Icahn Enterprises: What the Hell Happened?

I made a huge mistake...

Posted May 8, 2023

Dear Outsider,

It’s been a wild week.

And oh, boy, do I have a story for you.

It’s a story of intrigue, pride, panic, and greed.

All because of one stock.

It’s a textbook example of common investing mistakes.

So hopefully you can use my story to your advantage.

You see, since early 2020, I’ve been investing in dividend-paying securities with the goal of earning enough money each month to pay my rent or my bills or whatever I need... basically to make enough money off my investments to continue living my current lifestyle.

It’s essentially another paycheck, another income stream. If you listen to any successful or rich person, they’ll tell you having multiple income streams is the most essential aspect of getting rich. It’s a lofty goal, for sure. But to me, that’s the definition of retirement.

Anyway, I wrote to you last month about the basics of dividends, what they mean, and how they can contribute to your portfolio, so I won’t delve into too much detail about it here.

And to be clear, I haven't reached my dividend goal yet, but I had been getting closer each and every day...

That is, until one of my largest holdings fell out of the sky like a lead zeppelin.

Show Me the Money!

This is where the intrigue comes in.

Like I said, back in 2020, I looked for the best — and highest-yielding — dividend-paying companies on the market at the time.

I found a lot of options. What I wanted was a good mix of monthly and quarterly dividends.

One of those was the JPMorgan Equity Premium Income ETF (NYSE: JEPI), paying $0.42 a share per month.

Another was Realty Income Corp. (NYSE: O), paying $0.25 a share per month.

Then there was Icahn Enterprises (NASDAQ: IEP), paying $2 a share per quarter.

I found the company intriguing, but not just for its dividends.

First, Icahn Enterprises is owned by famed activist investor Carl Icahn. Say what you want about the man, but he’s one of the richest and most successful investors on the planet. He’s up there with Buffett, Munger, etc. Icahn is known for buying companies for cheap and turning them around to sell for a profit. He’s extremely good at what he does, which is why he’s a multi-billionaire. His fund gives you the opportunity to invest with a successful businessman with a long-term track record of success.

Second, it’s a well-diversified holding company that operates in the investment, energy, automotive, food packaging, real estate, home fashion, and pharma businesses.

Third, with one of the highest dividends on Wall Street, it pays enough money, in time, to pay the bills.

So I started slowly dipping a toe in. But with each dividend payment, my position got larger and larger. Soon it was snowballing out of control and had become the biggest position in my portfolio. But I didn’t care; I was raking in the dough. Not to mention, all throughout the craziness of the pandemic and interest rate hikes, the company traded sideways, even outperforming the market much of the time.

I thought I was being fiscally responsible, not overspending, just adding to my dividend position.

As you can see from the chart, it was very a consistent investment...

That is, until last week, when all hell broke loose.

iep

I Smell a Rat

In just two days, the underlying stock dropped 40% after short seller Hindenburg Research released a report accusing the company of operating like a Ponzi scheme by taking new investment dollars and paying them out to older investors through dividends. The feared research company also said Icahn was falsely marking up the value of certain assets, thereby inflating the value of the fund. Not only that, but the company was trading at a 218% premium to its net asset value (NAV). On top of it all, Hindenburg claimed that Icahn didn’t have enough money to continue paying the dividend and that the business was unsustainable.

Hindenburg wrote, “Icahn has been using money taken in from new investors to pay out dividends to old investors... Such Ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one ‘holding the bag.’” Investors panicked and Carl Icahn lost nearly $10 billion on paper in two days.

Needless to say, I wasn’t a happy camper being caught in a battle between the super wealthy. I’m just trying to mind my own business and put my money away to make it work for me. These guys fucked it all up and have much more to lose.

Is this report true?

How could I have been so wrong about this fund?

I tried dollar-cost averaging down but just didn’t want to risk any more cash. I like to use a trailing stop to limit my losses, so after two days, I was stopped out of my position that I’d been holding for nearly three years. It was my largest loss to date and still stings. Luckily, it was mostly profit that was gone. But gone with it was my opportunity to get paid more dividends.

Now, what seems to have happened is investors got caught in the middle of some stock manipulation, and we’ll probably see many lawsuits flying around soon. Here's how it went: Hindenburg releases a negative report saying it’s shorting the stock, the company makes money while the stock drops because of panic selling, and then the smart money scoops up shares on the cheap. I'd like to see someone held accountable, but I'm not holding my breath.

Full disclosure: I’ve since bought back in. As of this writing, the fund's now paying 27% dividends. It's just too good to pass up. It’ll only take a couple quarters to make back what I lost, and in the meantime, I’ll ride out the volatility, which is what I should have done to begin with. Not to mention, Icahn released a statement last week saying that Hindenberg’s report was “self-serving” and that the company does not have liquidity problems. Icahn also said the dividend is staying put.

Hopefully this shows you that panic-selling can really be detrimental to your long-term goals.

Lessons Learned

Lesson 1: Don’t put all your eggs in one basket — anything can happen. Luckily, I didn’t have my life savings in the company or anything like that, but the loss hurt. Make sure to only invest money you're willing to lose into the market. Otherwise you won’t sleep at night.

Lesson 2: Stick to your strategy. Don’t let people shake you out of a position that you like. If you liked it at $50, you’ll like it even better at $30. If you’re fortunate enough to have cash on hand, try to average your cost down.

Lesson 3: Believe in your intuition and analysis, and don’t listen to anybody else. I read comments online all day about how IEP was going to $0, which was just another way for the shorts to scare people into selling. And it worked.

Lesson 4: Don’t panic-sell. If you’re playing dividends, you’re in it for the long haul. Don’t worry so much about the day-to-day movements of the stocks, even if it seems like a massive move. You’ll most likely be better off buying and holding while collecting the dividend payment to offset any losses.

So take it from me... Stick to your guns and don't let the stock manipulators bully you. You're smarter than 99% of these crooks.

Stay frosty,

Alexander Boulden
Editor, Outsider Club

After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing. Check out his editor's page here.

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