Financial Markets (2008)

ECON 252 (2008) - Lecture 15 - Guest Lecture by Carl Icahn

Chapter 1. Carl Icahn: A Self-Introduction [00:00:00]

Professor Robert Shiller: If we may begin. Today we have a very special lecture. I am very pleased to introduce Carl Icahn as our lecturer. Mr. Icahn has a career that is really relevant to some of the topics we have talked about in this course. One theme that we've talked about in this course is corporate democracy. We've talked about a book written by Berle and Means [Adolf A. Berle and Gardiner C. Means, Modern Corporation and Private Property, New York: Commerce Clearing House, 1932.] who said that shareholders are so dispersed that they have really no control over a company and boards of directors are self-perpetuating. Well Carl Icahn has made a career of really opposing that tendency in American business of self-perpetuating boards. Carl Icahn graduated from Princeton University, pre-med in 1957. In 1968, he founded Icahn and Company. This company, Icahn and Company, has taken substantial shareholder positions in a number of major corporations, including: RJR Nabisco, TWA, Texaco, Phillips Petroleum, Time Warner, Motorola. And when Icahn and Company takes a position in a company it then becomes active in the management of this company and in changing the way they do business. And they have done this with enormous success.

So, Carl, I'm very pleased that you could come and do this today.

Mr. Carl Icahn: Good to see you, Bob.

Professor Robert Shiller: It would be really nice if you can give some clues to our students here, who many of them are themselves launching out on careers, of how you got started on this and what your philosophy is and what you would recommend to them.

Mr. Carl Icahn: The career you're asking about — I went down to Wall Street back in — way back in the '60s and I thought I was really — I had gone to Princeton, a really good school. I had gotten in there from a tough high school; I was the first to go from my high school. Nobody believed I could do it — they never took an Ivy League — the Ivy League never took anybody from this school I went to. But anyway, I went; got in and left there and I thought I was a real smart guy. Cut it short — went down to Wall Street and worked with Jack Dreyfus and then I was playing the market in 1961. That shows how old I am. And in a bull market you make a great deal of money by doing leverage. It's a little bit like today with all the leverage that we had and now might be coming to fruition.

I was borrowing money and bought all these convertibles and I thought I was a genius and Jack Dreyfus said, you're going to lose all your money. I had made a few bucks playing poker and that's how I started with about eight, ten thousand dollars and I made all this money by borrowing at 90%. I would go out and I was making a lot more in two weeks than my father made in two years. My father said, well you know, put the money away. I said, no Dad, I'm really going to make a fortune here. So, I went out — I remember once — and bought a Galaxy convertible. It was a beautiful car. I had a beautiful girlfriend; she was a model — it was just pretty nice.

What happened? The crash came in 1962. I was wiped out in one day; I didn't even have the poker winnings left. I tell you, I can't recall if the car left first or the girl left first, but it was pretty close — maybe the same day actually. After that, I learned you have to learn something and I became an expert in options. After that, I built a following and built a big following and a big commission base by just learning one area very well. Probably, I knew that area better than almost anyone on Wall Street. Not to sound too presumptuous, but very few people knew it, so it doesn't mean very much. But in any event, I built up a big following and in 1968 bought a seat on the stock exchange with the help of a one of my uncles. By that time, I had saved a pretty big amount of money for those days.

Then, I got into arbitrage — but not merger, bona fide. That's something else you could — you can still do it today, but it's much tougher with all these computers. So, I don't do it because I don't understand the computers; they're beyond me, so I don't work with them too well. I'm being a little facetious, but not too facetious. You could buy different convertible bonds and short the stocks against them. You had no risk, but you could make a lot of money and eventually we did real well with that.

What I do today still is pretty much the same idea. You buy stocks in a company that is cheap and you look at the asset value of the companies that you buy the stocks in and it becomes a little more complex. Basically, you look for the reason that they're really cheap and the major reason is often — and usually — very poor management. In a sense, it's like an arbitrage. You go in; you buy a lot of stock in a company; and you then try to make changes at the company. Today, if you read the newspapers tomorrow, you'll read — we're trying to do the same thing at Motorola and if you bother to read The Wall Street Journal tomorrow — or maybe The Times, I don't know — you'll see a little bit of what we're trying to do there. We're trying to get them to change the structure of the company. We think the board is a very poor board there and we're trying to change what happens.

Chapter 2. An Anti-Darwinian Corporate America [00:06:10]

The thing about corporate America — few people that go to college, like where you are now, and most people in America don't realize how poorly most of our companies are run in this country, with many exceptions. They're really very poor and when you get inside the company you realize this. The real reason is there's no accountability; there's no corporate democracy and I've been saying that, prophesying it, writing about it. The reason that we can make so much money when we go into one of these is — I'm not even a manager; I never took a course in management and I wouldn't profess to really know much but I don't micromanage — I put in a very good manager. They cut the heck out of our costs, but they change the structure of the companies. This is the problem in America today, in my opinion — that we are basically undermanaged. We can't compete because the best and the brightest don't get to be at the top of the corporate ladder.

I have a sort of a metaphor that's a little facetious, but not completely, about it. I call it anti-Darwinian; it's anti-Darwinian in America's corporations. That means, a guy goes to college and this is the guy that gets to be the CEO and, yet, he's in college and he's the kind of guy that was the president of the fraternity. Now, all these presidents of fraternities aren't bad guys, but basically the normal guy that I remember at college was — he's always there at the fraternity or the eating club. He's always there to be there. If you have a bad day, you walk over to the club and you're feeling bad — your girlfriend left you; you did bad on a test score or whatever — and you go over there; he's always there.

He buys you a drink and you sit around with him; he commiserates with you; you play a little pool or whatever and he tells you whatever it is. Yeah, my girl left me; yeah well, they're all no good — usual conversation back and forth. What would happen would be — you'd like the guy. You can't help but like him; you used to wonder a little bit, when the hell did he do any work? But, he was always there for you. He never made many waves; he never said anything too obtrusive; or, he never showed too much intelligence. But, he was a good guy. He goes — that same guy goes out into corporate America and politically he's astute. He knows how to get along with people and he never really rocks the boat. He never comes up with any great idea; he's not a threat to his superior and, as a result, he moves up the ladder because, really, in corporate America, there's really very little accountability. What happens in corporate America — he moves up that ladder.

There's a good show, "How to Succeed in Business," that was out many years ago that sort of sums it up. If you say — if a genius has an idea in corporate America — the genius has an idea; the next idea is, they give him an idea to resign. So, he moves along the ladder and he gets up slowly up to the top. Now he has two attributes: he's likeable, he's politically astute and he's a survivor — he's not really a threat and he gets to the top. These are the attributes of today's CEOs for the most part, with exceptions. He doesn't ruffle feathers; he doesn't get the board upset; and as he moves up the ladder, he finally gets to be number two to the CEO. Now, the CEO has the same attributes — where he doesn't want to be threatened and he's a survivor. The CEO will never let anybody be number two who's smarter than he is. So, by definition, the assistant to the CEO is a little dumber than the CEO; now this guy now is the assistant. The board likes him; the CEO eventually retires and they make this guy the CEO — the fraternity president we're talking about. Now he's now the head guy — the CEO — and he'll bring in a number two guy that's a little dumber than he is because he doesn't want to be threatened. So, by definition, we'll be run by morons pretty soon.

We're not too far from that right now — from that point in our economic history. This is a problem that we have. Now, we've been able to do okay in this country and pretty well even with the fact that we're badly managed because over the last twenty years we've had a pretty free ride. We've gotten from all over the world — the whole global economy has been booming and we've been able to get cheap goods and these cheap goods kept us from having inflation. Very simply put — if you don't have inflation, it's easy for the Federal Reserve to keep pumping money into an economy; so, money kept flowing. You were sort of in a punchbowl. The country was at a party and we kept drinking from this punchbowl, enjoying ourselves, and the rest of the world would take our dollars. They would take our dollars because everybody thought, oh, America — it's great.

It's a little bit like you came from some town and there's one family in the town that doesn't do much work — sort of propagates. We'll all lie around the pool; have fun; party; eat a lot; have the big cars and have the good times. The rest of the town works hard on the farms or wherever they are and they keep bringing stuff to this rich family's estate. They give them whatever they want; they give them food; they give them clothing, but, you know, anything. The rich family just gives them IOUs and they keep taking the IOUs, so the rich family doesn't do anything — just lie around the pool and have fun and travel or whatever — and everybody's working.

Well, one day a few of these people are going to say, I don't want your IOUs anymore. What the hell am I going to take your IOUs? They're worthless because you lost all your money. Well, our country — think about it — is a bit in that situation. We've been giving our IOUs, which are dollar bills, to the rest of the world and taking their cheap goods. However, we're reaching a point now where the dollar — as you've been reading if you're attuned to it — the dollar's devaluating as we speak. We've got, I believe, a real problem on our hands in the economy.

The other thing we've done in the last five, ten years — and I know Bob Shiller's been talking to you about this — is housing. Housing is like tulip bulbs, almost. There was a big crisis in Holland in the 1600s on tulip bulbs — but I like reading about this crisis, because everybody bought tulip bulbs — thought it was the greatest until one guy looked and says, hey what the hell am I doing with this tulip bulb? And all of a sudden he had a crisis. Well, I'm not going to get into the depth of it, but our banks, because they wanted to make more and more money — and our investment bank, Wall Street — kept issuing different paper against mortgages so it made it simple to give a mortgage. These mortgages were given out to people that couldn't afford them and today you have what you call subprime mortgages — subprime paper. They issued against this paper stuff called mortgage-backed security. They securitized them and these things are all floating around now. There's maybe about three trillion dollars worth of stuff backed by mortgages out there.

Well, as you've seen, these have produced crisis of confidence and I don't think we've heard the last of it. The government sort of bailed out the situation by having JP Morgan take over Bear Stearns and I'm not going to get into the depth of it here, but it's a real fascinating story. In any event, we have problems in our economy and I think that we are going to see more of these problems in the next year or so. I think Bob can talk to you more about what's going to happen in housing, but a lot of it depends on that because if you can't have your housing prices go back up, a lot of people that bought them can't afford to pay the mortgages; nor will they want to. If they see the homes go down in value, they're going to just say — they're going to walk away. Now, if that happens, these homes are the collateral to the banks for all these mortgages and we're going to have — and probably do have already — a recession. That recession could become a lot more acute because today — I'm not going — I'm going to open it for questions soon — but today, there are six trillion dollars more of debt in this economy than I believe it can sustain because everyone — the middle class went on a borrowing binge over the last few years to buy these homes and to buy for any — with the credit cards and go buy anything they felt like buying. As a result, I'm not certain that they can pay that six trillion back. But, even if they can, they're not going to be willing to go buy more things. As you have that happening and you have inflation, the earnings of our corporations will go down. They estimate — I've talked to one or two very good economists in the last few weeks. They estimate that earnings of the S&P averages will go down about 20% in the next year. With that, the stock market is at, I would say, a precipice; you don't know which way it's going to go.

With all that said, you have to worry about all these things and I know you're studying this and you're learning about it. But, I think there will be great opportunities ahead for you and the ability for Wall Street to again securitize and buy a lot of these companies. If you have capital, you'll be able to buy these bonds. So, I do tell you that I think Wall Street is certainly a good area if you're thinking about a career. I still think it's a very good area, but I'm not going to tell you if you love to write or you love to play the cello to go and come to Wall Street. I do think it's a good career. I think it makes sense. I think that corporate America is learning from this and I think we're going to make our top management much more accountable in the years ahead.

There are tremendous abuses in corporate America today. Your CEO makes 400 times what the average worker makes and he's just simply not worth it. The reason you have this is that you have no accountability — that shareholders simply don't vote; they don't care about voting and there's a whole reason for that. You have an interesting relation with the owners of a lot of our stocks, which are the mutual funds and institutions that don't like to vote against these managers. However, someone like me and a few other activists do get a vote now and we do get a proxy fight going and we'll see, for instance, what happens to Motorola — that's what we're doing as we speak. I think that that will give an opportunity for young people like yourselves to get into corporations in our country.

While I think Princeton is the — might be a little better than Yale — I think Yale is a good school. I think that all of you are really probably the top, top, top of the student bodies in this country. Going ahead in your lives, I think that the corporations might be a good place to look or Wall Street for that matter because I think there's going to be a need for bright people. I think that you'll be able to be rewarded for it in the fact that there will be accountability again. Well, when I say "again" — there never really was accountability. So, I think there will be a true corporate democracy that will have to evolve so that we can become competitive with the rest of the world again. With that, I'll just basically — I think, Bob, just leave it open to questions and see if anybody has any.

Chapter 3. Questions: Personal Motivation and Inspiration [00:19:56]

Student: Mr. Icahn, you mentioned in 1962 you kind of blew up. After that entire debacle ensued, how did you regain your confidence? I guess, most importantly, how did you regain — or gain — the confidence of future investors?

Mr. Carl Icahn: Well, you asked a few questions. I mean, how did you gain confidence? I don't think I ever lost confidence in my ability to understand what was going on. I just learned that you have to really work at something and understand it and little by little — I mean, it was sort of interesting. I'm a sort of an obsessive guy and I work real hard all my life. I really get into something and I really delve into it and when I came up with what is a letter there at that time to people who sold these options — they were wealthy people across the country. It was sort of interesting — it's not around today — but they would sell options, calls on a stock. So, if you — if you're someone who traded the market, you'd like to buy an option on XYZ stock and wealthier people across the country would sell these options — would you give you right. Today, you have the CBOE; it's much more computerized.

But then, you would do what these — over-the-counter transactions. I was really one of the first to come in and say to people across the country, rather than do it with your broker who doesn't really understand this business, rather than sell it, sell it with me. I was a broker — just sell with me. Little by little, people actually answered my ad. I would put out an ad and say, get to see what the true prices are and what the real value should be for that option if you're selling through Merrill Lynch or you're selling with H, in those days — or whoever. I'd get letters from all over the country and literally I'd stay down on Wall Street until midnight calling people in California that would write in for this letter and we built up a big following because I was really — the rich can be — The only real honest guy in that business because everybody — I mean, not that they were dishonest, but you know the brokers didn't care. They'd get business back from who you sell it to.

I'm not saying that we did anything criminal or anything, but nobody really cared to get the right price for these people. So, by getting them the right price, they would stay with me as customers for years and years. So, we built it up and built it up and then I got one assistant; then I got another assistant and I kept moving up the ladder. It took a lot of hard work and perseverance and that's really where it went to. From there, it was arbitrage and now what I do. What was the second part of your question — I forgot?

Student: How did you regain confidence in your investors and people who gave money to you? Did you feel confident that you could get them to give you money after you had kind of washed yourself out?

Mr. Carl Icahn: I told you that we had that letter and that we were able to, after the letter, have the — I don't know if you heard me because I was sort of telling you that we put the letter out and we just gave them a good thing.

Student: Thank you.

Mr. Carl Icahn: Okay, all right.

Student: Hi, Mr. Icahn. How are you?

Mr. Carl Icahn: Hi.

Student: I'm Mark Kotter. How are you? Actually, I have three questions for you, but I'll start with the first one. I watched the 60 Minutes special on you recently and they tried to portray that there had been kind of an evolution in your career. They showed some bad press from the '80s with the TWA deal and then they showed some good press recently with the so-called Icahn Uplift and some of the political — I mean, the corporate activism that you've been engaged in. In that interview, you sort of insisted that you hadn't changed at all and I was just curious if you had changed and you didn't want to tell the reporter or if the media was giving you a bad rap?

Mr. Carl Icahn: I can't hear the whole question, but I haven't changed. I haven't changed at all. They call me a raider; they call you an activist. I mean, I haven't really — I think what we do though is very helpful to all investors. I mean, I think that's the point because when we get into the companies, the stock goes up for everybody; so, it really works out, but I've never changed what I do.

Student: Okay. Actually I have two more questions. The second question was about China and there was a special report in the recent Economist talking about the ravenous appetite that China has for natural resources right now. I was curious what you thought the effect that would have on global financial markets and your investing strategy?

Mr. Carl Icahn: Well, yeah. I mean, China is a great buyer of all of these commodities. The trouble with this country is we don't have a lot of that. We don't have a lot of natural resources to sell them. Your question really — what this country does? We make software; we make technology; we're innovative, but so are they. So, what we really have to do is become a lot more productive and we have to make our companies a lot more competitive. Today, I feel we're losing that edge. While China is going to continue to buy things, it doesn't mean they're going to buy them from us necessarily even though the dollar has gone down a great deal.

Student: Thank you. This is my last question. New York Times columnist, David Brooks, gave a great commencement speech last year at Wake Forest and he said he was a journalist who led a boring life and observed interesting lives — people like you. I was curious — he mentioned that a lot of the great people that he'd met — successful people — had lots of pictures of dead people on the walls — meaning that they had conversations. He said nearly famous people had pictures of themselves on the wall, truly famous people had pictures of dead people on the walls. I was curious if you had any pictures of great historical figures or what historical figures inspired you or influenced you on a regular basis?

Mr. Carl Icahn: That's a good question. Well, one of the greatest philosophers I ever read was Aristotle and I think his Nicomachean Ethics, if you read it, makes a great deal of sense — where you live with this golden mean but at the end use your intellect. I mean, now you have to really read him in depth to understand what he's saying. Then there's a poem by Rudyard Kipling I like, If; I'm sure a lot of you read it. If you could keep your head about you when all you are losing theirs. I read that every once in a while and the code that we follow that's really important to be able to meet the triumph and disaster and not let either of those imposters — treat those imposters just the same — meaning that if you're doing great, don't think you're a genius. And if you're doing badly, don't think the world comes to an end. If you work hard — maybe it sounds trite — but if you work hard and don't let your ego get ahead of you, as so many people do when you're doing well, and don't let yourself become too despondent if you're not doing well for a while, then have faith in your own ability and really work hard at whatever you do; give it everything you have. If you can do all that, I think the chances are that you're going to hit a lucky streak because luck comes and goes. If you have your health, luck comes and goes and realize when you're doing really well that it's not just you. Then, when you're not, it's not just you either. So, I think that kind of thing. You should read that poem.

Student: I like the line where it's, if you can be in a crowd but not lose the common touch — that's my favorite line.

Mr. Carl Icahn: That's right.

Student: That's a good one.

Mr. Carl Icahn: That's right. If you can walk in a crowd and still not lose the — if you can walk with kings and not lose the common touch. You know it. I've never walked with kings though, so I don't have to worry about losing the common touch because I'm not walking with kings.

Chapter 4. Questions: Activist Investing in the Real World [00:29:21]

Student: Hi, Mr. Icahn. I have two questions. My first question is, to what extent can investors like us adopt your strategy of buying cheap and expecting the value of a company to go up?

Mr. Carl Icahn: Well, I mean, that — I don't consider that being — that's barely a strategy. I think that when you buy something, the best is — that sounds simple. It's not simple to buy, generally, when everybody thinks you're wrong. The more people that think you're wrong, the better you're going to do in the long run. That's how it works because at the end of the day, when everybody is against you, everybody sort of stumbles. So, it's very hard to do it psychologically, but at certain times you're in between and you're not going to get the benefit of that. It's the old gray but dark philosophy that you should just look at value. But, one of the things is when people have given up on a company — that's the perfect time. But, it doesn't always work because you have to be damn sure you're right. I mean, sometimes everybody is right but generally it's not true that they're right. Generally, if you look at the total outlook on a company and if everybody sort of is down on it, that's one to look at.

Student: Thank you. My second question is: what, in your opinion these days, do CEOs need to do to be successful? Do they need more education, experience, industry knowledge?

Mr. Carl Icahn: I think the answer is that most of them have to leave the company. To be a little fairer about it, the CEOs of a lot of companies probably could do a good job, but they're more into building up. It's like the royal "we." It's more like the imperial CEO and they build up a huge amount of people around them and they very rarely get to the nub of the problem. Some of them are probably okay; they're probably good guys, but there's no accountability. It's like you go to school and if you never have tests and nobody ever bothers you. That's what really happens until they really hit the bad times. I guess you could say I'm a bad time; when I come in, they don't like it too much.

I think that the problem we have today is — very simplistically — you don't have true elections, so you can't — it's very hard to get rid of the CEO even though you theoretically have the vote; it's very hard to use the vote. I mean, can you imagine in a political race that the senator is fighting — the incumbent is fighting — for an election and he can take all the money out of Washington. He can take it out of the Treasury of the United States and the other guy can't. It's completely set up and rigged for the CEO because anybody coming in to fight them — they sue them to begin with. They sue you to — they don't sue me anymore too much because they know I'm not going away, but they sue — they do not let you have — I could go into all the different shark repellents, we call them, but it's very, very difficult to beat off these guys. I think that's going to change in the next four or five years. That's what I was telling you. And I think we're going to have a better corporate democracy, which gives people with real talent who are really — with a work ethic — a chance to really make it.

Student: Mr. Icahn, as you've touched upon, we may be in the worst credit bubble in history, currently. If you are right, the upcoming debt deflation will be long and painful. How would you recommend that investors protect their wealth during this period to take advantage of upcoming investment opportunities?

Mr. Carl Icahn: Well, it's hard to recommend how to invest at this time without knowing how much capital you have. I would be — again, I've been here at a different arena. We invest and we look for these opportunities now, but I feel that you have to be certainly very careful right now. You have to be very careful in your investments even though the markets been going up the last few days. I would be careful and not have all your money invested in stocks. I would look at a lot of these distressed debt — some of the distressed debt that has gone down. I don't know if you understand that, but some of the debt that — even bank debt, which is the highest level, I think, has become very cheap. So, that kind of stuff is something to look at, but I'd be very careful in buying equities. I mean, you certainly could make a fortune buying them. I mean, I'm certainly not telling you it's not going to work, but I think it's all risk-reward. I would be looking at this — at the debt areas.

Student: You mentioned about the U.S. dollar falling in value recently. What kind of foreign currency vehicles or trading would you recommend to kind of hedge a bet against a dollar, assuming that it continues to fall?

Mr. Carl Icahn: Yeah, I don't know much about currencies and I really don't get into something I don't know something about — or generally don't. I don't play the currency market, unfortunately, because currency has gone down so much. I don't necessarily think that you should do that now because it could theoretically turn in this country. But, I'm only saying that it has become one of the manifestations of our problem — the currency of the dollar has fallen. You know you can't be that [inaudible] about everything in Asia either. Everybody loves Asia now and loves China and loves all these countries, but you're going to have some global problems too. So, I don't know that it's time to rush out of the dollar.

Student: Hi, Mr. Icahn. One major criticism that one CEO against corporate activist that they think activists don't think long-term interest of the corporation; they just want to get money and get out. How do you answer to that?

Mr. Carl Icahn: I would just say that the facts don't bear that out as far as I'm concerned. I mean, if you — I own quite a few companies. Any company we got control of I put literally hundreds of millions of dollars into them. I mean, I bought a company in 1985 — a rail car company — we put hundreds of millions; we still have the fleet. I bought casinos and energy companies and over the years kept them; sold them now, but that's after ten years. So, any company that we've been able to get control of I actually kept. Because getting control is a great thing. If you really believe that management's not doing well, you can go and clean them up and put a good guy in, So, we — I know they criticize you like that, but that's part of the propaganda machine; but it's just not the facts.

Student: A related question is that, what do you do when your activist spirit is not appreciated, as in the case of Motorola when you asked for a seat on the board but just get declined? What's your next step?

Mr. Carl Icahn: Alright, you have patience and now it's a year later and we'll see what happens now. Motorola is a good example of what I'm talking about. People don't like it; they don't like the cell phone business, but I really think that that business, if you look at Motorola and study it, you're buying that whole business for nothing. It's not reflected in the stock price, but they have to do it. As I said publicly, take that business out of Motorola; spin it off and give it to the shareholders. I think, then, you've got a real good value. What I'm saying is, nobody likes it now, but hopefully I'm correct on that. I really think by being an activist and putting pressure on that board that has done nothing, really — I think eventually that will happen, hopefully.

Professor Robert Shiller: Maybe we'll have one or two more questions. Two more questions and then we'll wrap up.

Mr. Carl Icahn: Okay.

Chapter 5. Questions: Sensing Potential in Poorly Managed Companies [00:38:53]

Student: Mr. Icahn, why does the United States have bad corporate governance and which countries have better models?

Mr. Carl Icahn: Alright, we have bad corporate governance; it's evolved into this. I don't think that Washington understands how bad it is; nobody's really focused on it. The different states — the way we're structured — the different states want corporations to register and therefore the rules are such that they protect the corporation with the poison pills. I can't get into all these different things — stagnant boards, poison pills — and I think if you just change some of that we could be like, for instance, England is much better. Canada is much better — where you can — without getting into details; I'll simplify this — where you can't have fewer elections. The United States, because of the way that it's structured in the states — the division between the federal and the state governments — they have not been able to really curtail some of the abuses. But I think it will occur sooner or later, especially if you have a bad recession.

Student: Hi, Mr. Icahn. You mentioned that you believe that many companies are poorly managed. Obviously you don't invest in every company, so I was wondering what factors you look for in identifying companies that you want to invest in and that you think are especially poorly managed?

Mr. Carl Icahn: Okay, we look at a lot of the — we look at a lot of companies. Obviously, I have a whole group of people here that do that and I have a bunch of lawyers that look at all the covenants in these companies and their bylaws and their charters. But really, some of them become very apparent and when you look at them you can understand. And you have to see that in relation to the economy. Some of these companies — it's just apparent that the value of these companies would be much better if they were better run or they just simply did certain things like breaking — like Motorola, as an example, if they just broke it up. In some biotech companies that we're involved now, there's a need for them by the big Pharma. The big Pharma hasn't really done research for years but then he married in the biotech area and therefore biotech companies aren't that well run, but they spent a great deal in research for the large molecule drugs.

And so, therefore, you look at these and some of them become quite apparent after you're doing them for years and years. I've done them a lot of — it's almost — after you do all the work, it's almost instinct. The risk could be moderate. Just ask — it's like asking some real great tennis player, well why did you move here instead of there? Or a football player — when you're running down the field, why did you go to this way instead of that way when you're running down the field? I don't think he could tell you; it's just sort of instinct why you do it. That's after a lot of work on it.

Professor Robert Shiller: Well I think this has been a very enlightening talk and Carl, I want to thank you very much.

Mr. Carl Icahn: Thank you for having me.

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