Even “market geniuses” can mess up spectacularly.
Today I will tell you about a legendary billionaire that made three massive blunders, costing him a staggering $36 billion over the last nine years.
Considered a “Wall Street Genius”, this man’s stock market forecasts have previously moved billions of dollars. And at one point, he amassed a $24 billion fortune as a corporate raider and activist investor.
So how did one of Wall Street’s top titans start hemorrhaging billions over the last 9 years?
You’re about to find out…
A Wall Street Legend’s Disastrous Fall
The Wall Street legend I’m talking about is Carl Icahn.
He’s known for his “take no prisoner” approach as a corporate raider and started making headlines after his audacious takeover of Trans World Airlines (TWA) in 1985.
He bought 20% of the company’s stock, got a seat on the board, and then orchestrated a hostile takeover that took TWA private but saddled it with $1 billion in debt.
He borrowed the money he needed to buy the company, personally netting almost $500 million, but incurred TWA with dangerous amounts of debt.
In 1991 he sold the airline’s crown jewel, the London routes, for $445 million. The company went bankrupt one year later after losing the profits from its most lucrative routes and struggling to pay interest on its debt.
In 1993, Icahn resigned as chairman but set up the “Karabu ticket agreement” on his way out the door.
This gave him the right to buy as many tickets as he wanted that went through St. Louis for 55 cents on the dollar and then sell them at a profit.
With this deal in hand, Icahn founded Lowestfare.com, selling $100 million of these discounted tickets per year. This drove TWA to bankruptcy for the second time in 1995.
TWA cemented his reputation as the real-life Gordon Gecko and the ultimate corporate raider.
He was also one of the “Masters of the Universe” who orchestrated the leveraged takeover of RJR Nabisco, which inspired the book “Barbarians at the Gate.”
But Icahn didn’t just make billions from leveraged buyouts, he also made billions from the same stocks you and I love.
In 2012 he bought 10% of Netflix after it fell 50%, making $2 billion after selling it in 2015.
In 2013 he began buying Apple, and when he sold his shares in 2016, he minted another $2 billion.
But Icahn made a simple mistake in recent years that cost him $11 billion – 61% of his net worth.
He then made two more mistakes, compounding his first error that cost him another $25 billion.
Yes, one of Wall Street’s most brilliant gurus lost $36 billion, making the same mistake many investors are making today.
Beware of the Doomsday Prophets
In 2014 Icahn became convinced that the U.S. was about to suffer another 2008-style crash. So he started betting against the market through things like options and shorting stocks.
When the crash never came, he remained hyper-focused on all the risks he saw and couldn’t imagine how his nearly “all in” bet against America’s economy could fail.
Recently, the activist investor became embroiled in a corporate scandal around Icahn Enterprises, which the government is now investigating for accounting fraud and that Hindenberg Research claims is a Ponzi Scheme.
Those investigations uncovered that Icahn’s nine-year bet against the U.S. stock market cost him a staggering $11 billion.
Icahn has spent almost a decade losing $1.2 billion per year.
That’s $3.3 million every day, $2,283 per minute, and $38 per second, every second, for an entire decade.
All while the S&P has almost tripled in value, and the Nasdaq has more than quadrupled.
What’s the most important lesson from Icahn’s fall from grace?
Is it hubris? Pride goeth before the fall?
That’s another important lesson, but it’s not the one I am talking about.
Never Bet Against America
“The man who is bearish about the United States will always go broke.” – J. Pierpont Morgan.
Icahn’s biggest mistake is that he became convinced America’s economy and stock market were set to crash.
Year after year, when the facts proved him wrong, he stuck to his guns, even doubling down on his bet against America.
But didn’t Icahn also buy stocks? Like Netflix and Apple? Yes, but he sold them way too early because he was a permabear.
Apple is up 625% since Icahn sold it in 2016. He made $2 billion but would have made more than $14 billion had he kept those shares.
What about Netflix, which suffered a 75% crash in 2022? In 2015 Icahn sold his 10% stake in the company for $2 billion. Even after crashing in 2022, if he had held onto his shares, he would have 650% more, or $14.5 billion.
In other words, on Apple and Netflix alone, two American world-beater blue-chips, Icahn, left $24.5 billion on the table. Those two positions would be worth $28 billion today.
Remember that at his peak, Icahn was worth $24 billion. By selling Apple and Netflix too early, because he was convinced the market was going to crash, he lost more potential profits than he ever made through decades of corporate raiding.
Never mind his actual $11 billion losses from shorting the market.
That’s $36 billion in potential wealth gone. Money Icahn would have had but let slip through his fingers. And this is one of the legends of Wall Street!
At Wide Moat Research, we work tirelessly to teach you how to protect your hard-earned savings from disastrous mistakes like this. We know the safest road to riches you can travel and what landmines you must avoid.
In the last two weeks, I’ve shown you how the debt ceiling potentially threatens a Great Recession-level stock market crash… And that a perfect economic hurricane is likely just weeks away.
But that doesn’t mean you should become Carl Icahn and start betting against America. Don’t sell your stocks, go to cash, or start making leveraged bets that stocks will fall.
In those articles, which you can read here and here, I explain how long-duration U.S. Treasurys, which you can buy with the iShares 20 Plus Year Treasury Bond ETF (TLT), are the best asset to own in a recession or debt ceiling crisis.
I explained why managed futures, like the Simplify Managed Futures Strategy ETF (CTA), are the second-best hedging asset in history, especially when inflation is high or rising.
Combining bonds with managed futures has created the most effective hedging strategy since 1970. On average, this combo goes up 34% in bear markets while the market falls 34%.
If you own 33% bonds and managed futures, your portfolio will fall only 50% as much as the average bear market would.
More importantly, by selling those hedges at a profit when stocks have crashed and buying blue-chip bargains with your “free money” created by the stock crash, you can boost your long-term returns and income growth by 20% per year.
In other words, you can own the world’s highest quality and safest companies, sleep well at night in even the worst market crashes, and grow explosively richer after each bear market.
This is how you can harness the greatest companies in the world to grow rich the safe and easy way.
Be like J.P. Morgan and Warren Buffett; trust in America. Don’t be like Icahn and bet against it.
Those who do always live to regret it.
Analyst, Intelligent Income Daily
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