icahn reads like a novel but offers dramatic insight into the world of corporate raiding. It does a great job at showing how shareholder activism works and how it can be used to unlock value in undervalued companies. Shareholder activism is often an afterthought to many 401k’s and small retail investment accounts. Shareholders can wield extraordinary influence when mobilized towards a common cause. Icahn knew just that and the quote below describes this perfectly. “As Icahn had long understood, if corporate management is allowed to remain entrenched and protected, shareholder values often stagnate.” (pg 246) There were multiple times in the book where Carl Icahn acted as a champion to the shareholders. He was able push corporate law into voting situations where the shareholders could align to have more say in company matters. Often this was not enough and a more aggressive measure was necessary. The book highlights how forceful leaders like Icahn would also push for a seat on the board of directors in order to influence company policy. This was often viewed by management as a hostile form of arbitrage of the companies assets. The management teams in the 80’s often felt they were the sole owners of the company and had all the rights on how the company should run and how the assets used. This often led to major inefficiencies in how assets where applied or how long useless assets were held. Investors such as Carl Icahn were needed in order to stem the often stagnant and status quo leadership. This often breathed new life into the stock as value was extracted from company assets. I enjoyed how Icahn and fellow corporate raiders were a necessary evil in the corporate culture developed prior to the 80s. Overall the book was an excellent story highlighting how corporate takeovers often materialize and how activists can leverage assets in deals with shareholders of similar interests in order unlock value and increase profit in stock ownership. Where Are All The Failures? The book doesn't do a very good job at highlighting the failures. Carl Icahn gets away with the most insane deals often screwing over shareholders. This is especially evident in cases of greenmail. Greenmail is where the company pays of Icahn in order to make him go away. Greenmail has been made illegal in various federal and state regulations, and companies have put protections in place in order deter hostile raids made by short term investors. King Icahn highlighted one failure but even then it was not a wealth destroyer but rather a low return on investment. Icahn’s investment in TWA airlines never actually failed at making money, the return was just very low for what seemed like a lot of work that was put into it. He also essentially leveraged the company for his own personal wealth stealing from workers in order to make sure he continued to live the life he wanted. Icahn had no business trying to run an airline and although his ideas made sense on paper, it did nothing for the employees. This is an example of how so many companies today operate and its often sad to see how employees get treated and in turn consumers. “Since your acquisition, you have largely sold, stripped, leased, and leveraged the assets and operating cash flow of the airline in order to repay yourself your original equity investment, increase your percentage ownership of TWA and create a cash hoard for investment purposes.” (Pg 297) This passage shows just how terrible a corporate raid can be to the employees and future of a company. Not everything a corporate raider does is for the good of the company. It’s all about balance. Icahn may have been a detestable figure in corporate america but it highlights one key aspect. When you buy undervalued companies that posses a margin of safety it is incredibly difficult to lose your principal. This is the foundation Icahn built his strategy on. The once difference is that Carl Icahn used shareholder activism as a way of creating his own catalyst. A last note I’d like to make is the absence of actual strategy and information on how to go about initiating shareholder activism. The book does a great job of telling a story but has no real process to it. It may make for a less interesting book, but a little extra time here would make for a real educational opportunity. Are You Not Entertained? I would suggest this book to anyone looking for a nice entertaining read. It's fun to peruse history through the eyes of another, especially one you might be able to glean inspiration from. I thoroughly enjoyed the tit for tat commentary and jokes portrayed in the book. This book is also a great introduction into shareholder activism. It is very inspiring in its approach to villainous management. While that may not always be the best approach it also shows that management does not always know best. As a shareholder you have rights and you should exercise those rights in order to gain the most value you can.