Carl Icahn & Instincts in Investing
“When I started out, I learned the hard way, playing the market - it’s a competitive area, it’s gambling. Too many variables, too many people competing with you. You can’t believe that the gambling will carry you. So you look for something I call a ‘no-brainer.’ Very little risk, but a lot of reward. After a while, it becomes somewhat instinctive - that you see something that’s not really apparent to everyone. But there’s tough times, when you’re not going to enjoy it. You know, you’re gonna lose and you gotta be willing to say, ‘hey if I lose, so what?’ It’s like that great Rudyard Kipling poem. ‘If you can meet with Triumph and Disaster, and treat those two imposters just the same…’ that’s important. But you have to have a passion for it. You get a great feeling, when you find a company, when you find something to do. You get excited about it. And by instinct now, something goes ‘click,’ and you know it’s good…when I hear the click, I know I won.” - Carl Icahn
If you haven’t watched it already, I highly recommend the Carl Icahn documentary on HBO Max. It was wonderfully done, and provided a great overview of him and several of his investments.
I have been thinking about the bolded part of the Icahn quote the past few days as I reviewed my Google Doc of stocks that I follow. As I mentioned in a previous post about my process, I started a Google Doc that compiled my quick thoughts on different companies that I follow - the stock’s current price, positives/negatives of the company, notable financial figures, a quick bullet point on valuation, and my conclusion at the time.
I have found the Google Doc to be extremely helpful to my process, and I highly recommend starting something similar. The document helps me organize my thoughts, better compare ideas, and track the hundreds of stocks I look at per year. The document is now almost 300 pages after about a year!
I also started putting in calendar reminders to go back and review the document every two months, which I just did this past week.
Looking back on my work and thoughts, I had three key takeaways:
Avoid overly complex investments - when something is too complicated for me to explain or takes a long time to figure out, the investment is much less likely to work
As humans, we often become attached to ideas we spend a lot of time on; if something seems too complicated and time consuming, we are probably better off just skipping it
My best investments that seem to work out over time are relatively simple - ones that I can write my rationale and key valuation points on a napkin
Trust your instincts - I think it takes patience and hard work, but I do think you can find investments that “click” to you the way Carl Icahn is describing
The more investments that you look at, the more I think this instinct develops - that is a key reason why I am a fan of looking at a ton of ideas even if you are just spending a short amount of time reviewing each one (I am more of a fan of breadth over depth in stock research!)
Buy when a stock seems crazy cheap
The market is incredibly volatile; it was illuminating to look back at the stock prices for some of the stocks and how widely they varied over the past year even though the business value changed far less
As Peter Lynch said, “I love volatility…the market is going to go up and down. Human nature hasn’t changed a lot in 25,000 years. Some event will come down out of left field, and volatility will occur and markets will have these ups and downs. I think that is a great opportunity if people understand what they own.”
I hope Q1 is wrapping up well for you - with higher interest rates seemingly in the cards, things are definitely getting more interesting!
As a side note, I am tracking the housing market more closely because there has been a substantial increase in mortgage rates in recent weeks. It will be interesting to see if higher rates pull marginal buyers out of the market and slow the insane price increases we have seen over the past couple of years.