by winston » Sat Apr 16, 2016 6:45 am
Forbes Billionaire's Pro Perspectives
Today, we want to walk through some analysis we did last year on billionaire investor Carl Icahn. We looked back at Icahn's stock investments over the past 20 years. We think most investors would find the statistics very surprising.
Here is a high level analysis of Icahn's portfolio, dating back to the early 1990s for his 13D positions (i.e. positions he has a 5% stake or more in).
chart
Now, for the key takeaways:
First, for perspective, Icahn has a return of around 31% annualized since 1968. Even more impressive, Icahn has returned 20% annualized since the year 2000, during one of the worst stock market periods in history. He beat the S&P 500 by 4 to 1 over the period.
And Icahn has, unequivocally, shown superior skill to even the great Warren Buffett. Buffett returned 19.5% annualized during virtually the same time period that Icahn returned 31% annualized. To put that in perspective, $1,000 invested in Buffett would be worth about $5 million today … $1,000 invested in Icahn would be worth over $400 million today.
So when we are discussing Icahn's portfolio that dates back to the 1990s, keep in mind, you are looking into the mind of THE greatest investor of all–time. And one that has amassed a net worth of $21 billion from his investing prowess.
Takeaway #1: The media, mutual funds, CNBC, finance books … they all say having a high win rate is paramount to good investing. They tell you that the most important thing is being right. Like many widely accepted adages, it happens to be dead wrong.
In fact, billionaire iconic hedge fund investor George Soros says "it's not whether you're right or wrong, but how much money you make when you're right and how much money you lose when you're wrong."
With that, you can see from Icahn's portfolio, over the past 20 years he has a win rate that is barely better than a coin toss. Out of the almost 100 stocks Icahn has purchased over the past 20 years, only a little more than half have been profitable.
But he puts himself in position, so that when he wins, he has the chance to win big! Among Icahn's stocks, his winners are almost twice that of his losers. His average winner is +87% and his average loser is –49%.
Takeaway #2: What made Icahn rich were concentrated bets … i.e. big bets. And as Buffett famously says, "you only need one or two great ideas a year to get rich." This is exemplified in Icahn's portfolio … see the performance distribution below …
chart
Takeaway #3: Patience is king. You don't have to go to Harvard or have a Goldman Sachs investing pedigree to have patience. And many times, that can be the difference between making money and losing money in investing. Icahn has an average holding period of over two years. To make big returns, he has to wait for his activist campaigns to play out, and sometimes it takes a lot of patience. But clearly patience is rewarded as you can see from Icahn's Portfolio.
Takeaway #4: Risk! When you hunt for big returns, you must be willing to accept drawdowns and losers. Icahn has multiple stocks over the past 20 years that have been full losers (i.e. they've gone to zero — see the above chart). But when you have a portfolio of potential big winners, in the end, they can more than pay for the losers.
Given Icahn has the greatest long–term track record of all–time, his portfolio is the premier example of wealth creation through stocks.
Source: Forbes
It's all about "how much you made when you were right" & "how little you lost when you were wrong"