Lunch with the FT

November 15, 2013 12:42 pm

Lunch with the FT: Henry Blodget

A decade after being banned from Wall Street, the business website chief on redemption, regrets and market madness
Henry Blodget©James Ferguson

According to family legend, Henry Blodget’s great-grandfather was on the trans-Siberian railway when he lost his fortune in the Wall Street crash of 1929. He died not long after, during the Great Depression, his Fifth Avenue apartment valued at zero because the entire building had been declared bankrupt. Today, Blodget estimates, the prime Manhattan property would be worth $20m.

“There was this constant echo of bubbles and disaster,” the financial analyst-turned-digital news chief recalls of growing up as the oldest of three children of an Upper East Side banker father. Bubbles and disasters also echo through our lunch at Maialino, a restaurant not far from the offices of Business Insider, the finance and technology news website of which Blodget, 47, is co-founder, editor and chief executive.

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Lunch with the FT

It was a bubble that first brought Blodget fame, and a bust that brought disaster. In 1998, as an internet analyst for CIBC Oppenheimer, he made the outlandish call that Amazon’s share price would rise from $242 to $400 within 12 months. He was wrong only in the timing: the stock passed his target in three weeks.

Blodget, soon hired by Merrill Lynch, came to personify Wall Street’s dotcom-era bullishness and, when the good times came to a jarring end, he became a focus for those seeking someone to blame. Eliot Spitzer, then New York’s attorney-general, targeted him in an investigation into conflicts of interest and, in 2003, Blodget was barred from Wall Street as part of a settlement of civil fraud allegations brought by the Securities and Exchange Commission.

When we meet it is a decade on from Blodget’s personal crash and five years from the fall of Lehman Brothers. Investment bankers have been jostling to bring Twitter to market and Spitzer, disgraced in a 2008 prostitution scandal, has lost his bid to be elected New York City’s comptroller.

I ask if Blodget, who still wears the white shirt and suit trousers of Wall Street, voted for Spitzer. “I did,” he says, dipping some bread in a dish of olive oil: “One of the people on my team thought I was insane [but] I never felt like it was personal against me.” Blodget and Spitzer followed the same route back to public view after they fell, both writing for Slate. Blodget went on to another form of financial analysis with Business Insider, launched in 2007.

It stood out from the business blog crowd for its relentless zeal for breaking news, provocative analysis and magpie-like repackaging of other publications’ catchiest stories – all under headlines that would make a tabloid editor proud.

The site now employs 50-60 journalists and attracts around 10m unique users a month, roughly double last year’s figure, according to ComScore. Blodget says this year’s revenues (from advertising and conferences) will be close to $20m. Its latest funding round, which raised $5m in April, was led by none other than Jeff Bezos, Amazon’s founder and new owner of the Washington Post.

. . .

I am intrigued by the idea of journalism as redemption but we need to order. Maialino has a Roman trattoria theme. I skip the “crispy suckling pig face” and opt for tripe. Blodget wants a salad and the waiter offers kale with grana cheese and breadcrumbs. For our main courses, he chooses chicken leg with sage and prosciutto and I go for lamb sausage. The waiter asks if we want wine. Blodget looks horrified but I order a glass of Timorasso.

I have seen what it is like to be utterly savaged in the press. I have also seen what it is like to be lionised

“What is tripe exactly?” he asks. Stomach lining, I reply. He sounds reassured. “Oh, that’s fine. That’s tame. It’s not like sweetbreads.”

I ask about Wall Street in the dotcom bubble. “It was crazed,” he says animatedly, recalling constant flights around the world (he met his wife at a San Francisco baggage carousel in 1997). Mindful of his family history, he asked senior colleagues whether they thought the dotcom boom might be a repeat of the 1920s. “Almost to a person they would say, ‘No, this is different,’ ” he recalls. “The only way you can get a bubble of that magnitude,” he says now, “is that it lasts so long that everybody who has their antennae tuned to the possibility of disaster [has been] fired by the time it all works out because they have been wrong for years.”

Our appetisers arrive. The tripe is cut in soft ribbons and dressed with a bright tomato sauce. It tastes like a spicy, slightly chewy pasta. Blodget says he knew it was a bubble but thought he could get out in time. “Classic mistake.” What drew regulators’ attention was not market mistiming, however, but the allegation that his team misled unsophisticated investors to support investment bankers who were earning large fees by bringing untested companies to market.

Between January 1999 and December 2001, the SEC found, Blodget rated no stocks lower than a “hold” recommendation. But, in private emails, he and his colleagues disdainfully dismissed some of those stocks as “a piece of junk” or worse. It was market madness that contributed to the emails’ “bantering” tone, says Blodget, who did not admit the SEC’s allegations but paid $4m (“a very painful number”) to settle the charges.

But, I ask, do you agree that you misled investors? “I mean, first of all, I feel like an absolute moron for missing the top [of the market],” he replies, in a self-deprecating diversion from the direct answer I was hoping for. From 1998, he continues, he had been telling investors most dotcom companies would fail but, if they picked the best stocks for a diversified portfolio, they could ride the “profound” internet growth trend.

But, I persist, trying to get him back on track, was it all the bubble mentality or was there something more cavalier? “That was the end of an 18-year bull market. The mantra since 1987 had been ‘buy dips’, and that had been a brilliant strategy,” he answers. A waiter tries to take our plates but Blodget has not finished.

“So to answer your question,” he continues, still not quite answering my question, “it was a searing lesson to me in missing that call ... The regulatory stuff I think is a mix.” While Blodget’s settlement restricted what he can say about the period, he defends himself by arguing that it was no secret that analysts and bankers worked hand in hand.

. . .

The waiter asks how we are doing but Blodget is still eating, a lick of sandy hair flopping over his forehead as he gets more exercised. “With Spitzer, it was basically, ‘Let’s describe the analyst job that everybody knows about ... and make it sound unethical and terrible,’ ” he argues. The “piece of junk” email was “a classic example of how something without context can look terrible”.

Our main courses are hovering and Blodget gives up on his salad. Moving on, I dip a slice of sausage in a smear of salsa verde as Blodget attacks his chicken with the fork in his right hand and the knife in his left.

“What I have said to Eliot Spitzer – who is now almost a friend, oddly – is that he was right about the industry but he was wrong about me,” he says. Blodget met his former nemesis after offering to write about Martha Stewart’s 2004 securities fraud case for Slate. Blodget’s courtroom coverage for Slate came with a disarming disclaimer that “given the current state of my reputation ... readers may want to take everything I say with a grain of salt”.

Blodget had been a journalist after studying history at Yale. His jobs included proofreading at Harper’s magazine and working on CNN’s business desk. At Business Insider his writing has ranged from detailed analysis of the finances of the New York Times and Goldman Sachs’ role in Facebook’s IPO to impassioned pieces about bluff erosion on Nantucket and “The Awful Restaurant Practice Of Having Bathroom Attendants Who Watch You Pee”.

Keith McNally, owner of Balthazar, the restaurant that inspired that last post, responded by saying he would reassign the attendants but added that getting advice from Blodget was “a bit like receiving a lesson in business ethics from Bernie Madoff”.

Blodget has, however, won over enough of Wall Street that his critics these days are more likely to complain that he is dumbing down journalism or cheerleading tech chief executives than to question his ethics or his ability to cover business objectively.

His formula for Business Insider is a mix of instant comment on Fed announcements and iPhone launches with click-chasing lists and, increasingly, in-depth reporting. A slideshow of “the sexiest CEOs alive” earned 2m views but 20,000-word profiles of Yahoo’s Marissa Mayer and AOL’s Tim Armstrong got as many clicks between them. This blend of lowbrow and highbrow is not unlike a newspaper, Blodget argues, where “the dining and motoring sections pay for the Iraq bureau”. But, with headlines such as “11 Elon Musk quotes that show his genius”, is it prone to hype? “I have seen what it is like to be utterly savaged in the press. I have also seen what it is like to be absurdly lionised,” he says. What he tells his team is that “somebody doing something stupid doesn’t make them an idiot”.

In September, Blodget’s chief technology officer left abruptly after a blog pointed out his controversial tweets about feminism, poverty and race. What happened? “I’m going to stick with our statement,” he replies, pointing to a boiler-plate line about the comments not reflecting Business Insider’s values. Had you not noticed his tweets months earlier, I ask? “We acted very quickly and decisively,” he says. I suggest that he would not let his own reporters settle for such a non-answer: “You FT guys are incredibly excellent and trained interviewers… You’re hired!” he laughs uncomfortably as our plates are cleared.

In the angst-ridden news industry, Blodget stands out as a raging bull. The world is better informed than ever, he argues, and journalism is blessed by great new storytelling formats. He is confident digital economics can sustain serious reporting. While he predicts digital news networks will have “hundreds of millions” of dollars in revenues in 10 to 20 years, for now Business Insider’s sales are a fraction of those at, for example, the Washington Post.

The site has been profitable but has chosen to invest, he says, adding that the level of industry competition means “there desperately needs to be a lot more consolidation” between digital news brands. His rant-inducing Balthazar breakfast was with Nick Denton, founder of the Gawker blog network. Gawker wrote up the incident under the headline “Whining millionaire successfully gets bathroom attendants fired” but Blodget later told a reporter they had discussed some sort of merger or partnership. Denton has cooled the speculation, saying Gawker had better uses for its cash pile.

. . .

Finishing his main course, he tells me Business Insider would be complementary even to more established business news brands. “We would actually be perfect for a merger. You can take that back [to the FT],” he argues in full pitch mode.

I have been eyeing the dessert counter, and order roasted peaches. Blodget picks a raspberry sorbet with berries.

Blodget seems happy to stoke sale speculation so I ask the man who promoted scores of IPOs when he might bring Business Insider to market. “We’re not,” he says firmly. “I wouldn’t wish being a public company on anybody.” He feels “incredibly sorry” for Facebook, whose shares’ initial post-IPO nosedive he attributes to the fact its growth was slowing when it went public, though he is optimistic about Twitter. (Before the IPO, he estimated its value at $30 a share. After shares closed at $45 on the first day, he said he wouldn’t be rushing to short its stock or to buy at that level.)

Business Insider has provided its founder with a new platform for such opinions, and a fresh start. “The one thing I was absolutely committed to when the whole Spitzer allegations broke was that I just could not go out that way. I felt so personally disgraced,” he says. “I felt like ... I’m going to spend every day from now on gradually earning back what I lost ... and, hopefully, I’m getting there.” He says he has no wish to work again on Wall Street but wants to investigate the possibility of getting the lifetime ban overturned anyway.

Our tea and coffee arrive, with five small cookies each. I ask what he thinks Bezos’s acquisition of the Washington Post will herald. The Amazon founder’s record of investing in long-term growth rather than chasing short-term profits should be “an inspiration to every CEO”, he replies, “because right now the biggest problem with the world economy is this tug of war between capital and labour. Capital is winning big time.”

As long as I am in charge, the goal will never be to maximise profit in some nearterm period

Wall Street’s focus on quarterly results has led to record corporate profit margins but a slump in wages as a percentage of gross domestic product, Blodget argues. As an analyst, I ask, didn’t you contribute to that short-termism? “I certainly was not as passionate about that then as I am now,” he concedes. He worries, however, that relentless cost-cutting will end badly. “The endgame of that is that the economy is going to collapse because ... there will be nobody to sell anything to any more,” he says, both hands chopping the table.

“The moment you even breathe a word of this now, people start ... saying, ‘socialist, communist’ [but] what I’m talking about is the owners of corporations simply recognising that their wealth is created by the people who work on their teams, and sharing more of that wealth with them.”

So, I say, if your staff came asking for a pay rise with that argument, would you buy it? “We are spending every dollar we have and then some to compensate our team, who are knocking themselves out for us,” he says. “At some point we will have to turn a reasonable profit. Reasonable. But as long as I am in charge, the goal will never be to maximise profit in some near-term period.”

Back at the turn of the century, shortly before the Nasdaq collapsed, Blodget put $700,000 into tech stocks. He lost most of it and now has most of his money in index funds, except for some “legacy holdings”. Apple is one, and he has owned Amazon shares since 1998 (“I got lucky on that one”).

He asks for our cookies to be boxed up to take back to his team, while telling me that the market looks “very overvalued” and another “violent” correction is possible. He has not, however, pulled his money out. “I can’t time the market. I gave up on that a long time ago.”

Andrew Edgecliffe-Johnson is the FT’s US news editor

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Maialino

2 Lexington Avenue, New York, NY 10010

Kale salad followed by chicken leg (prix fixe) $35.00

Tripe followed by lamb sausages (prix fixe) $35.00

Raspberry sorbet $6.00

Roasted peaches $10.00

Glass of Timorasso $17.00

Tea $5.00

Macchiato $4.00

Total (incl service and tax) $141.94

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