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Did you know that Carl Icahn is the most successful investor of all time? Yes, that includes the legends like Uncle Warren and media mogul John Malone of the famous Liberty Media empire.
Part of the reason for Carl Icahn’s success has been his strategy that differs from his peers. Whereas they buy undervalued or high-cash-flow business, Icahn takes an activist and bottom-of-the-barrel approach. That means he could lose a lot or win big, and it only takes a few big winners to become super-successful.
A Trader’s Stock
That is exactly the reason Icahn Enterprises (NASDAQ: IEP) is not, and never will be, a stock to invest in. This is not a company in which there is annual growth one can measure or even value against. It is a holding company, but not one where cash flow matters, as is the case with Malone’s empire.
It is basically a bet on Carl Icahn, and there will be years that are good and years that are bad. He makes good bets and bad ones. So if you are thinking of a buy-and-hold strategy, that could work, but just know that his company stock is all over the place and you may have waves of frustration. Hey, this may work for you. Since 1996 or so, Icahn Enterprises stock has in fact returned over 10 times one’s initial investment, along with the kind of roller coaster ride you only get at the most insane theme parks.
That’s why I instead suggest Icahn Enterprises as a trader’s stock.
After all, the company just reported that its holdings lost a hefty $1.19 billion last year, and a lot of it came in the final quarter. Icahn has been trying to bottom-fish energy and commodity companies, and I don’t think that’s a bad idea. His timing has just been terrible … so far.
His positions in oil and shale producers, as well as copper producers have just been destroyed amidst deflationary activity. I think, however, that unless those companies actually go bankrupt, they will roar back and give him and investors multiples on their investment. When you add in his talents as an activist who can unlock value from companies, that may mean even greater returns when added in on top of a recovery in commodity prices.
Another Wild Card
However, Icahn Enterprises stock could trade even lower than it is now, around $67. That’s well off its all-time high but already is 55% off its low. So it is a gamble, but that’s the point of being a trader’s stock. I think it could move in either direction from this point, but is probably more likely to go a bit lower in the near-term because we are in a bear market.
That’s the other wild card in the picture, as if there weren’t enough already. For me, when dealing with swing trades, I look at chart patterns and look for support to buy in. Even then, I open with small positions and may average down, with the notion that I’m only going to try for a $5 to $10 gain.
Warren Buffett’s Big Secret
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