Whenever Icahn Enterprises LP (NASDAQ:IEP) founder, Carl Icahn, speaks about his investments and investment style, there are things one can learn, which are rarely found in investment books. At CNBC’s Delivering Alpha event this year, Icahn not only explained what being an activist investor means, but also how investors like him help the retail investors. He was later joined by arguably the second most famous activist investor on Wall Street, Bill Ackman.
When the host of the program, Scott Wapner, asked Icahn about the criticism that activist investors face from others on the Street for being ‘short-term’ speculators, he defended his investment style by saying that his company Icahn Enterprises LP (NASDAQ:IEP) has held on to some stocks for as long as 10-15 years and that people who criticize his style of investing actually don’t understand it. He didn’t mince his words in saying that a lot of American companies are run by managements that are incompetent. According to him, a lot of companies are being run by ‘dumb’ CEOs and sometimes even when the Board members in the company know this, they let the CEO keep his job because of the friendly relationship they have shared with the CEO over the years.
“[…] Ask yourself why I do it? Look, I think, I am a smart guy, but I am certainly not a great manager, but you look at our companies, they have all flourished, well most of them. You look at it and what does that tell you? Not that I am a great manager, it tells you how bad and dysfunctional the system is that I can come in and look for a good guy to run it and when you find that good guy, you make companies more productive […],” Icahn said.
Bill Ackman revealed that he appreciates Icahn’s ability to speak his mind regardless of what the situation is. According to him, the US capital markets have witnessed a massive change in the last 100 years or so. He mentions that whereas earlier the people who owned stake in a company had a say in who manages it, in today’s times investments have become more ‘passive’, such that an investor doesn’t really have a say on who manages the company they invest in. He cited the downfall of the Japanese economy as an example for what happens when investors don’t have a say in who is managing the company they invest in.
Icahn cited a report prepared by the founder of Bridgewater Associates, Ray Dalio, in which he has mentioned that a majority of employee-pension funds would go bankrupt in the next 10-20 years, to prove his point that the real victim of badly managed companies would actually be the common man who invests his money in such companies. He insisted that the investments that Icahn Enterprises LP (NASDAQ:IEP) makes not only provides him with profits, but also benefit the shareholders of the companies in which the investments are done.