Would you have Carl Icahn’s Billions if you had this Key Ability?
Did anyone tell you in school that you did things a different way? I always came to the answers using a different thought process. Is that right or wrong? It depends on the person and the desired result. Let’s say your teacher wants you to solve a problem a certain way, but you do it a different way and get the same answer. Does that make if wrong? In Carl Icahn’s case it was the right thing to do. What was going on in his industry?
When Carl Icahn starting investing, the status quo was to passively buy and hold stocks hoping management was treating investor money like their money. However, management was complacent and comfortable drawing nice salary’s. They were not getting the value out of the company assets for the shareholders. What was the solution?
How Icahn Broke the Mold
Icahn had a different approach to investing, he broke the mold. The first step was to identify a company with the most opportunity. For this, he hired a brilliant man for his small discount brokerage firm specializing in arbitrage. The man, Alfred Kingsley, was a Wharton economics graduate with a Masters in Taxation from New York University. He was an expert at finding companies with hidden value in their balance sheets. Whether assets were mispriced or misused, Kingsley could find a diamond in the rough. As with the paper industry, Kingsley identified assets not properly valued. Kingsley if you are listening could you look at my balance sheet and see if you could find a million or two call me. Reference article with some of the information http://www.investmentnews.com/article/20141207/REG/312079993/how-carl-icahn-became-a-corporate-raider
After finding a prime target, Icahn had to effect change. Simply buying some shares and waiting was not sufficient. He had to buy enough of the company that he could change the board of directors along with management. That is where the CEO gets a knock on his door and the last person he wants to see is Icahn telling him how to run his company. It is like playing a game of chess, except you are playing the chess master. Icahn has thought 12 moves ahead. While he used lawyers and advisors, he thoroughly investigated the matter himself and came to his own conclusion after cobbling all the facts and advice.
Applying Icahn’s Strategies to Other Industries
How can this be applied to other industries? We work with data center managers and IT directors. They have so much change coming at them with new equipment and choices to improve performance. Our job is to decommission the assets and get up to a 30% higher return over liquidation pricing. Whereas most IT Asset Disposition (ITAD) companies take the easy route, they flip or broker the product for a quick cash out.
There are two problems with quickly liquidating product. The first, is without proper market research it would be easier to settle for a low offer. Icahn was fastidious in analyzing every detail that could indicate value, and how that value could be reaped. The second issue is the damage to the supply and demand ratio. Liquidating millions of dollars of equipment at once depresses values up to 50%, because it brings on more supply than the market’s demand will bear.
Other ITAD companies manage their clients’ excess IT similar to Icahn’s targets. They are complacent and comfortable drawing a nice return on their client’s product. When product is liquidated, it puts capital back in the ITAD’s pocket fast, but it forgoes a lot of the value that could have been returned to the client. How did we break the mold?
First, we identify hidden value with thorough research. Some IT product are worth spending time inventorying, packing, shipping, testing, and processing. While others just need to be responsibly recycled. Just as Kingsley looks for overlooked assets with value, we look to return value on IT clients no longer need. Once value is identified, how do you maximize its value? Does it sell better whole, or in pieces, in volume, or in smaller transactions? We go the extra mile for the client, do our own thinking, rather than taking the easy way out. For more information, see our website: https://exittechnologies.com/
It’s not Always Easy to Do Things Differently
I learned what might be the most valuable lesson. Do your own thinking. In deal after deal Carl encountered problem after problem. I would have thought he invested and waited, or complained to management and got paid. It was not that way at all, most of these were fierce battles that often ended in millions in profit for the Icahn group, but not always. For more on Icahn, see the book, King Icahn: The Biography of a Renegade Capitalist By Mark Stevens. http://www.amazon.com/King-Icahn-Biography-Renegade-Capitalist/dp/1494348926/ref=sr_1_1?s=books&ie=UTF8&qid=1465080604&sr=1-1&keywords=carl+icahn
So if your teacher or boss questions how you came to a decision. I ask, are you doing your own thinking? What data validates your thought process? Will it lead to Carl’s billions?