If you owned Apple Inc. (NYSE: AAPL) stock , you saw a 5% jump in shares on August 13, when Carl Icahn tweeted that he held "a large" position in Apple.
Same with Netflix Inc. (Nasdaq: NFLX), when shares spiked as much as 14%, back on October 31, 2012, when Icahn's regulatory findings revealed he held a tidy 10% stake in the company.
So, what's the secret to pocketing these double-digit gains?
Both came about thanks to the moves of one legendary investor, one "self-made man" worth about $20 billion today…
The good news: He's not done, and you have a chance to profit from him, as we'll see.
But to understand what Carl Icahn can do for you, you need to understand how he got here…
Who Is Carl Icahn?
A medical school dropout of the archetypal postwar American middle class, Icahn arrived on Wall Street in 1961 as a stockbroker at Dreyfus & Company. By 1968, he had a seat on the New York Stock Exchange, while he incorporated Icahn & Co., which dealt in risk arbitrage and options.
Options – as we know them today – were still in their infancy, and far from the mainstream.
That means Icahn was trading options five and six years before the Chicago Board Options Exchange was operating and providing a concrete platform for trading options. He was trading options before the Black-Scholes model, which guides the valuation of an option, was published.
That Icahn would take on this sort of risky security is very telling…
Icahn Gathers Momentum
It was 1978 when Icahn's jump to "big shot" status really started…
This is when he began investing to obtain controlling interests in various companies where he saw potential.
Icahn would gain control of a company through stock purchases and then work his will. He could outsize positions in companies – anywhere from 20% to 40% of available shares – and then threaten a takeover, only to collect a premium on the stocks when the terrified board would organize a buyback.
Or he would go through with it all and use majority positions to buy those companies. This would be the genesis of his life as a corporate raider and greenmailer – an archetypal figure of the freewheeling "Reagan 80s." Greenmailers are corporate raiders who buy large amounts of a company's stock and force the target to buy back the stock at a substantial premium to avoid a takeover. The sole goal is for the greenmailer to profit – very often, the company itself suffers.
For example, when Icahn acquired Trans World Airlines Inc. he nearly killed the company for his own benefit. After acquiring 20% of the company's shares, while making a very successful try at greenmailing the board, he followed through and purchased the entire company.
Icahn bought TWA in 1985. His move to take the company private came in 1988. This netted Icahn close to $500 million, but left the company itself with more than that amount in debt – $540 million.
Icahn sold off TWA equipment by the ton. In 1991 he sold TWA's prized routes to London Heathrow Airport. They went to American Airlines, which would end up buying and absorbing TWA in 2001 for close to $445 million.
TWA survived under Icahn, not because of him, but despite the man's efforts. In one instance, he intimated that he was going to place a large order for aircraft. Employees were expecting something on the order of 100 shiny new airplanes. They got 12.
Employees complained about draconian measures on the ground, and an atmosphere of constant surveillance.
TWA was beleaguered ever after. There were huge labor costs and costly labor disputes. The company had an aging fleet and a reputation for never arriving on time. The airline "grew," when Icahn acquired Ozark Airlines, but it was only Icahn who benefitted from this growth.
Bankruptcy came in 1992.
TWA limped onward into 2001, but it was never really the prestige marquee brand it once was. But Carl Icahn was becoming a prestigious marquee in his own right.
Even then, he was only really just getting started…
When I see the shares of Netflix rising, I cannot believe that Carl Icahn believes that he truly has a winning company. I will not be surprised when I see him bail from his position in NFLX, and short the stock. This company is trading at a P/E of over 350. That has got to be at least close to some sort of record for a valueless company. The balance sheet shows that this company has a negative value of over $700m. So if you bought NFLX today, and I mean if you bought the entire company, you would be buying a $700m debt and it would take the company over 350 years to pay for itself out of earnings. That means there is less there than air. Icahn has to know this. In addition, every single show on Netflix is available for free on the internet. People are figuring that out, and so it is only a matter of time until NFLX drops like a stone. And watch as Icahn profits on the short side of the stock while its dropping.