Posted in Strategy on November 26, 2014|
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Carl Icahn’s An activist manifesto for The Economist:
In August 2013, I tweeted to my followers that we believed Apple was “extremely undervalued”.Since then Apple’s stock price has increased by over 50%. The Economist has asked me to write 850 words of advice on what the investor should do to profit in 2015. At the risk of being a bit facetious, I would say: become a Twitter follower and read my future tweets!
On a more serious note, in reply to The Economist’s question I believe that, even at today’s prices, Apple stock is greatly undervalued. Why? The answer is a pervasive misunderstanding among investors and Wall Street analysts: they think Apple is a hardware company when in reality it’s a company that sells an entire ecosystem of hardware, software and services. Once a consumer buys a single Apple device, thereby entering its ecosystem, they often increase their exposure to it through incremental Apple products. Then, when the time comes for them to replace their device, they tend to stay with Apple rather than switching to a competitor, which is the consumer behaviour suffered by simple hardware companies when what they sell is viewed as a commodity. We have written a letter to Tim Cook, the CEO, expressing our views (it can be seen on our website: shareholderssquaretable.com).
If you had purchased stock of IEP, our flagship company, at the start of 2000 you would have had an annualised return of 21.5% compared with the s&p500’s 3.8%; and if you had bought IEP on April 1st 2009 you would have had 33.8% compared with the s&p500’s 20.4% (counting in each case up until September 30th 2014). Even more telling is the return of a person who invested in 23 companies whose boards our appointees joined between January 1st 2009 and June 30th 2014; if the person invested in each company on the date that the nominee joined the board and sold on the date that the nominee left, they would have obtained an annualised return of 27%.
Read An activist manifesto.
I examine Icahn’s investment strategy in depth in Deep Value.
Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.
Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.
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