Q&A: Henry Blodget on redemption, Eliot Spitzer, and taking criticism
The one-time Wall Street darling is trying journalism after being barred from the securities industry. He says blogging isn't always easy, but at least he laughs more.
Words like "scumbag," "fraud," and "crook" once trailed after Henry Blodget's name anytime it came up in Silicon Valley. The budding Web-publishing mogul, who was once a superstar tech analyst before being accused of securities fraud, has spent the past five years trying to recover his credibility. Last week, his efforts may have suffered a setback.
This interview began in August, when I sent Blodget the questions. He e-mailed his answers on Wednesday, two days before Silicon Alley Insider, the technology news blog Blodget co-founded, wrote itself into a controversy. A member of the public posted a false report to CNN's user-generated news site, iReport, that claimed Apple CEO Steve Jobs had suffered a heart attack. SAI followed up with a story that clearly informed readers the rumor was unverified. Nonetheless, SAI appears to have helped fuel the investor panic that led to a 9 percent drop in Apple's stock.
Blodget and I corresponded again on Friday and he said if ever in a similar situation he would play it the same way. He wrote: "We described exactly what the report was, said we didn't know whether it was true or not, and said we were investigating."
Blodget isn't the kind to shy away from the spotlight, regardless of how hot it may be. He became famous a decade ago after he accurately predicted Amazon.com's stock price would double to $400. At Merrill Lynch, Blodget was a cheerleader for tech stocks in the late 1990s. After the dot-com bubble burst, Eliot Spitzer, the former New York State Attorney General, himself since disgraced, accused Blodget of fraud and he was banished from the securities industry for life. Since then, Blodget has launched a journalism career and helped turn SAI into one of the fastest growing tech-news blogs. The insights from this former Wall Street insider have been praised by publications, such as BusinessWeek.
Why journalism? After what you've been through, why didn't you turn your back on Wall Street, on technology, on predicting anything other than the weather?
Well, you've ruled out a lot of professions there--and, thankfully, I only got kicked out of one. What journalists do has a lot in common with what analysts do. After spending a decade learning some lessons the hard way, I didn't want to just throw all that experience in the trash.
I liked your story on The New York Times, when you sort of offered to buy the paper's digital unit. What's the best piece of journalism you've produced?
Yes, we'd love to buy NYT Digital. We're sorry we haven't heard back from Janet (Robinson, CEO of The Times) and Arthur (Sulzberger Jr., publisher) yet. The best thing I've written--or at least the longest--is probably a book called The Wall Street Self-Defense Manual: A Consumer's Guide to Intelligent Investing. An alternate title could have been, "I made all the dumb-ass mistakes, so now you don't have to."
You've hired two old-media types in Michael Learmonth (Variety) and Peter Kafka (Forbes). Doesn't that differ from what Michael Arrington and Om Malik are doing by hiring mostly young writers? How do you intend to grow Silicon Alley Insider?
Yes, Michael and Peter are pros. TechCrunch has a couple of pros, too, and Om's been a pro forever. This business is getting professionalized in a hurry, and strong reporting, writing, and editing skills are going to be increasingly important. (Sadly, Peter and Mike have both moved on, but we've hired new pros).
I think the growth opportunities for Silicon Alley Insider, TechCrunch, et. al., are similar to those of CNN in cable's early days, or broadcast news in the early years of TV and radio. This is a new form of news production, and you can't just jam a square old-media peg in a round hole. As an industry, we're still at the beginning of figuring out what is possible, and our hope is that will drive a lot of opportunity down the road.
Give me an example of how journalism can be rewarding.
It's great fun. I was complaining the other day about the ridiculous hours, and my wife said any job in which she can hear me laughing downstairs at 5 a.m. is fine with her.
What led you to put the $400 price on Amazon.com? Did you really see it coming or were you out to make a splashy prediction?
Are you serious? That was a decade ago. But, yes, I thought it was going to $400 ($67 in the current share-split). You humiliate yourself enough in that business without making predictions you don't actually believe. Clients do prefer clear, bold calls to mush-mouthed equivocation, but I wouldn't have made the call if hadn't thought the stock would get there.
Some people strongly believe that your punishment didn't go far
enough. What does it mean when someone bans you from your chosen profession for life?
If that's the case, I'm sorry to hear it. The allegations were devastating to me. Over the course of the late 1990s, I had the privilege of earning the respect and trust of millions of people, and a few minutes after Spitzer's press conference everyone decided I was a scumbag. Fortunately, in the years since, a lot of folks have been willing to give me a chance to earn back that trust, and I will forever be grateful for that.
What do you say to investors who took your advice and lost?
The same thing I said at the time: I'm very sorry I missed the market top. I did get the big picture right--that the late-'90s boom was a bubble--and I'm glad I recommended that even aggressive investors only put a fraction of their portfolios in the Internet sector. But I got caught in the typical bubble trap, which was not wanting to miss further upside, and I'll always regret that. (For what it's worth, I also followed my own advice--and lost a boatload of money.)
What's most misunderstood about your career as an analyst?
I think the most important thing to understand about stock analysts--still true today--is that they're not investment advisers. Analysts actually play a limited role in the overall investment process, which starts with asset allocation. Analysts come into play at the end of this process (and then only if the recommended portfolio includes an allocation to the analyst's sector). Internet stocks were great additions to aggressive portfolios for most of the 1990s, but they were never appropriate for conservative investors.
Eliot Spitzer. What do you think of how he handled your case? What is your opinion of what happened to him?
I actually have a lot of respect for Eliot Spitzer. I disagreed with many of his conclusions and tactics, but I admire much of what he was trying to do. I was as shocked as everyone else by his fall.
Much of the coverage about you in the past several years has been positive. What do you say to pundits who argue that you're trying to redeem yourself?
If the coverage really has been positive, I'm grateful. It was horrible there for a while. With regard to trying to redeem myself: Hell yes. As I said, I'm grateful to everyone who gives me the chance.
TechCrunch's Arrington criticized you for predicting Google would hit $2,000. Is it hard to make big predictions when critics are always going to make comparisons to your analyst days and accuse you of being dishonest?
Any time you stick your neck out, someone's going to hit you in the head with a two-by-four. But if there's one thing I've learned over the last couple of decades it's that if someone's not shrieking, you haven't said anything interesting.
Google $2,000 was a 10-year scenario. Last fall, when I wrote that post, Google was trading around $700 and $2,000 in 10 years would have produced a 6 percent annual return. Part of my point was that anyone who didn't believe the stock was going to $2,000 should dump it immediately. For what it's worth, I stand by that target. I just hope the stock drops to, say, $300 in the meantime, so the return justifies the risk.
Make another bold prediction. What company or sector has you most excited?
The Dow's going below 10,000, probably way below. But if you want to invest intelligently, ignore that prediction (not because it's wrong--because it's a prediction). Just keep making regular contributions to a globally diversified portfolio of low-cost index funds, and, in the long run, you'll come out OK.
Finally, what's the smartest thing you've done in the past year?
Not buying newspaper stocks.