Carl Icahn lost $9 billion on an ill-timed short trade. Here’s what he says are 3 big lessons from the soured bet.

Carl Icahn

via CNBC

  • Carl Icahn admitted a huge bet against the economy was wrong and cost $9 billion over six years.

  • “Maybe I made the mistake of not adhering to my own advice in recent years,” he told the Financial Times.

  • He also attributed the losses to trillions of dollars the Fed injected into the economy amid the pandemic.

Billionaire Carl Icahn conceded that he was wrong to bet on a broad market downturn, a forecast that cost his firm close to $9 billion over six years.

The famed activist investor grew increasingly bearish that the economy would tank in the wake of the global financial crisis and shorted everything from broad market indices to commercial mortgages.

But a Financial Times analysis found that the strategy lost $1.8 billion in 2017 alone and another $7 billion between 2018 and the first quarter of this year.

To be sure, Icahn’s portfolio also made about $6 billion from his activist investments even while his short bets were losing $9 billion, according to the FT, resulting in a net loss of nearly $3 billion.

In an interview with the FT, Icahn reflected on his ill-timed short trade. Here are three key lessons:

1. “I’ve always told people there is nobody who can really pick the market on a short-term or an intermediate-term basis,” Icahn said. “Maybe I made the mistake of not adhering to my own advice in recent years.”

2. At one point, the value of the securities Icahn had wagered against surpassed $15 billion, an amount that proved especially costly when markets did not go his way. “You never get the perfect hedge, but if I kept the parameters I always believed in … I would have been fine,” he said. “But I didn’t.”

3. At the height of the pandemic, the Federal Reserve’s stimulus efforts not only staved off a greater economic downturn, but undermined Icahn’s short bets hopes as well. Between 2020 and 2021, Icahn Enterprises reported $4.3 billion in short losses.

“I obviously believed the market was in for great trouble,” said Icahn. “[But] the Fed injected trillions of dollars into the market to fight Covid and the old saying is true: ‘don’t fight the Fed.'”

Amid the losses, Icahn added $4 billion of his own funds into the company. The separate sale of companies held by the firm also resulted in gains of $3.5 billion that were held outside the investment portfolio, the FT said.

Meanwhile, Icahn is fighting claims from activist investor Hindenburg Research, which announced it’s shorting Icahn Enterprises and said the firm is run like a Ponzi scheme.

He responded to the Hindenburg claims in a statement last week, saying Hindenburg launches “disinformation campaigns.”

Read the original article on Business Insider

Source link

Leave a Comment