Carl Icahn Loses $2 Billion on Hertz Bankruptcy - What Can We Learn From This?

Hertz $HTZ recently filed for bankruptcy and activist investor, Carl Icahn (who owned 40% of the company) lost over $2.3 billion (actually only $1.6 billion if we include his profits from the HERC spinoff). Carl Icahn is still the 56th richest man in the world with a net worth of $18 billion but one of the greatest investors lost so much money. There's a lot to learn so that we don't repeat such types of mistakes.

Carl Icahn is an activist investor. When he is investing in a company, he wants to influence the management of the company. That's why CEOs are scared of him. However, he considers himself a value investor. He buys stocks only if he can generate some value out of them. Unlike Warren Buffett who prefers to be passive, Carl Icahn will be active. That's the main difference.

Let's see some of his great investments:

In 2015, Carl Icahn spinoff PayPal from eBay. This created a lot of value both for eBay shareholders and now PayPal is one of the largest companies in the world. In 2013, he pressured Apple $AAPL to buyback shares and to pay dividends. So far, Apple returned over half a trillion dollars to shareholders and it is thanks to Carl Icahn.

Carl Icahn first invested in Hertz in 2014 as the stock price was falling. He made some money from the HERC spinoff in 2016 but the parent company, Hertz, things got even worse. Uber was a major competitor and with the pandemic, they had to file for bankruptcy. He said in the SEC filing that he still believes in the company. He has to sell because of the debt restructuring. At the price he bought, it will be hard for him to make any profits.

The first lesson that we can learn is his long-term commitment. He's not investing in a company for the short-term. Only when he knew for sure that he will not recover his investments that he sold. It is not because you just invested in a company and the stock price is going after two weeks that you need to sell.

The second lesson that we can learn is how do we invest in failing businesses. When everybody is selling a stock, this is the best time to invest in the stock. But we need to be more careful than Carl Icahn since we don't have the influence he has to influence the management. we only invest if there is a catalyst that can change the business and the stock price. For example, I invested in GameStop because there is a catalyst that can affect the stock price, the new console cycle. Another catalyst will be the short squeeze.

Whether you're an activist investor or a passive retail investor, you need to understand that you're buying businesses, not stocks. The stocks that you buy gives you ownership of the business and you need to act like a business owner. The only difference between us and Carl Icahn is that he influences the intrinsic value and stock price. But the same principles that we use, he uses the same principles.

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