Icahn used to be called the corporate raider. He’d come into the company by purchasing a large number of shares of a public company. This allows him to have controlling positions in companies. He will then force the company to change rules, or break it up, drove some into debt, and helped rebuild others. As a result, the stock price might go up. Then he’d cash out.
By doing this, he was able to generate over 20% a year. Icahn has $18 Billion to manage. 20% of that is a considerable amount of returns.
Carl Icahn had a degree in philosophy at Princeton and 3 years of medical school before he turned to Wall Street and became a broker for two different companies.
You can look at options as insurance policies to stocks. Icahn was like an insurance salesperson at that time. He’d call up rich people and pitch options contract to them. He’d made a commission from that. Since he pick options that actually would benefit his clients. He received a huge amount of orders.
He made so much money from doing this. In 1968, Icahn established his own brokerage firm, named Icahn & Co.
Icahn & Co is still a brokerage company that purchases and sells securities on behalf of their clients. But on the side, Icahn started using his profits to invest in other companies.
From the 70s to the 80s, there was a huge market growth. Although there is no record of how much money the company actually made during that period but by early 1980, Icahn was able to fully take over an airline with $469 million.
He turned the company around and made a huge profit. He just uncovered a secret to make money. He realizes that when he threatened to take over companies such as Marshall Field and Phillips Petroleum, these firms repurchased their shares at a premium to remove the threat. This is called green-mailing today.
Corporate raiding, huge in the 1980s, had certain notoriety. Raiders became hugely rich by increasing the value share of these companies through their interference.
Now you might wonder — isn’t increasing shareholder value a good thing? But not all increasing stock price is a good thing. Sometimes it might be a result of a pump and dump.
Pump-and-dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. The perpetrators of this scheme already have an established position in the company’s stock and sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.
Nowadays, Carl Icahn is being called an activist investor, although his actions haven’t changed that much.
