How Icahn missed out on box office billions
When you think of Hollywood blockbusters like "The Hunger Games" and "The Hobbit," actress Jennifer Lawrence might come to mind... actor Orlando Bloom, too, perhaps. But billioniare investor Carl Icahn? Probably not. Yet some sophisticated hedge fund investors like Icahn have bet on tinseltown and seen billions in (paper) gains thanks to the success of movies like the aforementioned. (In this case, Icahn actually lost out on $2 billion in profits due to his timing.) That's according to Greg Zuckerman and Ben Fritz's reporting in the Wall Street Journal.
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Zuckerman explains in the accompanying video that hedge funds have really flocked to the stocks of the movie studios MGM (MGMB, traded over-the-counter) and Lionsgate (LGF), buying up lots of the debt when both studios were having serious difficulties a few years ago. "A lot of hedge funds are turnaround specialists; they seized on that," he says. These investors rode the studios' recoveries as shares of each have more than tripled since 2012, Zuckerman reports, and "they've made literally billions of dollars because both of those studios have done really quite well the last few years."
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Zuckerman says while the rest of Hollywood has focused on TV lately because it's faster-growing and dependable, these two studios have done especially well with bets on various movies like "The Hunger Games," "The Hobbit" and "22 Jump Street."
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And for Carl Icahn, in "one of those rare instances where he's dropped the ball," he got in early and made some money on his studio investments ($600 million), but sold stakes well before shares reached their heights, according to Zuckerman.
While movie studios may be "tempting" for individual investors, Zuckerman warns that the industry can be very "hot and cold." You could have a hit like "The Hunger Games," but a sequel may not do so well.
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