Carl Icahn, I didn’t know much about him before I saw that Hindenburg launched a massive short position. By the way, before I continue, Hindenburg Research is such a good name for a fund dedicated to bringing down woefully ill-constructed corporations. My dream is to be as good as Nathan Anderson at naming stuff one day. If you don’t know, Hindenburg will do a copious amount of research on a publicly traded company, and if they find something they believe worthy of pause, they will publish a lengthy report on why they think this company is worth shorting. Right before they release this report, they will buy massive amounts of puts or anything, just to short the stock. Then, they will sit back and watch panicked investors leave in droves while others buy puts. The price tanks, and Hindenburg profits off of the panic they have caused. This strategy works great, as long as they are right. Bill Ackman was an investor with a group that did a very similar thing. Eventually, they were wrong, and he and his group lost all of the trust they had built up. The next time they filed a report, the stock didn’t go down and they didn’t make any money. These funds will exist as long as there is trust in the market. From a macro point of view, these funds are significant for the overall health of the market. They’re like a wolf stalking a herd of deer. The weak and sick fall behind and die, those who run well escape. In the food chain of the market, funds like these operate like a mini SEC. Often, they can cause the largest stock crashes if they can point to fraud. In this case, it seems as if Carl and his company were engaging in the previously mentioned fraud. A “Ponzi scheme” of sorts. They had a dividend yield of 15%, which is a staggeringly high yield. Unfortunately, it was sort of rare that they could string together profitable quarters. The question then became, well, how are they maintaining this yield? Well, Icahn Enterprises (IEP) was doing a lil fraud (maybe(probably.)) They were selling new units (new stock) to afford the dividends they were paying off to old investors. This becomes a circular and unsustainable path in which “Icahn has been using money taken in from new investors to pay out dividends to old investors.” On top of that, these guys suck at investing. They posted a net loss of 53% while the S and P 500 gained 150% in the same period. HOW. A blind monkey could have been given money in that period and make money, it takes a bad money manager to lose money during the strongest economic period in American history. IEP paid out 1.5 billion in dividends while simultaneously losing 4.5 billion during the same period. I will never understand how a smart guy like Carl WHO WENT TO PRINCETON AND KNOWS WHAT HE IS DOING CAN POSSIBLY BE THIS DUMB. By the way, all these losses aren’t even the full problem, the full losses are much worse. Carl and IEP were overvaluing their positions by way too much. They valued their position in a car company at 243.3 million, despite the entire company according to public markets only being worth 89 million. By the way. this company of which they own 90%, and is supposedly worth 267 million only made 2.2 million. That is insane. Also, the only company doing analysis of IEP on the consumer side is owned by a guy that Carl bailed out, so that’s also nice. This guy was convicted of fraud in the eighties by the way, so I’m sure his company’s statement that IEP’s dividends were safe for perpetuity was totally not filled with blatant lies. To summarize, this guy did a lot of fraud. So, what’s the main lesson? How can we learn from this? Instead of an offensive strategy, a defensive strategy would be wise here. Don’t invest in companies that banks stop covering because of their lack of transparency. Don’t invest in a company because a dude made a lot of money on Wall Street one time, and now he has a company. Don’t invest in a company with only a dividend yield, if that’s all they have, eventually, they’re going to have to cut that yield. And, a combination of all of these, don’t invest in Carl Icahn.