What if Buffett and Icahn retire in 2013?

Here are 4 investors who could potentially take up the mantle.

By TheStreet Staff Dec 17, 2012 3:37PM

Thestreet logoImage, Stock market report copyright CorbisBy Antoine Gara


While neither Berkshire Hathaway's (BRK.A) Warren Buffett nor Carl Icahn, who runs Icahn Enterprises (IEP), have shown any signs of slowing, the thought is in the back of investors' minds and it begs the question: Who will be the next generation of Wall Street leaders.


For decades, Buffett and Icahn have been a sort of yin and yang when it comes to investing styles, and their outspoken ways have been a compass for many investors.


Buffett, who champions stock investments with a holding period of "forever," is often cited as an ambassador of long-term investing and his annual letter is required reading for many.


In contrast, Icahn has never been known as a patient type. While some follow Buffett's holdings for potential stocks to pay for a child's college education, investors watch Icahn's activity for corporate break-ups, board ousters and takeovers that can create instant shareholder value.


During the dot-com bubble, Buffett avoided high-flying tech stocks in favor of tried and true names like Coca-Cola (KO) -- to the scorn and then admiration of others. In the financial crisis, Buffett stepped up as the most credible advocate of equities through the stock market sell-off and eventual recovery. Multi-billion dollar investments in Goldman Sachs (GS) and General Electric (GE) were seen as an example of savvy investing and public service, and put Buffett's imprimatur on both companies at a time of critical need.


Icahn, who takes a more standoffish stance with companies he invests in, nevertheless draws a similar amount of respect among investors. First called a corporate raider in the takeover of now-defunct airline TWA, Icahn has gone on to become known as the scourge of corporate cronyism, shareholder destruction and C-Suite mismanagement.


In the wake of Time Warner (TWX) and AOL's (AOL) disastrous merger, Icahn drove the breakup of the dysfunctional media monolith and his actions can be seen as driving each company's newfound success -- as well as that of Time Warner Cable (TWC).


Icahn drove the split up of Motorola (MOT) and his prying on intellectual property assets were seen as a key driver of Motorola Mobility's eventual acquisition by Google (GOOG), just as handset struggles hit the likes of Research In Motion (RIMM) and Nokia (NOK). In 2012, Icahn's been a key to the realignment of Chesapeake Energy's (CHK) board.


Still, while Buffett and Icahn may have an enduring impact on the investing world and some of America's top companies, neither man will stay in the game forever. In 2012, Buffett and Icahn showed their biggest signs yet of transition.


Buffett formally said his son Howard would be Berkshire's value guardian and he indicated that the investing conglomerate has found a replacement for the legendary value investor.


On a far more serious note, Buffett said in April he has a treatable form of prostate cancer, while reiterating his love of his job. More recently, Buffett increased the price at which he's willing to buy Berkshire shares back, according to TheStreet, an option the "Oracle" had been hesitant to use given his track record of outperforming the S&P 500 ($INX).


In 2011, Icahn formally closed his hedge fund Icahn Capital to outside money and in 2012, he set aside $3 billion for his son Brett Icahn and a portfolio manager David Schechter. Still, recent moves like Chesapeake Energy and a large stake in Netflix (NFLX) show he's willing to make big new investments.


The question of what would happen were Buffett and Icahn to retire raises crucial questions. Who will be the next generation of investing leaders and how will their approaches differ from the value and activist ones championed by Buffett and Icahn respectively?


The answers aren't easy. In recent years, legendary investors like Stanley Druckenmiller of Duquesne Management, George Soros of Soros Management and others have all closed shop to outside investors.


Meanwhile, once high-flying hedge funders like Philip Falcone of Harbinger Capital Partners and John Paulson of Paulson & Co. have fallen on hard times.


Below are four recommendations for a next generation of investors in case Buffett and Icahn go from investing green to the golf course.


Daniel Loeb of Third Point Capital Management

Thanks to Loeb, Yahoo (YHOO) is on its fourth -- and most highly-regarded chief executive -- in just over a year's time. Talk about channeling your inner Carl Icahn.


Were Icahn to retire, it appears Loeb of Third Point Capital would be most suited to keep open an activist investing playbook full of C-Suite firings.


At Loeb's insistence, Yahoo entered 2012 with a fully reconstituted board and the company's co-founder Jerry Yang all but disappeared from the company. Like Icahn, Loeb used the pen to assert much of his power, outlining in multiple screeds why the company's board of directors and management needed to go, while highlighting the value of minority-owned assets abroad.


Loeb even played detective in rooting out inconsistencies in former chief executive Scott Thompson's resume, which eventually got the ex-CEO fired. Loeb's penmanship also sketched much-hyped deals, such as a proposal to sell most of Yahoo's stake in Chinese e-commerge giant Alibaba for $7.1 billion. 


Now with Marissa Mayer at the helm, there are signs Yahoo! may be on the verge of reinventing itself into a more full-service media company, after it was trounced in Internet search by Google (GOOG).


Under Loeb, Third Point Capital has also made savvy bets on the likes of insurer AIG (AIG), a split of Kraft Foods (KFT) and Murphy Oil (MUR), which also looks to be headed down a split-off route.


If Icahn were to retire, Loeb might very well be the most vocal investor to carry the activist torch. Another firm to watch is the smaller, but fast moving Jeffrey Smith-run Starboard Value, which agitated for a shakeup at AOL in 2012 with mixed results.


William Ackman of Pershing Square Capital Management

Most of the press surrounding Pershing Square Capital Management's William Ackman centers on the hedge funder's muddled turnaround bet on struggling retailer J.C. Penney (JCP). However, quietly, 2012 turned out to be a banner year for its other investments, such as Canadian Pacific (CP) and General Growth Properties (GGP).


Meanwhile, after pushing the likes of Wendy's (WEN) and McDonalds (MCD) to embrace franchising and a much less risky balance sheet, the sometimes activist investor teamed up on a takeover and IPO of Burger King Worldwide (BKW), which has performed strongly.


While, Ackman's moves mirror the hostile, restructuring and M&A plays that Carl Icahn has been known to make, Ackman nevertheless has a long-term value investing style that resembles Buffett's. Still, Ackman has been known to criticize the takeover premium that Buffett often pays to add a company to Berkshire Hathaway's portfolio.


If Buffett or Icahn were to retire, Ackman could be a helpful proxy on the investing zeitgeist. General Growth, Ackman's best investment in recent years, was a distressed real estate deal made at the nadir of the financial crisis. Burger King and J.C. Penney, meanwhile, were a mix of retail turnaround investments, with a side of real estate as well.


With a recent hostile push at Procter & Gamble (PG), Ackman has set his sights on a Buffett-like consumer products giant and winning board seats on Canadian Pacific -- one of the largest corporations in Canada -- signals the hedge funder's clout.


Look to Ackman to wield an array of investing strategies similar to Carl Icahn, while displaying a Buffett-like ability to find a good bargain in any market.


Saudi Prince Alwaleed bin Talal, Kingdom Holding Co.

If we confined a search for possible successors just to the U.S., we would miss some of the most obvious long-term trends in the investing world -- namely the emergence of international investing magnates.


No one represents a new foreign investing class in the U.S. more than Saudi Prince Alwaleed bin Talal. The Prince made a crucial if not controversial investment in Citigroup (C) at the outset of the financial crisis, and has been a long-time champion of once beaten down tech giants spanning from Apple (AAPL) to Priceline.com (PCLN).


What Alwaleed may represent is a new class of sovereign wealth investors with a proclivity to make all types of investments, be they a quick trade, equity infusions into a struggling financial institution or venture capital investing in the likes of Twitter.


Meanwhile, the Prince -- who sometimes can be seen on CNBC or Bloomberg -- also may be the most deep-pocketed trader in the world. While Alwaleed's Citigroup trade displayed the investors importance, it nevertheless hasn't compared with Buffett-bank plays like Goldman Sachs and Bank of America.


A long-held position in Saks (SKS) has recovered well, after nearly getting wiped out at the height of the financial crisis.


By making venture bets in emerging tech behemoths like Twitter, Alwaleed also straddles an important intersection between Silicon Valley and Wall Street.


David Einhorn of Greenlight Capital Management

In the boom, bust and then boom of the past 10 years, arguably no investor has gained more notoriety and praise than David Einhorn of Greenlight Capital Management.


Einhorn's displayed skill distinct from Buffett and Icahn in being able to understand the fragility of the U.S. economy and certain business models to identify stocks to short. Meanwhile, as a long investor, Einhorn has also done good work spotting easy bargains, such as Apple headed into 2012.


The famed short seller and emerging value investor, nevertheless, appears to have a Buffett- and Icahn-like ability to learn from investing failures.


Einhorn emerged in the financial crisis as an authority on the fragility of the banking system, only after losing his shirt on an investment in failed subprime lender New Century Financial. While the trade was steeped in red ink, it laid the foundation of Einhorn's most famous trade -- a short of investment bank Lehman Brothers prior to its collapse.


Since then, Einhorn has seen mixed success in weeding out alleged accounting irregularities at the likes of Green Mountain Coffee Roasters (GMCR), and he's been able to spot overvalued stocks, such as Chipotle Mexican Grill (CMG), bucking Wall Street trends.


Increasingly, Einhorn has served as the authority on rooting out value traps, frauds and stock bargains. In a market where most stocks have recovered near post-crisis highs, Einhorn's skills are especially crucial.


There's strong indication that Einhorn has carved out a long and short investing style as distinct as Buffett's value approach or Icahn's activism.


More from TheStreet.com

Dec 18, 2012 10:00AM
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