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I am legitimately embarrassed for being excited about this, but I can't help it. Henry Blodget, the disgraced former Merrill Lynch internet analyst has a new book out entitled The Wall Street Self-Defense Manual: A Consumer's Guide to Intelligent Investing. In spite of the scathing review in today's New York Times, I couldn't help rushing to Amazon.com to order it.
For those of you who don't remember Henry Blodget, he first gained notoriety in December of 1998 for his prediction that Amazon.com would go to 400 dollars, which it did, rising 128% in less than a month. In 2003, the SEC charged him with securities fraud, basically alleging that he acted as a shill for Merrill's investment banking arm. He sent emails to colleagues describing stocks he covered in vastly different terms than his glowing reports recommending them. On June 3, 2000, he wrote that ``ATHM (At Home Excite) is such a piece of crap!'' That same day, he issued a buy rating on the stock. On December 4th of the same year, he wrote about Lifeminders Inc. (LFMN): ``I can't believe what a POS thing is.'' Seventeen days later, Blodget reiterated his ``accumulate/buy'' rating on the stock. He settled the charges without admitting guilt, paid a hefty fine (though he still kept millions in what most consider to be ill-gotten gains), and was banned from the securities industry for life.
A few years ago, Blodget was interviewed for Maggie Mahar's amazing book Bull!: A History of the Boom and Bust 1982-2004. Referring to the internet stock bubble, he said that "Have you ever read John Kenneth Galbraith's book about the history of bubbles?...Well I just finished it. It's amazing how Galbraith spells it all out--what happens in every bubble every time. He's almost yawning as he lays it out: First a new thing comes along and captures the public's imagination. Then everyone starts making money. After that, some person of average intelligence is held up as a genius...Hi, the was me."
I found Blodget's self-effacing commentary and insightful realization of his role in the bubble interesting. However New York Times writer Harry Hurt III isn't impressed with his new book:
MAYBE I'm brain-damaged, but all that just rubs me the wrong way. I believe that everyone has a right to free speech regardless of past transgressions. By the same token, everyone has the right to evaluate speech and speakers, as well as the right to vote with their pocketbooks. The advice that Mr. Blodget now offers may be sound, but it's also rather mundane. Would a similar book written by Joe Blow attract similar attention?
Which brings us back to the larger question that began our inquiry: whether to invest or not to invest in financial misconduct. I don't buy That Henry's rehabilitation, and I don't recommend that you buy his book. In keeping with publishing-industry custom, I received a free review copy.
But I hereby state in public that I've already given my review copy the same kind of treatment that the author used to give certain Internet stocks in private - I've trashed it.
Still, I'm buying a copy, mainly because I love a redemption story, even if it's somewhat disingenuous, as Blodget's may appear to be. For a really good redemption story, check out ex-con Barry Minkow's book Cleaning Up: One Man's Redemptive Journey Through the Seductive World of Corporate Crime.
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Reader Comments (Page 1 of 1)
2-19-2007 @ 12:10PM
Rick Hanley said...
If Blodget has truly come clean and provides good information to investors, then let him be, I say. We need the balance from wherever we can get it.
Google is at 15 times sales! How is that likely to work out. You can bet lessons have not been learned widely and that there are individuals with their entire non-retirement savings of $8,000 wrapped up in 20 shares of Google. When the fed says it is easier and more sensible to clean up bubbles than to try to stop them in advance, I believe them. A quandary: With financial engineering being what it is today, the next pending mess may not be an easy clean up.
If sell-side analysts don't leave incrimanating emails 'lying around,' there seems to be no way to take them to task. Tony Wible at Citi just reiterated his strong buy on Netflix. Netflix is facing a cascade of competitive pressures. The studios, albeit it with great caution, are pushing to do downloads (with P2P, they save 90% of costs). In-store download and burn is coming this spring - the availability of catalog films, a forte of Netflix will be dramatically increased. HBO is bringing its service to the airlines. The gaming thing is about to boom again and dominate the eheballs of a major demographic of traditional movie watchers. The list goes on and on.
Catch a small sample of what the Netflix managers say and do:
Dramatic Interview Quotes from Netflix Management
June 7, 2006
The New York Times
What Netflix Could Teach Hollywood
http://www.nytimes.com/2006/06/07/technology/07leonhardt.html?ei=5090&en=f5560e6361bf4018&ex=1307332800&pagewanted=all
Reed Hastings, CEO
"Americans' tastes are really broad," says Reed Hastings, Netflix's chief executive. So, while the studios spend their energy promoting bland blockbusters aimed at everyone, Netflix has been catering to what people really want — and helping to keep Hollywood profitable in the process. [30% of Netflix rentals are those 'bland blockbusters']
February 1, 2007
digitalmediawire
The DMW Interview with Ted Sarandos
http://www.dmwmedia.com/news/2007/02/01/the-dmw-interview-with-ted-sarandos-netflix-chief-content-officer
Ted Sarandos, Chief Content Officer
“At the end of the day, Blockbuster doesn’t have the ability to change the existing merchandising policies that create demand. They’re purely in the demand fulfillment business, and we’re squarely in the demand creation business.”
February 1, 2007
digitalmediawire
The DMW Interview with Ted Sarandos
Ted Sarandos, Chief Content Officer
“What Netflix has done an amazing job of is personalized merchandizing, based on billions of movie ratings and incredibly sophisticated algorithms that put the perfect movies in front of every individual subscriber.”
February 15, 2007
indieWIRE
World Cinema Web
http://www.indiewire.com/movies/2007/02/world_cinema_we.html
Steve Swasey, Director of Corporate Communications
"We are a bastion of distribution for smaller independent films that wouldn't see the light of day otherwise."
February 15, 2007
indieWIRE
World Cinema Web
Steve Swasey, Director of Corporate Communications
The mainstream audience still wants to watch the films on DVD, Swasey contends, "which will be the preferred delivery method for at least 5-7 years."
[Who thinks mail-order physical DVD will own rental until 2012 to 2014?]
Fast Company.com
High-tech Achiever: Netflix
At Netflix, the secret sauce is software.
From: Issue 99 | October 2005 | Page 48 | By: Jena McGregor
… Warehouse workers--those closest to the customer--get free Netflix subscriptions and DVD players…
Corporate employees stay happy--and therefore eager to solve tough engineering problems to improve the user experience--with perks like no hard limits on vacation time and free trips to Sundance each January. …
If you look carefully, at this stock that currently carries a P/E of 29, you will note that later, when the stock is at $10 a share, it should not have been a surprise to anyone who took a truly critical look at it.
2-19-2007 @ 12:44PM
Rick Hanley said...
I need to add something about my first sentence in my comment above:
"If Blodget has truly come clean and provides good information to investors, then let him be, I say."
I was one of the people that were burned by the stratosphere sell-siders who were the purveyers of untethered-from-reality stock prices. I'm talking about people like Henry, Mary Meeker, etc.
I was still learning the nuances of the market and of options. I had not heard that the markets and individula stocks could stay irrational far longer that I could stay liquid.
In the late 90's, after a couple of years of buying put options on a retailer (Amazon) that was selling at some crazy height (10 times sales), I had to drop the pursuit. I spent a lot of money being right, all except the timing thing.
A side note about market psychology: When I would say to actuaries where I worked that the stock price was all wrong on Amazon, they would say to me, "I like Amazon, it's a great company." If these geniuses don't get it, what do you suppose the average individual investor is doing today? A large percentage are not looking at a good retirement. Ironically, if it is bad enough, even the guys that engineered the mess will pay.
3-09-2007 @ 5:13AM
sandeep said...
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3-09-2007 @ 6:51AM
sandeep said...
f sell-side analysts don't leave incrimanating emails 'lying around,' there seems to be no way to take them to task. Tony Wible at Citi just reiterated his strong buy on Netflix. Netflix is facing a cascade of competitive pressures. The studios, albeit it with great caution, are pushing to do downloads (with P2P, they save 90% of costs). In-store download and burn is coming this spring - the availability of catalog films, a forte of Netflix will be dramatically increased. HBO is bringing its service to the airlines. The gaming thing is about to boom again and dominate the eheballs of a major demographic of traditional movie watchers. The list goes on and on.
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