"In life and business, there are two cardinal sins ... The first is to act precipitously without thought, and the second is to not act at all.” – Carl Icahn

Carl Icahn has spent his entire career on Wall Street proving the conventional wisdom wrong – and pocketing billions in profits. Part corporate buccaneer and part value investor in the mold of Warren Buffet, Icahn is a game-changer in the annals of Wall Street. His story is one that regular investors should embrace – and maybe emulate.

Who is Carl Icahn?

Icahn has built a sterling pedigree as the King of Leverage Buyouts – an investment tactic that allows deep-pocketed investors to purchase publicly traded companies and burden the acquired companies with debt. Icahn significantly hiked the leverage ratios of his newly acquired companies, thus generating cash flow and raising the company’s share price. Once his share price targets were met, Icahn would sell his shares and hit the exits with a big profit.

It’s an investment strategy that has earned Icahn $20 billion in total net worth, making him the world's 26th wealthiest individual in 2013, according to Forbes.

That wasn’t exactly the plan back in 1957 when Icahn graduated from Princeton University with a philosophy degree. Icahn found himself on Wall Street within a few years, taking a job as a stockbroker for an investment firm. Within seven years, he bought himself a seat on the New York Stock Exchange, and by 1968 he had opened his own asset management firm, Icahn & Co. There, Icahn created and honed his “corporate raider” persona, learning how to buy out whole firms and turn them into investment winners.

Riding the wave of corporate buyouts in the 1980s, '90s and into the new century, Icahn now sits as chairman of Icahn Enterprises (Nasdaq:IEP), an investment management firm with $20 billion in revenues and a share price well over $100.

Icahn’s Investment Style

Despite his widespread reputation as a buyout specialist, Icahn at heart is a value investor looking for so-called “cigar butt” companies that still offer value to investors, even as most investors don’t see those opportunities. It’s simply the way Icahn travels to that value destination that differentiates him from other contrarians like Buffet and George Soros.

Icahn’s target is high, but unusually simple – target a specific company, and go about the business of acquiring enough shares to give him controlling interest in the firm, thus making him “first” among company shareholders.

Achieving majority control gives Icahn three advantages:

  • It allows him to control board of director appointees.
  • It enables him to make high profile changes in management, and then rally shareholders to support those changes.
  • He then uses that control to roll out a new “turnaround” strategy that shapes the company’s image into the image Icahn wants in all of his companies.

With his new management and board team in place, and with increasingly enthusiastic shareholders and investors pushing the firm’s stock price upward, Icahn’s pockets are padded in the process.

“They call him ‘King Icahn’ for a reason – he’s a legend,” notes Vijay Marolia, MBA, CFP and managing partner of Regal Point Capital in Orlando, Fla. Marolia, who has tracked Icahn’s investments for years, says that the financier’s investment style isn’t exactly new, but it is effective.

“In essence, Icahn’s a value investor, but he sees value where other value investors don’t,” Marolia said in an interview. “He’s known as a tough negotiator, and you don’t want to go against him. I actually have exited a short position solely because he was on the long side, and he has the money and power to do what he wants to do – including turning a losing company into a profitable one.”

Icahn has also mastered the art of mergers and acquisitions, especially the key element of capital structure (how a firm finances its overall operations and growth by using different sources of funds). Once he unlocks a company’s hidden value, Icahn begins remaking the company in his image.

What Can Investors Learn from Icahn?

How can investors steal a page or two out of the Icahn playbook, and play out some corporate raider fantasies of their own?

Stick to the following priorities - and keep sticking to them if you want to emulate Icahn:

  • Do your due diligence. Make sure you're constantly kicking tires and asking questions on stocks you're considering.
  • Don't bow to the doubters. If you have done your homework and you like what you see, stick to your convictions.
  • Learn what really triggers a big move in the financial markets - and why.
  • Be creative and use social media to follow stocks (Icahn is a big user of Twitter, for example).
  • Build a network of investment resources you can turn to time and time again (Icahn calls those "power networks.")

For investors, the big takeaway from the Icahn model is information – how to get it, how to deploy it and how to use it to make the correct buying and selling decisions.

These days, solid investment data is highly available and usually free of charge. Read all the investment blogs and newsletters you can; watch what the market movers say on CNBC and Fox Business; and learn the investment styles of the great investors, like Icahn, George Soros and Warren Buffet.

The Bottom Line

Can you invest like the "Buyout Master," Carl Icahn? Sure, all it takes is the discipline to research the best companies, identify profit opportunities and stick to your gut feeling – even if the early returns aren't what you expect. With a little patience and discipline, your winners should outnumber your losers if you stay on script and focus on value when forging your Icahn-inspired investment portfolio.

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