Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,136.27 +20.10 +0.65%
Hang Seng 26,613.24 +109.31 +0.41%
Dow Jones 27,024.80 +237.44 +0.89%
Shanghai Composite 2,983.06 -7.98 -0.27%
Icahn Sold Netflix Amidst Extremely Overheated Markets
Aspire, Thought Leaders | 29 June 2015
By: Vance Wong
Articles (74) Profile

In Carl Icahn’s latest tweets, he announced his grand sell-off of his entire Netflix position, and reiterated once again, that Apple holds a lot of potential. His subsequent tweets about how the economy is severely “overheated” caused panic among investors.

Does billionaire activist investor Carl Icahn really think that another financial crisis is imminent? He feels that the general market is walking into a trap, just like in 2007 before the financial crisis.

‘Artificial’ Economic Growth Is Dangerous

With the economy finally picking up a little, many investors are beginning to be optimistic about the market’s outlook. However, Icahn thinks that a sizeable amount of this growth is ‘artificial’ because of the low interest rates since post-crisis in 2008.

Icahn explains that this is largely due to the fact that many businesses had access to “cheap money”. This allowed many business owners to fund their operations and also improve the overall employment rates in the US. Icahn feels that artificial bubbles were formed as a result.

Furthermore, when the Federal Reserve decides to raise interest rates, many businesses that depend heavily on cheap money will start to panic. Many experts expect this to happen at least once, if not twice, later in 2015.

Apple Trumps Over Netflix For Icahn?

Source: S&P Capital IQ

The 79-year-old activist investor announced earlier on 24 June (US timezone) that Icahn Enterprises had sold their entire position in Netflix. This obviously sent the market into a panic, and caused many investors to sell their shares too.

Netflix’s share price dipped from its peak of US$681.19 to US$664.24 at the time of writing, a decline of more than 2.5 percent in a few days. Icahn sold Netflix because he believes that Apple is currently offering the same kind of potential that Netflix had several years ago.

He also said that even if the general market is in a turmoil, he would still put his stakes on Apple. In the unlikely event that Apple’s share prices were to dip, Icahn would even increase his position.

Icahn likes Apple so much because he believes that the iPhone creator’s balance sheet is too strong to disappoint. Furthermore, Apple’s products, especially the iPhone 6, had been bringing in solid revenue and profits. However, to some experts, Icahn seems to be hedging his position.

Should Investors Buy Icahn’s Story

Should investors buy what Icahn’s warning about a market correction in the US and possibly even hitting local grounds? We might not need to believe the activist investor, but it is clear that many companies are selling at ridiculous Price-Earnings (P/E) ratios.

As such, investors should be wary and not be overzealous in buying or increasing their positions for the mid-term; at least until rate hikes are definite and valuations calm down.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.

Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.