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Carl Icahn: What I Do Is Good For America

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This story appears in the June 23, 2013 issue of Forbes. Subscribe

This story was written by Carl Icahn, the majority shareholder of Icahn Enterprises.

Shareholder democracy does not exist. But in spite of this my activism is alive and well and benefits everyone.

Early in my career on Wall Street I realized that attempting to trade stocks or determine if the market will rise or fall is a complete waste of time. There are simply too many variables. To be a successful investor one must look for situations where the risk/reward ratio is greatly in your favor. For example, in the '70s I made a great deal of money purchasing certain convertible bonds and shorting stocks and options against them; purchasing puts and converting them to calls. Additionally, I invested in arcane situations where the odds were greatly in my favor.

However, all these models pale in comparison with the "activist" model I have spent a great deal of time and capital to perfect and use over the past 15 to 20 years. Most people would agree that many of the companies in our country are mismanaged. You don't have to be a brilliant financier to realize that the stocks of these companies are undervalued and would be much higher if the CEO were removed or at the very least paid more attention to his troubled company than his golf game. However, if you purchase these "undervalued" stocks, the odds are not in your favor, because the CEO and/or the board is not going away. But if you are able to purchase the stock knowing you have the ability to mount a proxy fight or tender offer, and/or get control or force the board to make positive changes, the odds turn dramatically in your favor, and you may have an A+ investment.

Icahn Enterprises' record decidedly proves this point. I am proud to say that our stock price performance since January 2000 through May 28, with reinvested dividends, showed a total return of 1,122%. During the same period the S&P 500, Dow Jones industrial and Russell 2000 indices had returns of only 46%, 85% and 137%. The reason so few play the activist role and take advantage of the great risk/reward ratio it offers is that it is extremely difficult to breach the heavily guarded walls that CEOs and boards have built to protect themselves. Corporate democracy does not exist.

Critics of activism state that activism may be good for the activist but not for other stockholders. Yet shareholder value has risen by many billions of dollars in the companies we have targeted over the years. I believe this proves conclusively that all shareholders, not just us, benefit from our involvement, and, perhaps even more important, the changes we institute at these companies cause them to become more productive, and therefore enable them to compete with foreign companies more efficiently, which in turn creates more jobs--something this country needs.

Poorly managed companies are generally shunned by investors. An analyst once laughed at me for making an investment in a terribly run company. He said, "Carl, there's an old saying, 'Fools will venture where angels fear to tread.'?" I answered, "Yes, but great investors will venture if they know they have the weapons to correct what the angels fear."