You might be surprised to learn that Carl Icahn’s investment style and philosophy aren’t all that dissimilar to those of Warren Buffett. His approach is essentially a version of the classic “long-term value” play: Icahn tends to invest in companies whose stocks are trading at low valuation multiples relative to the market, as measured by price-to-earnings (P/E) or price-to-book (P/B) ratios. By purchasing a large number of shares and voting power, the activist hopes to unlock more of the stock’s true value. That naturally takes a bit of time, however – hence Icahn’s generally long-term mentality.

Another parallel with Buffett is Icahn’s belief that investors should view buying a stock as buying a business, not just a piece of paper. That’s why he advocates taking the time to properly understand a company’s business model – and avoiding the tendency of investment bank analysts to focus too much on quarterly earnings. As Icahn once said, “I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations.”

What exactly does this “potential productivity” involve? In a formal sense, a company’s productivity is how well it converts input costs – the costs of producing its goods or services – into revenue. Icahn believes that “pricing power” is one of the best indicators of this. In other words, the better a company’s ability to raise its prices without reducing demand, the more it can grow sales without losing business to competitors. Icahn believes it’s important to get to grips with a company’s pricing power and how it changes over time before investing. Once again, this is similar to Buffett – who once called assessing pricing power the “single most important decision in evaluating a business.” ⚖️

As well as things to look for when investing, Icahn also has a list of things investors should avoid – the first being herd mentality. “Some people get rich studying artificial intelligence,” says Carl. “Me, I make money studying natural stupidity.” An investment that’s trending among the masses may not always be the best idea, and Icahn cautions against following the crowd. He instead recommends investors seek out shares of companies that have fallen out of favor with the market – but which continue to post solid operational performance.

Icahn also believes people should steer clear of what he calls the “two cardinal sins” of investing: acting impulsively and not acting at all. An investor should remain patient and impassive, rather than making decisions in the heat of the moment. At the same time, however, they should move decisively when they spot attractive opportunities. While having a plan may make it easier to handle unexpected situations, Icahn thinks investors should always be flexible and ready to adapt – after all, markets are inherently unpredictable. ⚠️

Finally, Icahn believes in embracing and enjoying your investment journey, rather than just thinking solely about making money. And if the activist’s own experience is anything to go by, that could end up being a very profitable approach indeed…

In summary, you’ve learned:

🔹 Carl Icahn is one of the most successful investors in the world – and during the 1980s, he was one of the most fearsome “corporate raiders” in America.

🔹 Icahn is an activist investor: he takes sizeable stakes in companies and then uses that leverage to push for changes that could improve their share prices.

🔹 Most people can’t act as activists themselves – but you can buy shares of target companies or invest directly in activist funds.

🔹 Icahn’s investment approach isn’t unlike Warren Buffett’s, with a focus on undervalued assets, long-term business models, and – crucially – pricing power.

🔹 Icahn recommends shunning the herd mentality and instead looking for underappreciated gems. He also warns against acting impulsively, or not acting at all.