In May, legendary investor Carl Icahn disclosed details of his valuation of Apple (NASDAQ:AAPL) in which he pegged the iPhone maker's intrinsic value at $240 per share. However, last week, Icahn told CNBC that "we haven't basically changed the position [in the third quarter]," during which period the shares got 12% cheaper. As a value investor, shouldn't he be adding to this "no-brainer" (his own words) when the stock is a fifty-cent dollar?

Carl Icahn on money by Insider Monkey, republished under CC BY-ND 2.0.

Part of the explanation is the size of Icahn's position going into the third quarter. The numbers are staggering: By my estimate, as of the end of June, he had already spent $3.68 billion to acquire 52.8 million shares (average cost: $69.73 per share).

A $2 billion profit!
On Sep. 30, those shares were worth $5.82 billion, for a cool $2.14 billion gain and an internal rate of return just shy of thirty percent annually.

That's a huge position, by any standard, equivalent to more than a quarter of Icahn's net worth.

(Perhaps you're not familiar with Carl Icahn. Even if you are, you may not be aware of the magnitude of his success as an investor. Bloomberg ranks him at #33 on its list of the world's billionaires, with a net worth of $21 billion. Among those who accumulated their wealth through investments, only three people rank ahead of him: Warren Buffett, George Soros, and Buffett's sometimes-partner Jorge Paulo Lemann.)

Apple and the broad market: undervalued vs. overvalued
But the size of his position isn't the whole story. He isn't buying more shares due to another factor that is extraneous to Apple, and if he didn't have this other concern, he'd certainly be buying more shares:

"I also will tell you that I'm very seriously considering buying a lot more of it [...]. We're thinking about the market. I would be buying a hell of – we own 55 million shares or something like that – I would be buying much more if I weren't really concerned about the market, so that's the only reason I don't. I think, long-term, this is one of the great situations."

Concerned about the market? That's right: Last week, Icahn released a somber 15-minute video titled 'Danger Ahead' in which he warns that asset markets are dangerously overheated, a situation he thinks could well end in tears.

How is that relevant to a long-term investor who likes Apple's prospects and has investable cash on hand?

"Ridiculously priced"
It isn't – Icahn himself said "Apple, even in a bear market – it may get hurt, it may go down – but I think Apple is still ridiculously priced." But that statement highlights another requirement to invest in Apple (or, indeed, any stock), an emotional constraint, not a financial one:

"If you're willing to take some risks – I would only take money, invest in the market, especially today, you really can afford to lose another thirty, forty percent of it and grit your teeth and then live with it and not have to be forced out in a margin call or get nervous. You have to have that temperament."

Icahn says is he is comfortable bearing short-term losses (and his results confirm this): "I'm inured to it. I could lose a great deal of money for a week or a month and it doesn't bother me at all."

No need for Apple to be a fifty-cent dollar
Is Apple worth $240 per share, as he has asserted? I don't think so, but I do think it's undervalued and, furthermore, it's very difficult to quantify the upside associated with Apple entering the auto business (the evidence it will do so is accumulating.)

It's not every day you get to pick up shares of a company of Apple's caliber at a discount to their fair value (there aren't many of those companies around, to begin with!). Carl Icahn has called attention to his purchases of Apple shares several times over the past twenty-six months, where announcements coincided with attractive entry points for the stock. I expect last week's call that Apple remains undervalued will prove to be no different; we'll know better in five or ten years' time.