Carl Icahn vs Warren Buffett: Who Is Better Investor?

In Warren Buffett and Carl Icahn, the world of investing boasts two of its most influential figures, each of whom has profoundly impacted financial markets.

Indeed, Buffett is a renowned value investor with a storied track record of identifying undervalued stocks that outperform the market. At the same time, Carl Icahn, the founder of Icahn Enterprises, has built a reputation as an important activist shareholder, leveraging his sizable interest in companies to effect sweeping and drastic change.
However, despite their shared success as Wall Street legends, the two men have vastly different philosophies when it comes to stock-picking criteria. Buffett’s value investing mindset prioritizes a company’s foundational worth and long-term potential, while Icahn’s acquisition arbitrage emphasizes short-term gains through aggressive management overhaul.
We delve into the investment backgrounds of each of these boardroom behemoths and, scrutinizing the data, determine which of them comes out on top.

Investment Style

Warren Buffett and Carl Icahn’s investment philosophies differ enormously in their aims and execution.

For instance, Buffett’s modus operandi is characterized by identifying underpriced stocks with good fundamentals and better-than-average prospects. In contrast, Icahn likes to acquire large portions of an enterprise and push for changes in corporate governance.

More precisely, Buffett’s methodology centers on an in-depth analysis of intrinsic value, which, at times, is often underappreciated by other market participants. Thus, his insistence on long-term investment enables him to ride out short-term price fluctuations while he waits for the proper recognition of a company’s actual value. This discipline has yielded impressive returns, making Berkshire one of the most successful conglomerates in history.

On the other hand, Icahn is known for his more assertive investment tactics, wherein he acquires a stake in a company and uses his influence to drive short-term improvements in stock price. This often involves engaging in proxy fights, making public demands, and, ultimately, launching a hostile takeover.

Icahn’s blueprint is aimed at unlocking shareholder value in the short term and is known to have had a significant impact on some of the firms in which he has invested.

Who Is The Most Successful Trader?

Warren Buffett is widely regarded as one of the most talented investors of all time, and his success has enabled him to consistently beat the market in a period spanning more than six decades.

In fact, according to Berkshire Hathaway’s annual reports, the company’s compounded annual gain in book value per share was 20.1% from 1965 to 2021, notably outpacing the S&P 500’s annual gain of 10.5% over the same time.

Buffett’s investing prowess is demonstrated by his holdings in some of the world’s most successful companies, including Apple, Coca-Cola, and American Express. These investments have yielded tremendous returns over the years, providing a solid foundation for Berkshire’s stratospheric growth.

Not to be outdone, Carl Icahn’s track record as an investor is similarly impressive. Indeed, Icahn Enterprises can boast an annualized rate of return of roughly 14% in the closing price of its depositary units between January 1, 2000, and September 30, 2022, beating both the S&P 500’s and Berkshire Hathaway’s 6% and 9% respectively.

Buffett’s Margin of Safety

Known for his studious attitude towards mitigating uncertainty, Buffett underlines the importance of maintaining a margin of safety by buying stocks at a meaningful discount to their intrinsic value. This has helped Berkshire Hathaway weather market downturns and emerge with a more robust portfolio in the long term.

Moreover, the Oracle of Omaha’s stock-picking principals have contributed much to his success over the years. For instance, while he seeks exposure to almost all sectors of the economy, Buffett typically weights his holdings to a few select industry-leading businesses – and will add to those bets even if their stock prices rise in the interim.

Alternatively, Carl Icahn is known for implementing a high-risk, high-reward strategy, which can involve heightened short-term volatility leading to either big gains or damaging losses.

However, he’s also willing to cut his losses when necessary. For example, Icahn sold all his equity in Hertz Global Holdings when the company filed for bankruptcy in 2020, and, besides, his game plan, while ambitious, is also highly focused, with a few holdings standing in place of a more diversified portfolio.

What Kind Of Stocks Do They Prefer?

Warren Buffett’s investing philosophy centers around buying stocks in companies that he believes have a sustainable competitive advantage, or “economic moat,” and can generate consistent earnings growth over the long term. Buffett tends to favor established companies with strong brands, recognizable consumer products, and a history of successful operations. Some of the sectors that have been popular with Buffett include consumer staples, financials, and industrials.

Nevertheless, Buffett has generally avoided investing in high-growth tech firms, which he believes are often overpriced and can be unpredictable. This is why he famously avoided purchasing Apple stock, despite its considerable growth potential. However, he eventually changed his mind and began buying the company in 2016, realizing its potential for long-term earnings growth.

Buffett has also been critical of cryptocurrencies, which he sees as speculative investments with no inherent value or earnings potential. He has referred to Bitcoin as “rat poison squared” and has stated that he does not view cryptocurrencies as a valid investment.

That said, having been known to take positions in companies across various disparate industries, Carl Icahn’s investing approach is more opportunistic and less focused on specific sectors than Buffett’s.

In fact, Icahn’s investments have included ventures in the technology, healthcare, and energy sectors, and he has shown interest in firms that are restructuring or undergoing radical change. However, he’s generally avoided the physical retail sector, which, he believes, is “constantly losing ground to online shopping.

Buffett vs Icahn: Conclusion

While Buffett’s trading philosophy produces the kind of long-term gains desired by many, Carl Icahn’s high-energy outlook leads to greater yields in a shorter time.

However, by studying these investment gurus, not only will your returns improve – but you’ll also come to understand more fully the mechanism behind your success.

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