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Business Insider CEO Henry Blodget: Masters in Business (Audio) · Masters in Business

0:03
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. Hi,
0:08
Speaker 1: I'm Barry Ridholts. Welcome to the podcast today. My guest
0:12
Speaker 1: is a really a fascinating tale of success and then
0:18
Speaker 1: UH collapse and then redemption. And it's really an interesting
0:23
Speaker 1: UH tale of of second chapters. And in America. Henry Blodgett,
0:28
Speaker 1: who rose to fame in the nineteen nineties as a
0:32
Speaker 1: stock analyst at Oppenheimer. He very famously UH put a
0:37
Speaker 1: four hundred dollar price tag on Amazon when it was
0:40
Speaker 1: about two forty dollars. It was his one year out
0:44
Speaker 1: price target. It hit that target in three weeks and
0:47
Speaker 1: actually in a month had gone to five hundred dollars UM.
0:50
Speaker 1: Henry covered a lot of other companies he was at
0:52
Speaker 1: Oppenheimer at the time. He ended up going to Merrill
0:56
Speaker 1: Lynch and really becoming one of the top ranked institutional
1:01
Speaker 1: analysts that covered UH technology and dot com stocks. When
1:07
Speaker 1: everything collapsed, Henry got into quite a bit of trouble
1:11
Speaker 1: with the SEC and with Elliot Spitzer. UH. The Spitzer
1:15
Speaker 1: case actually ended up going nowhere, but the SEC find
1:19
Speaker 1: him about four million dollars and banned him from the
1:21
Speaker 1: industry for life. That was the one question I meant
1:25
Speaker 1: to ask and didn't get to ask him, which was, hey,
1:27
Speaker 1: would you ever like to apply to get readmitted? But
1:31
Speaker 1: I remember a period of time when you couldn't mention
1:34
Speaker 1: Henry's name without people really getting terribly, terribly upset. Oh
1:39
Speaker 1: he's such a bad guys. This is that. I always
1:41
Speaker 1: thought he was a a very thoughtful, very sincere guy,
1:46
Speaker 1: and I think he was. There's an argument to be
1:50
Speaker 1: made that he was made a scapegoat as much as anything. Look,
1:54
Speaker 1: you could have found any analysts who had put really
1:58
Speaker 1: high price targets on just about all of those crazy
2:01
Speaker 1: dot com stocks, all of which collapsed. Henry had been
2:06
Speaker 1: foolish enough to actually tell his honest feelings about what
2:10
Speaker 1: he thought about this stuff and emails to his colleagues
2:12
Speaker 1: at Mary Lynch. I always interpreted what he had written as, Hey,
2:17
Speaker 1: we're really way too highly ranking these things. Why don't
2:22
Speaker 1: we down grad? Why don't we bring these things down? Um?
2:25
Speaker 1: And you know, some of these stuff is just junk.
2:27
Speaker 1: And I believe the phrase was pos You can figure
2:30
Speaker 1: out what that stands for, and it's not the point
2:32
Speaker 1: of sales. Um. And so when Spitzer began his investigation,
2:38
Speaker 1: you know blog, it really got dragged from the mud,
2:41
Speaker 1: really got um shredded, and I think he suffered quite
2:46
Speaker 1: quite a bit through that. And and and there are people
2:50
Speaker 1: who said, hey, too bad, the guy was making twelve
2:52
Speaker 1: million dollars a year for putting high price tags on
2:56
Speaker 1: stuff that turned out to be worthless. But I think
2:58
Speaker 1: it's a lot more nuanced than that, and there's a
3:00
Speaker 1: lot more subtlety there. I've always found him to be
3:03
Speaker 1: very intelligent, very thoughtful. I think he brings a very
3:07
Speaker 1: very interesting approach uh to looking at the world of
3:11
Speaker 1: equities and looking at technology and following as I called
3:16
Speaker 1: it in his wandering in the desert. For a few
3:18
Speaker 1: years he launched a new media company which is essentially
3:22
Speaker 1: a modern digital media firm, called Business Insider, and it
3:27
Speaker 1: has since become one of the most successful digital media
3:31
Speaker 1: outfits there is. H So, I found this conversation to
3:34
Speaker 1: be really quite fascinating. Um, he's really a colorful and
3:38
Speaker 1: and more less colorful and less controversial than I think
3:43
Speaker 1: his reputation has created. But I found this to be
3:46
Speaker 1: an absolutely fascinating conversation, and I hope you will also so,
3:50
Speaker 1: with no further ado, here's my conversation with editor in
3:53
Speaker 1: chief and co founder of Business Insider Henry Blodgett. This
4:01
Speaker 1: is Masters in Business with Barry Ridholds on Bloomberg Radio.
4:06
Speaker 1: My guest today is the famous and infamous Henry Blodgett,
4:11
Speaker 1: who I've actually known. You will save that story for
4:13
Speaker 1: a long time. I want to say back till nine
4:17
Speaker 1: A long, a long time for those of you who
4:19
Speaker 1: may not know who. Henry is. A b A in
4:23
Speaker 1: history at yale H lived in San Francisco, taught English
4:27
Speaker 1: and Japan and then ultimately became a nationally ranked tennis
4:31
Speaker 1: player before moving into finance, where he became famous for
4:36
Speaker 1: call on Amazon, which we'll get into a lot of
4:39
Speaker 1: details later on. The Institutional Investor all star team of
4:44
Speaker 1: analysts at one point making at least a corner of
4:47
Speaker 1: Wikipedia twelve million dollars a year, and Merrill lynch Um, Henry,
4:51
Speaker 1: welcome to Bloomberg. It's great to be here. And before
4:54
Speaker 1: you get an army of fact checkers. The nationally ranked
4:57
Speaker 1: tennis player part that's actually now, but it's only technically
5:01
Speaker 1: because I am a partner with my dad and the
5:04
Speaker 1: father and son Ultra Senior system. He is great. I
5:09
Speaker 1: am the weak link on the team. But he has
5:11
Speaker 1: gotten us nationally ranked. But I was not nationally ranked
5:14
Speaker 1: as a singles player. So you come with the kind
5:17
Speaker 1: of unusual background. You really began in journalism. How did
5:21
Speaker 1: you find your way to Wall Street? I found my
5:23
Speaker 1: way to Wall Street after being a journalist writing a book.
5:26
Speaker 1: As you say, I spent a year in Japan. I
5:28
Speaker 1: worked for about three years as a freelance journalist and
5:30
Speaker 1: wrote a book. Ultimately ended up at CNN Business News.
5:34
Speaker 1: My father had been in finance, I'd grown up around it.
5:37
Speaker 1: I had this weird liberal arts education that basically taught
5:41
Speaker 1: me that capitalism was bad and one should go anywhere
5:44
Speaker 1: but to Wall Street and finance and so forth. By
5:47
Speaker 1: my late twenties, I could no longer deny that I
5:50
Speaker 1: actually found it fascinating. Started to interview, went through lots
5:53
Speaker 1: of different interviews, and then ultimately joined an investment banking
5:55
Speaker 1: training program and credential securities. So what was that training program?
5:59
Speaker 1: Like a good introduction to a liberal arts specialist in
6:03
Speaker 1: accounting and finance. And then a couple of years of
6:05
Speaker 1: working in different groups. I did private equity and then
6:08
Speaker 1: ultimately was in the technology group, and that was when
6:10
Speaker 1: the Internet was really getting started, and so I did
6:13
Speaker 1: several transactions in that and then ultimately found my way
6:16
Speaker 1: to research. One of the advantages of a new industry
6:19
Speaker 1: coming along like that is it creates thirty empty chairs
6:22
Speaker 1: effectively in Wall Street research departments. And I got an
6:25
Speaker 1: Internet browser before everybody else, so I knew a little
6:28
Speaker 1: bit more about it. It was a great fit with
6:30
Speaker 1: the journalists background combined with the finance background, so it
6:33
Speaker 1: was ultimately a great place for me to be on
6:35
Speaker 1: on Wall Street. So then you move over to Oppenheimer,
6:39
Speaker 1: and that's really where you began to garner some public recognition.
6:44
Speaker 1: What what was the analysts group like in uh in Oppenheimer?
6:47
Speaker 1: Back then, Oppenheim was a great small firm. There were
6:50
Speaker 1: lots of tech boutiques in those days, and Oppenheimer was
6:53
Speaker 1: one of those. So there lots of action, lots of
6:56
Speaker 1: responsibility for people like me who didn't have decades of experience,
7:01
Speaker 1: but they would give you a chance. And so I
7:03
Speaker 1: was handed a bunch of internet companies, which I've followed
7:06
Speaker 1: at Prudential as a banker actually as well, So I
7:08
Speaker 1: knew the industry a little bit, but was able to
7:11
Speaker 1: roll out coverage on a O L, Yahoo, Amazon, some
7:14
Speaker 1: of the other early Internet pioneers new sector, huge excitement.
7:19
Speaker 1: As you remember, the stocks were doing incredibly well in
7:21
Speaker 1: late nineties. Year after year after year, people predicted, oh,
7:25
Speaker 1: it's just a bubble, it's going to end in disaster,
7:28
Speaker 1: and then it would be yet another year where these
7:29
Speaker 1: five years, five years later they were absolutely right. But
7:32
Speaker 1: you have by double digit in one year. Even the
7:35
Speaker 1: NAZZAC doubled for years and years. If you if you
7:39
Speaker 1: ran for the hills at the first time of overvaluation,
7:42
Speaker 1: you missed one of the great bubbles of all time.
7:45
Speaker 1: That's right, and that was the first lesson for me
7:48
Speaker 1: that bubbles and booms and busts, or as much of
7:52
Speaker 1: the part of the free market as weather, basically in
7:55
Speaker 1: the climate, we're never going to get away from them.
7:57
Speaker 1: There are reasons why the pattern keeps happening for us.
8:00
Speaker 1: Now we find in ourselves in another big tech boom
8:04
Speaker 1: that is going to end in a bust. It's nothing
8:05
Speaker 1: like the nineties, but it's bit's shaping up to be
8:08
Speaker 1: a pretty impressive boom. Money is falling out of the
8:10
Speaker 1: sky for a lot of tech companies, so so let's
8:13
Speaker 1: stick with the nineties. From now, we'll come back to
8:16
Speaker 1: and so so in you make a famous call at
8:22
Speaker 1: the time, Amazon, a little known book or somewhat known
8:27
Speaker 1: online bookseller uh is trading in the mid two hundreds
8:31
Speaker 1: to forty I believe, and you put a four hundred
8:34
Speaker 1: dollar price target on it, and the world goes crazy.
8:38
Speaker 1: The world went crazy, and I was at that point,
8:41
Speaker 1: I had been doing the job of a Wall Street
8:44
Speaker 1: cell side research channelists a couple hundred institutional clients. It's
8:48
Speaker 1: a relatively closed community. You're talking to people who are experts. Ultimately,
8:53
Speaker 1: what happened there was when I had initiated coverage on Amazon,
8:55
Speaker 1: it was a very controversial company. People either thought it
8:58
Speaker 1: was going to zero or it was going to be monstress.
9:00
Speaker 1: I ran a whole bunch of different scenarios and said, look,
9:03
Speaker 1: the stock could be worth anywhere between zero and five hundred.
9:06
Speaker 1: My salesforce after watching me increase my price target to
9:10
Speaker 1: ten to fifteen percent above the stock price several times,
9:13
Speaker 1: basically said look, Henry, this is so frustrating. When you
9:16
Speaker 1: just tell us what you think this can do. The
9:18
Speaker 1: stock keeps going up. We keep missing it because you're
9:20
Speaker 1: being too conservative in your price targets. What do you think?
9:23
Speaker 1: So I ran a bunch of scenarios again, they triangulated
9:27
Speaker 1: on and I said, okay, here's my target four dollars.
9:30
Speaker 1: And of course that is no different than raising a
9:33
Speaker 1: price target on a stock, but that extra zero made
9:37
Speaker 1: a lot of difference. For whatever reason, it plucked the
9:40
Speaker 1: chords of the zeitgeist. And that day was quite an adventure.
9:44
Speaker 1: Let me tell you. I suddenly went from very much
9:47
Speaker 1: institutional obscurity to a name that was used. I don't
9:51
Speaker 1: know what. I don't even to say it. Everyone had
9:53
Speaker 1: put It was a raw shack test. Everyone had different
9:55
Speaker 1: reactions to the call. Unfortunately worked out, but it was
9:57
Speaker 1: worked out. And let's clarify that in three weeks hit
10:01
Speaker 1: your one year target of four hundred dollars, and within
10:03
Speaker 1: a month it was at five hundred dollars. So to
10:07
Speaker 1: say it worked out is a is a little bit
10:08
Speaker 1: of understatement. What was the subsequent pushback to the to
10:13
Speaker 1: the call. Well, the pushback the immediate pushback was this
10:16
Speaker 1: is ridiculous. Ultimately it's just a bookstore. Everyone who thought
10:20
Speaker 1: Amazon's not making money some of the same things you
10:22
Speaker 1: hear today with Amazon fifteen years later. People were not
10:26
Speaker 1: sold on it. People didn't fully appreciate how big the
10:28
Speaker 1: Internet could be, and ultimately I had no in expectation
10:32
Speaker 1: that the stock was going to go through the roof
10:35
Speaker 1: right away and to be so that was a huge surprise,
10:37
Speaker 1: huge surprise, went through the roof, and then ultimately crashed
10:40
Speaker 1: to something like thirty dollars a share split adjusted or six.
10:43
Speaker 1: I think possibly even wrote it all the way down
10:45
Speaker 1: and then obviously it's come back and on a split
10:47
Speaker 1: adjusted basis that four is about sixty seven dollars, So
10:50
Speaker 1: doing well over the long haul. I'm Barry Hults. You're
10:53
Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest
10:56
Speaker 1: today is Business Insiders founder editor in chief Henry Budget.
11:00
Speaker 1: We were discussing the rocketship ride of Amazon in the
11:05
Speaker 1: late nineties. It went from two forty to four hundreds
11:08
Speaker 1: of five hundred, really went kind of crazy. Um, there
11:11
Speaker 1: were some kind of copycat analysts. I recall someone putting
11:15
Speaker 1: a thousand dollar price target I think on Cisco, and
11:19
Speaker 1: then someone else tried to outdo them, putting two thousand
11:22
Speaker 1: dollars on Qualcom. Do you recall that sort of mayhem?
11:25
Speaker 1: I remember some that came later on many stocks there
11:28
Speaker 1: were there are a lot of stocks that were hot,
11:29
Speaker 1: they were out of my sector, so I wasn't following those.
11:32
Speaker 1: But that sort of begat an era of you know,
11:36
Speaker 1: evaluation doesn't matter, Let's just let's just go for it.
11:40
Speaker 1: And ultimately the lesson was valuation does matter. And with
11:44
Speaker 1: Amazon in particular, I, like a lot of other people,
11:47
Speaker 1: had a spreadsheet about what was possible. I ran a
11:50
Speaker 1: bunch of scenarios, and there were certainly scenarios where the
11:52
Speaker 1: company would go bankrupt, but there were other scenarios where
11:55
Speaker 1: the company could be a lot bigger than folks were
11:57
Speaker 1: expecting in the late ninety nineties. And one of the
11:59
Speaker 1: things that Jeff Bezos and others in Amazon saw relatively
12:02
Speaker 1: early was in digital, unlike the physical world, you could
12:06
Speaker 1: have a single company that could be both incredibly deep
12:10
Speaker 1: in a particular sector and incredibly broad, and that created
12:14
Speaker 1: the opportunity for the company to be massive if they
12:17
Speaker 1: got it right. And in Amazon's case, happily that came
12:21
Speaker 1: to reality. In many other cases where folks were effectively saying, look,
12:25
Speaker 1: we're going after this massive market opportunity. If we only
12:28
Speaker 1: get a tiny piece of it, we're worth fifty x
12:31
Speaker 1: where we are now. In many many cases that didn't
12:34
Speaker 1: work out. But if you step back from the whole process, Ultimately,
12:38
Speaker 1: anytime there's a new opportunity, like the Internet, you have
12:41
Speaker 1: to do a lot of experimenting as an economy to
12:44
Speaker 1: figure out what works, what the models are, which companies
12:46
Speaker 1: come out of it. Usually there is mass carnage and
12:50
Speaker 1: a few companies come out of it, and ultimately that
12:52
Speaker 1: is what happened in the although I have to say
12:55
Speaker 1: the magnitude of the crash caught even me by surprise them.
12:59
Speaker 1: We have a mutual and Dan Gross who wrote a
13:01
Speaker 1: book about bubbles called pop why bubbles are good for
13:05
Speaker 1: the economy, And he uses the example of of railroads
13:09
Speaker 1: and automobiles and television and radio and cars and fiber optics,
13:14
Speaker 1: and same situation. You have this land grab where everybody
13:17
Speaker 1: piles into the space. There's a handful of survivors, a
13:21
Speaker 1: handful of winners, and then everybody else sort of builds
13:25
Speaker 1: on the bones of of what the investors essentially subsidized
13:30
Speaker 1: that failed. But now all that infrastructure eventually gets used.
13:33
Speaker 1: Railroads are probably the best example. Railroad is a great example,
13:36
Speaker 1: and the Internet is a great example. If you look
13:38
Speaker 1: how the Internet has gone on to change the economy,
13:40
Speaker 1: it's actually vindicated a lot of what the crazy pundit
13:43
Speaker 1: seemed to be saying in the nineties about how big
13:46
Speaker 1: it would be. It's changing everything now and we're still
13:49
Speaker 1: in the relatively early phases of that as we roll out.
13:52
Speaker 1: So it was as profound as a lot of folks
13:54
Speaker 1: were saying. But ultimately there was a lot of money
13:56
Speaker 1: made and a lot of money lost, relatively quickly because
13:59
Speaker 1: the companies got creamed. So so let's talk about some
14:02
Speaker 1: of the companies that didn't get creamed. You know, again,
14:05
Speaker 1: back to the late nineties, we had firms like Intel
14:09
Speaker 1: and Microsoft, and del and Cisco and E m C
14:13
Speaker 1: and Oracle and Son that essentially, even though they got
14:17
Speaker 1: dinged up in two thousand, they essentially survived and thrived
14:22
Speaker 1: going forwards, some obviously more than others. Um But how
14:26
Speaker 1: do those companies compare to the pets dot com of
14:29
Speaker 1: the day. Well, a lot of those were hardware companies.
14:33
Speaker 1: We've needed a lot of hardware and the Internet boom,
14:35
Speaker 1: there has been a whole new hardware opportunity that's been
14:40
Speaker 1: created that Apple has taken incredible advantage of and and
14:43
Speaker 1: Samsung has taken incredible advantage of But even with pets
14:47
Speaker 1: dot Com. Interestingly, there are plenty of now online pet
14:51
Speaker 1: supply companies that are doing fine. The question was did
14:54
Speaker 1: they have enough capital to get there? Was there too
14:57
Speaker 1: much competition at that point. I remember in the pet
14:59
Speaker 1: war there were at least five pets dot COM's, all
15:03
Speaker 1: coming out of the gate at the same time, all
15:05
Speaker 1: the same idea, all with huge pots of capital, spending
15:08
Speaker 1: it to kill each other. None of them had time
15:10
Speaker 1: to get to escape velocity. And yet now we have
15:14
Speaker 1: online pet supply. The idea wasn't crazy, It was just
15:16
Speaker 1: that there was really too much competition and too much
15:18
Speaker 1: capital at the right. When we look at Amazon, they're
15:21
Speaker 1: kind of unique in that there isn't a ton of
15:24
Speaker 1: competition for them, and they very successfully expanded. Look the
15:29
Speaker 1: most recent earnings for what we got, people were shocked
15:32
Speaker 1: at how much their cloud business has developed. So they've
15:35
Speaker 1: kind of turned into a technology company at least as
15:40
Speaker 1: much as a book or other sort of retailer. And
15:43
Speaker 1: Amazon's extraordinary and the big advantage that Amazon has had
15:46
Speaker 1: from the beginning because of who it is owned by
15:50
Speaker 1: Jeff Bezos, is a very long term focus, and Amazon
15:54
Speaker 1: from the beginning has been willing to make seven year
15:57
Speaker 1: bets where they will lose a ton of money in
15:59
Speaker 1: the early years, knowing that a lot of those bets
16:02
Speaker 1: will fail, but if they make a couple that work,
16:05
Speaker 1: it pays off in spades. And that's exactly what's happened
16:07
Speaker 1: with Cloud is that they had this big infrastructure themselves.
16:11
Speaker 1: They start they realized, hey, wait a minute, we've had
16:13
Speaker 1: to build this. Everyone is going to have to read this.
16:15
Speaker 1: Let's rent it out effectively and see if we can
16:18
Speaker 1: turn it into a business. And they did this in
16:20
Speaker 1: secret for a long long time before everyone figured out,
16:23
Speaker 1: hey there's a business here, and by that time they
16:25
Speaker 1: were miles ahead. And as you say, they just pulled
16:27
Speaker 1: that rabbit rabbit out of the hat, and the market
16:29
Speaker 1: is quite impressed. What's fascinating is how many other companies
16:34
Speaker 1: would the market tolerate not generating a lot of revenue
16:39
Speaker 1: and profits. Well, let me clarify that they generate a
16:42
Speaker 1: ton of revenue, but they don't make a lot of profits.
16:44
Speaker 1: Some people have argued, if we use gap accounting, they're
16:47
Speaker 1: making no profits. To me, what you're saying that's so
16:50
Speaker 1: fascinating about Bezos is simply how patient his investors have been.
16:57
Speaker 1: I think, far more patient than just about any other
16:59
Speaker 1: tech company out there who could have done what he's done.
17:03
Speaker 1: As long as he's done and not been called okay,
17:06
Speaker 1: want are you going to start throwing off some profits?
17:08
Speaker 1: Some people are saying that all the time. When are
17:11
Speaker 1: you going to throw off profits? Amazon isn't profitable. It's
17:14
Speaker 1: a running joke within a certain community. And then, as
17:18
Speaker 1: you point out, Amazon's core shareholders are okay with that. Now,
17:22
Speaker 1: let me disclose I have owned Amazon for more than
17:24
Speaker 1: ten years, so I've benefited from the run. Jeff Bezos
17:27
Speaker 1: is an investor in my company. I think Amazon is great,
17:30
Speaker 1: and I think he in his approach, is wonderful for
17:33
Speaker 1: the economy. But what he would say about the shareholders is,
17:36
Speaker 1: as long as you are very clear about what you
17:39
Speaker 1: are going to do and what your philosophy is, the
17:41
Speaker 1: shareholders who support that philosophy will find you and you
17:45
Speaker 1: don't have to worry about everybody else. And what I
17:48
Speaker 1: would say is it's very important. What they are doing
17:50
Speaker 1: is reinvesting cash flow. They're saying, our opportunity is so
17:54
Speaker 1: massive that rather than build up a huge pile of
17:56
Speaker 1: cash that we don't know what to do with except
17:58
Speaker 1: buy back our stock like so many pennies are doing,
18:00
Speaker 1: We're gonna keep investing in new projects. And as a shareholder,
18:03
Speaker 1: you either trust that that is smart or you think
18:06
Speaker 1: it is stupid and you complain about the profitability. In
18:09
Speaker 1: case of Amazon has worked out well, I'm very redults.
18:12
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My
18:15
Speaker 1: guest today is Henry Blodgett. He is the editor in
18:18
Speaker 1: chief and founder of Business Insider, which we'll talk about
18:22
Speaker 1: in a few minutes. But before we get to that,
18:25
Speaker 1: let's talk a little bit about a wee bit of
18:27
Speaker 1: trouble that you ran into in the two thousands, and
18:30
Speaker 1: let me just set the stage for this um. So,
18:35
Speaker 1: the dot COM's collapsed, and as often happens, we start
18:39
Speaker 1: looking for somebody to blame, and the SEC really kinda
18:45
Speaker 1: was looking around, but it turned out it was the
18:47
Speaker 1: New York Attorney General, Elliot Spitzer, who wanted to blame
18:51
Speaker 1: the analyst community for what was essentially everybody losing their
18:56
Speaker 1: heads and getting way too exuberant. And you were the
18:59
Speaker 1: poster out with the New York a g and he
19:03
Speaker 1: came at you pretty hard. Ultimately, had you kicked out
19:05
Speaker 1: of the industry. I believe it was a voluntary UH
19:09
Speaker 1: agreement and paid a nice fat fine was it four
19:11
Speaker 1: million dollar or something like that fat? And ultimately you
19:16
Speaker 1: kind of wandered in the desert a little bit after that.
19:19
Speaker 1: Is that Is that a fair assessment? It's a little
19:21
Speaker 1: bit conflated. Elliot Spitzer, as you say, he was the
19:24
Speaker 1: one who launched the investigation, and the investigation was between
19:28
Speaker 1: the relationship between the research department and the banking department
19:31
Speaker 1: at investment banks, and in the ninety nineties, as you remember,
19:35
Speaker 1: analysts had been a part of the financing process. They
19:37
Speaker 1: were part of the RPO process, part of the pitch
19:40
Speaker 1: representing the exactly and Elliot Spitzer came in said this
19:45
Speaker 1: is outrageous as a conflict of interest and and so forth,
19:48
Speaker 1: and he was right that it was a conflict of interest.
19:49
Speaker 1: It's certainly not the only conflict on Wall Street. Many others.
19:53
Speaker 1: I'm sure you know from talking about security is one
19:55
Speaker 1: of the biggest conflicts is everybody wants you to be positive.
19:58
Speaker 1: Nobody wants you to be negative about anything. Because everybody
20:00
Speaker 1: owns stocks, they want them to go up. They don't
20:02
Speaker 1: want to be anybody to be embarrassed. So that's a
20:04
Speaker 1: big conflict with the institutions. But so Spitzer focused on
20:08
Speaker 1: that one conflict, found a lot of nice emails in
20:10
Speaker 1: which my team and I were venting back and forth.
20:13
Speaker 1: Now let me interrupt you right there, because here's where
20:15
Speaker 1: I know Elliott. I like him. Here's where I think
20:19
Speaker 1: that I disagree with him. I read and all your emails,
20:23
Speaker 1: which is my nightmare, is all my emails are published
20:25
Speaker 1: in the Wall Street Journal. Um, but your emails about
20:29
Speaker 1: this is a pos and really negative about companies. I
20:33
Speaker 1: always read them in the context of, Hey, why do
20:37
Speaker 1: we have a by rating on this? This is crap.
20:39
Speaker 1: Let's downgrade it as opposed to ha ha, we have
20:42
Speaker 1: a by rating on a piece of junct. Am I
20:44
Speaker 1: am I misreading that? Or did I get that more
20:46
Speaker 1: or less right? You got it right. Now, let me
20:50
Speaker 1: preface it by saying that there are two different situations here.
20:54
Speaker 1: The SEC is actually the entity with whom I settled
20:58
Speaker 1: and got kicked out of the end of streak. Um,
21:01
Speaker 1: Elliott Spitzer actually dropped to me from the case, so
21:03
Speaker 1: I can talk about that. But the the original allegation, yes,
21:07
Speaker 1: that was our position was these are taking out of context.
21:10
Speaker 1: We're talking about Sure there's friction back and forth, but
21:14
Speaker 1: that doesn't mean that the research report is misleading. So forth,
21:17
Speaker 1: the implication was right that there was a conflict and
21:20
Speaker 1: therefore the reports were misleading. And let me see what
21:22
Speaker 1: I said then, which is that I never wrote a
21:24
Speaker 1: single word in a research report that I didn't believe,
21:27
Speaker 1: but the fact that there was a conflict undeniable but
21:32
Speaker 1: exactly um and so anyway, so that's how it played
21:36
Speaker 1: out with ether Spitzer. And to finish that story, life
21:39
Speaker 1: is very long. Elliott and I are now actually sort
21:41
Speaker 1: of friends. Elliott went through his own touch of He
21:46
Speaker 1: started his comeback by writing it Slate, which is where
21:49
Speaker 1: I had started my journalism come back after I got
21:52
Speaker 1: objected from the industry. So Elliot and I've had a
21:55
Speaker 1: lot to talk about over the years, uh, and it's
21:57
Speaker 1: been very interesting. One of the things somebody said to
21:59
Speaker 1: me when I was in the middle of that where
22:01
Speaker 1: it was just being really crushed in the press and
22:04
Speaker 1: you you whipped pretty badly, was take a long view ride.
22:09
Speaker 1: It out there will be another side, even though it
22:12
Speaker 1: doesn't look like it now. And I certainly didn't believe
22:14
Speaker 1: that at the time. I thought when my professional life
22:16
Speaker 1: certainly was over. Second half so not uncommon here, They're
22:19
Speaker 1: not uncommon, They're not impossible, and people have recovered from
22:21
Speaker 1: a lot worse and gone to do great things. And
22:23
Speaker 1: that was a very big motivating factor for me. But
22:26
Speaker 1: somebody did give me the advice just to take the
22:28
Speaker 1: long view, and I'm glad so Kenna Letta did a
22:32
Speaker 1: piece on you and he said that you had written
22:35
Speaker 1: a book on your experiences, but the SEC wouldn't let
22:39
Speaker 1: you publish it. Is this true? It's not the SEC.
22:42
Speaker 1: It was I was actually when I left Wall Street.
22:44
Speaker 1: I left in two thousand one, this was before Elliot
22:46
Speaker 1: Spitzer filed his allegations. I left to write a book
22:49
Speaker 1: about the bubble, and to me, it was a fascinating story.
22:53
Speaker 1: I had grown up in the sort of family ethos
22:58
Speaker 1: of a far off relative of mine made a pile
23:01
Speaker 1: of money, and the family story was he was on
23:04
Speaker 1: the Siberian railway, he lost everything in became a pauper.
23:09
Speaker 1: So I was always I just obsessed with this idea
23:12
Speaker 1: of bubbles is this is this what we're going through,
23:14
Speaker 1: And people in the said, oh no, now we have
23:16
Speaker 1: the SEC and we have accounting and we're much smarter
23:18
Speaker 1: and so human nature. Well, there you go. You understand
23:22
Speaker 1: it in a way that a lot of us did not,
23:23
Speaker 1: including me at that point. The SEC is never going
23:25
Speaker 1: to stop bubbles. I think we all no one is.
23:28
Speaker 1: They're just part of the free market and we should
23:31
Speaker 1: learn to live with them, if not love them. But anyway,
23:33
Speaker 1: so I was writing a book about that, and then
23:36
Speaker 1: the Elliott spits are allegations hit, and the lawyers kindly
23:40
Speaker 1: took me in a back room and wrapped duct tape
23:41
Speaker 1: around my head and said there will be no publishing
23:43
Speaker 1: of anything. And ultimately, so now that's old years later
23:48
Speaker 1: and resolved. The I actually read it recently. It's okay,
23:53
Speaker 1: it holds up, it holds up. All right, that's great.
23:56
Speaker 1: I'm Barry Ridhult. She listening to Masters in Business on
23:58
Speaker 1: Bloomberg Radio Mike US today Henry Blodgett. He is the
24:02
Speaker 1: founder and editor in chief of Business Insider. Welcome, Henry,
24:07
Speaker 1: great to be here. So let's talk a little bit
24:09
Speaker 1: about what you did following your running with Elliot Spitzer,
24:13
Speaker 1: you kind of wandered the desert a bit, and then
24:17
Speaker 1: not too long thereafter, one Martha Stewart got into a
24:21
Speaker 1: little trouble of our own, was accused of insider trading.
24:26
Speaker 1: And I don't know who who reached out to who,
24:29
Speaker 1: but the editor of Slate tagg you or vice versa,
24:33
Speaker 1: and said, Hey, Henry, would you like to cover this trial?
24:35
Speaker 1: What as you say? That was in the middle of
24:37
Speaker 1: my getting creamed publicly in the press. My reputation was destroyed.
24:42
Speaker 1: I had I don't think it's an exaggeration to say
24:44
Speaker 1: millions of people who'd have the privilege of listening to
24:47
Speaker 1: me in the ninety nineties had been just told I
24:49
Speaker 1: should go off with my life, and I didn't. Ultimately,
24:53
Speaker 1: I wanted to do whatever I could do to earn
24:56
Speaker 1: back the trust from people who would give me the
24:58
Speaker 1: chance to do that. And one of the things I
25:00
Speaker 1: could do was right. I was a journalist before I
25:02
Speaker 1: went to Wall Street. I wasn't prevented from doing that.
25:05
Speaker 1: I didn't know whether anybody would publish me. But I
25:08
Speaker 1: called a friend of mine in New Yorker and said, look,
25:10
Speaker 1: Martha Stewart's in trouble. I know something about being in
25:12
Speaker 1: trouble at securities case. I could write about this. Is
25:15
Speaker 1: there anybody that would publish me? And she said, I
25:17
Speaker 1: know just the person and it's exactly what you said,
25:19
Speaker 1: Jacob Weisberg. It's slate. Was kind of say, you're on
25:22
Speaker 1: board cover the trial for us, and so I went
25:24
Speaker 1: down to the courtroom every day and I covered the trial.
25:26
Speaker 1: Got started in journalism again was digital. Ultimately did a
25:30
Speaker 1: lot of freelancing over the next couple of years, wrote
25:32
Speaker 1: a book about investing, started a blog and that led
25:35
Speaker 1: to Business Inside Or. A friend of mine called me
25:37
Speaker 1: and said, look, what do you think about a publication
25:39
Speaker 1: focused on technology business? And this was Kevin Ryan. That's right,
25:42
Speaker 1: Kevin Ryan. And you knew him. I knew from back
25:46
Speaker 1: in the nineties as an analyst. I was covering the
25:48
Speaker 1: company Double Click had gone public and now they're a
25:51
Speaker 1: part of is it Google? Yeah, that's right. Um, so
25:54
Speaker 1: you guys launched this what was the early days of
25:57
Speaker 1: Business Inside Or, Like, the theory was digital is a
26:00
Speaker 1: new medium. If you go back through the history of media,
26:03
Speaker 1: what you find is that in the days of a
26:04
Speaker 1: new medium, existing media sort of take their product and
26:07
Speaker 1: they try to shove it into the new medium. Early
26:10
Speaker 1: TV news broadcast where people reading newspapers in front of
26:13
Speaker 1: a micro not not particularly compelling. But then this amazing
26:19
Speaker 1: new medium of TV with pictures all of the world evolves.
26:22
Speaker 1: It's very different from print, but it's very powerful. So
26:25
Speaker 1: the idea was digital will evolve its own form of journalism,
26:29
Speaker 1: with its own model and storytelling and distribution. It will
26:32
Speaker 1: be very different. Let's not try to jam a square
26:35
Speaker 1: peg and around hole. Let's figure out what works. And
26:38
Speaker 1: ultimately we experimented a lot over several years to try
26:42
Speaker 1: to figure out what worked, what people wanted, how to
26:44
Speaker 1: distribute the stories, how to tell the stories, and ultimately
26:48
Speaker 1: we have evolved. What is in the early stages I
26:51
Speaker 1: think of being a very successful, long term digital journalism
26:54
Speaker 1: business with a native digital model, and it's as different
26:58
Speaker 1: from print and television as in television are from each other.
27:02
Speaker 1: But demographically, twenty five year olds are seventy digital now
27:07
Speaker 1: computers and mobile, and so the media consuming public is
27:11
Speaker 1: only going to get more so over the next ten years.
27:13
Speaker 1: So let's let's follow this progression. When you launched, how
27:15
Speaker 1: many employees did you launch with one? Me? And we
27:19
Speaker 1: had two others when we launched the site, so it
27:21
Speaker 1: was three of us in the loading dock of another startup,
27:24
Speaker 1: writing frantically and the door would open once in a
27:26
Speaker 1: while and the Fresh Direct guys would deliver soda for
27:29
Speaker 1: that startup. One of us would go on vacation, our
27:32
Speaker 1: readership would drop because we didn't have We weren't filling
27:35
Speaker 1: the space exactly. But over time's grown. Now we're at
27:38
Speaker 1: two hundred and fifty. We have a hundred and twenty
27:40
Speaker 1: five journalists just producing great stuff to global publication. And
27:44
Speaker 1: now we're the number one business publication by reach about
27:47
Speaker 1: seventy million liters a month, and we're number one in Australia.
27:50
Speaker 1: And because the data point, I was going to ask
27:53
Speaker 1: you about twenty four million monthly uniques a year ago,
27:57
Speaker 1: so you're telling me you're growing that rapidly globally. That's right,
28:00
Speaker 1: that's right. We launched in the UK last year and
28:02
Speaker 1: the site is already number one in the UK in
28:04
Speaker 1: terms of business and it's because we're approaching it as
28:08
Speaker 1: a new medium. We're not again trying to clone print
28:11
Speaker 1: or TV, and we've been able to resonate with a
28:14
Speaker 1: new generation of leaders, which is who we're writing for.
28:17
Speaker 1: So who is the typical business insider reader? Typical business
28:21
Speaker 1: side readers? Thirty five year old executive with a smartphone
28:24
Speaker 1: getting his or her news on the go, want to
28:27
Speaker 1: share it, want to get it how they want to
28:28
Speaker 1: get it, which maybe through Twitter or Facebook or linked
28:31
Speaker 1: in or coming to the site or email. Wants to
28:34
Speaker 1: share it with everybody very easily. Wants a wide variety
28:38
Speaker 1: of stories, from video to long articles to short posts,
28:43
Speaker 1: many different kinds. But are are the main readers we
28:45
Speaker 1: care to are? They're part of the digital generation? So
28:48
Speaker 1: who do you look at as your competition? Clearly it's
28:51
Speaker 1: not the New York Times in the Wall Street Journal.
28:54
Speaker 1: Is it more along the lines of BuzzFeed and courts
28:57
Speaker 1: and recode? Or who is the competition? Fact think, mostly
29:00
Speaker 1: the way the news business or organizes itself is there
29:03
Speaker 1: are many business publications and then there are general news
29:06
Speaker 1: publications New York Times as general news, Washington Post. We
29:09
Speaker 1: don't really compete with them at all. We do compete
29:13
Speaker 1: generally with digital business publications like the Wall Street Journal,
29:17
Speaker 1: like Bloomberg's web presence, which is quite different from obviously
29:21
Speaker 1: the terminal business, which is a spectacular Business As is
29:23
Speaker 1: the website very good. There are many good competitors in
29:26
Speaker 1: the space. Good news is. The desire for business news
29:31
Speaker 1: and information is exploding globally, and so there is room
29:35
Speaker 1: to support a lot of players, and and we're in
29:37
Speaker 1: that sector. Let's talk a little bit about some of
29:39
Speaker 1: the accusations that have have come up, um, not just
29:43
Speaker 1: two Business and Sider, but to a lot of the
29:45
Speaker 1: digital companies out there. Hey, you guys just cut and
29:49
Speaker 1: paste mainstream media stuff or or slightly annotated. You're really
29:54
Speaker 1: not doing a lot of original writing. How do you
29:57
Speaker 1: respond to that? I just think it's complete misunderstanding of
30:00
Speaker 1: what the better publications are doing. And and don't forget,
30:03
Speaker 1: this is an industry. It's in its early stages. You've
30:05
Speaker 1: got a lot of experimentation going on. Media has always
30:09
Speaker 1: built upon stories generated by other media. I remember when
30:12
Speaker 1: I was at CNN Business News in THEES. My first
30:15
Speaker 1: job was stand by the Reuters machine, rip off the
30:19
Speaker 1: paper as they come out with the stories, and then
30:21
Speaker 1: run with the stories over to the producer who will
30:24
Speaker 1: circle the ones she wants with a red pen, and
30:26
Speaker 1: then you write them up. So CNN's news was Reuters
30:30
Speaker 1: in those days. And New York Times often reports a
30:33
Speaker 1: story that was reported by the Wall Street Journal. Media
30:35
Speaker 1: has always built on itself. What we do is we
30:39
Speaker 1: use all of the sources that are out there in
30:41
Speaker 1: the world, which include all other media organizations, but also
30:44
Speaker 1: include Twitter and commentators like you, and Facebook, and the
30:48
Speaker 1: direct feeds of many many influential people that we follow,
30:52
Speaker 1: plus the telephone, plus in person meetings, plus pretty much
30:55
Speaker 1: any reporting tool you could imagine, and then we combine
30:58
Speaker 1: all those into stories. And sometimes we're building on a
31:02
Speaker 1: story that's reported by the New York Times or others.
31:05
Speaker 1: Sometimes they're building on our stories. And as we get
31:08
Speaker 1: bigger and bigger, and as as a lot of the
31:09
Speaker 1: digital companies get bigger and bigger, ultimately we're getting woven
31:13
Speaker 1: into the fabric of mainstream media. And if you look
31:17
Speaker 1: demographically for the younger generation, BuzzFeed is squarely mainstream media
31:23
Speaker 1: right now, and in ten years from now they will
31:25
Speaker 1: be in the middle of the mass market. And and
31:27
Speaker 1: our hope is that it's the same for the new
31:30
Speaker 1: generation of leaders. That that's really quite fascinating. Um, when
31:34
Speaker 1: do you let me ask you a question that I
31:36
Speaker 1: bet you asked a lot of corporate executives in your day,
31:39
Speaker 1: When are you guys going to become profitable? We have
31:42
Speaker 1: been profitable, believe it or not, at different times marginally.
31:45
Speaker 1: So when we started, I was scarred by the dot
31:49
Speaker 1: com bubble watching so many companies that were promising effectively
31:52
Speaker 1: fly into the mountain because the funding machine shut off
31:55
Speaker 1: and they ran out of cash. They got out too
31:57
Speaker 1: far ahead built up to my infrastructure. So we have
32:00
Speaker 1: always run the company conservatively. We've raised enough money and
32:03
Speaker 1: we have done a plan over a year or two
32:07
Speaker 1: to get to break even with the cash that we have.
32:10
Speaker 1: Each time we've done that, the opportunity has seemed so
32:13
Speaker 1: much larger that it seemed to make sense to raise
32:15
Speaker 1: new capital and invest it. So we now have a
32:18
Speaker 1: new big partner in addition to Jeff Bezos and and
32:21
Speaker 1: a couple of our VC partners. We now are a
32:23
Speaker 1: German media company named Axel. Springer is a big investors.
32:26
Speaker 1: So this will be an investment year for us. Next
32:29
Speaker 1: year will be investment. But a few years ago we
32:31
Speaker 1: did make a profit. It was enough to buy one MacBook.
32:35
Speaker 1: It was not coining money. But again we're not in
32:37
Speaker 1: a position, or not in a place right now where
32:39
Speaker 1: we want to drive bottom line. What we want to
32:41
Speaker 1: do is continue to effectively invent the future for digital journalism.
32:46
Speaker 1: And when we look at digital media, it's changing so
32:50
Speaker 1: rapidly and so constantly. How can anybody stay on top
32:54
Speaker 1: of what has really just become a hilacious rate of change.
32:59
Speaker 1: It's it's Unbelievable's right, the rate of innovation is spectacular.
33:03
Speaker 1: But I think you can fall back and be sure
33:06
Speaker 1: of one thing, which is people are always going to
33:09
Speaker 1: want the latest news and intelligent, good storytelling. Question is
33:15
Speaker 1: how are those stories told? In what medium? How are
33:18
Speaker 1: they distributed? Ultimately? As a reader, how do you find them?
33:22
Speaker 1: How are you going to go to a TV? You're
33:23
Speaker 1: gonna go to Facebook. But the fact that we want stories,
33:28
Speaker 1: we are human storytelling animals, and we want to know
33:31
Speaker 1: what's going on in the world, we can be very
33:33
Speaker 1: sure of that. The question is ultimately, what does the
33:35
Speaker 1: business model look like? And I do think, based on
33:38
Speaker 1: our experience and BuzzFeed and others, including Bloomberg's media business,
33:41
Speaker 1: which is excellent, there is a lot of advertising money
33:45
Speaker 1: that can support a lot of great journalism, and then
33:49
Speaker 1: there are subscription models for folks who want much more
33:53
Speaker 1: narrowly focused journalism or much longer or more expensive journalism,
33:57
Speaker 1: and those models are going to work. And the latest
33:59
Speaker 1: frontier the TV industry is finally starting to crack the
34:03
Speaker 1: traditional industry and there's gonna be huge opportunity there for
34:08
Speaker 1: new video storytelling producers to come in with a different
34:12
Speaker 1: model and approach and ultimately create stories for platforms like
34:16
Speaker 1: Netflix or HBO or even the broadcast networks, which we'll
34:20
Speaker 1: be looking for it, and ultimately you'll have a whole
34:22
Speaker 1: new age of video journalism as well. We've been speaking
34:25
Speaker 1: with Henry Blodgett of Business Insider in addition to Business
34:28
Speaker 1: insider dot com. If people want to find you online,
34:31
Speaker 1: where's the best place for them to track you down?
34:33
Speaker 1: At H blodge It on Twitter at h blodget on Twitter. Uh,
34:38
Speaker 1: be sure and check out the rest of our conversation
34:40
Speaker 1: where after we finish the broadcast portion, we just let
34:43
Speaker 1: the tape run and and keep going. Feel free to
34:46
Speaker 1: check out my daily column on Bloomberg View dot com.
34:49
Speaker 1: Follow me on Twitter at rid Halts. I'm Barry Hults.
34:53
Speaker 1: You're listening to Masters and Business on Bloomberg Radio. I'm
34:56
Speaker 1: Barry rid Halts, and this is the podcast portion of
35:00
Speaker 1: Masters in Business on Bloomberg Radio. But if you're listening
35:02
Speaker 1: to this, you probably already know that this is the
35:06
Speaker 1: podcast portion. UM. I saved this story for this part
35:10
Speaker 1: because it's actually where we first met and a very
35:13
Speaker 1: true story and more appropriate for the podcast than for
35:17
Speaker 1: the radio. So in I want to say it was
35:20
Speaker 1: either nine it was, and you'll know by the story
35:24
Speaker 1: exactly what it is. I had gone to a conference
35:28
Speaker 1: that then was called Silicon Alley Insider. It was all
35:32
Speaker 1: the way downtown, and it was after Henry's famous four
35:36
Speaker 1: dollar call. And he shows up at this conference, and
35:41
Speaker 1: by a twist of fate, I go to the men's
35:44
Speaker 1: room and Henry and I, who had never met, are
35:48
Speaker 1: standing literally next to each other at the arnals, and
35:53
Speaker 1: you are wearing a name tag and it says Silicon
35:57
Speaker 1: Alley Insider, Henry Blodgett Oppenheimer, and then in magic marker
36:02
Speaker 1: crossed off Oppenheimer and the words Merrill Lynch printed underneath.
36:07
Speaker 1: And I saw that, and I knew the whole Amazon story,
36:11
Speaker 1: and I leaned over to you and said, save that tag.
36:14
Speaker 1: It's gonna be worth something one day. Does that ring
36:17
Speaker 1: a bellrier? Great? Investor. It does not ring a bell.
36:20
Speaker 1: I can place it in time just because I know
36:22
Speaker 1: what the day that had to be early to be February.
36:27
Speaker 1: That was that. And I don't know if you remember
36:29
Speaker 1: that conference. It was the top floor of this massive UM.
36:34
Speaker 1: It was this massive, old windowed conference facility. And I
36:39
Speaker 1: just and I went home and told I went back
36:41
Speaker 1: to the office and told the story. Hey, you'll never
36:43
Speaker 1: guess who I bumped into in the men's room at
36:48
Speaker 1: the Silicon Alley inside. And I've told that story many
36:51
Speaker 1: many times, and so there are other people who can
36:54
Speaker 1: who can verify that. UM. So happy to be good
36:58
Speaker 1: material for you know it was actually UM. Well, I've
37:02
Speaker 1: actually been holding it for sixteen years and now I
37:05
Speaker 1: got to now I got to trot it out. But
37:07
Speaker 1: the hands of God, that's absolutely true. So let's talk
37:10
Speaker 1: a little bit about UM some recent calls and some
37:14
Speaker 1: recent things that I know. We only have you for
37:16
Speaker 1: a finite amount of time, which is true about everybody
37:19
Speaker 1: on the planet, but a really finite amount of time.
37:21
Speaker 1: So my head of research, Mike Batnick, who you know
37:24
Speaker 1: as the relevant investor UM, said, ask Henry about that.
37:29
Speaker 1: Barriss call UM. So I'm gonna ask you, do you
37:33
Speaker 1: think stocks are still wildly overvalued as they were back
37:37
Speaker 1: in Yes, I do. And I think if I go
37:39
Speaker 1: back in time to where I got really vocal about it,
37:42
Speaker 1: it was about eighteen months ago, and I think what
37:45
Speaker 1: I said is they're super overvalued. Sometime in the next
37:49
Speaker 1: couple of years, we're looking at a possible draw down oft.
37:52
Speaker 1: So we have six months left and then you can
37:55
Speaker 1: make merciless fun of you. You said you're not selling
37:58
Speaker 1: your stocks. Let's mark it is wildly of value. But
38:01
Speaker 1: I'm not selling my stuff. I am not a trader
38:03
Speaker 1: at all. And one of the things that I learned
38:06
Speaker 1: as an individual investor, both on Wall Street and then
38:10
Speaker 1: after Wall Street is ultimately, for most individual investors who
38:14
Speaker 1: are not being paid to manage somebody else's money or
38:16
Speaker 1: give advice, just managing their own, the smartest thing to
38:20
Speaker 1: do is to hold a portfolio of index funds and
38:23
Speaker 1: rebalance once in a while when the asset allocation. That's
38:26
Speaker 1: what we do. That's right, and I really think that
38:28
Speaker 1: is the best strategy for most individuals and a lot
38:32
Speaker 1: of major institutions because the market is so competitive now
38:37
Speaker 1: and there are so many smart people that to have
38:40
Speaker 1: a consistent edge and to consistently beat all the other
38:43
Speaker 1: poker players at the table and beat them by so
38:46
Speaker 1: much that you can cover your transaction costs. Really difficult
38:50
Speaker 1: to do. That's Charlie Ellis's theory. We had him on
38:53
Speaker 1: a few weeks ago. He was totally delightful. And those
38:56
Speaker 1: of you who haven't heard that, do yourself a favor
38:59
Speaker 1: and go listen to it. Is uh, truly lasts. They
39:02
Speaker 1: will make them like that. They do old school, old
39:05
Speaker 1: school gentlemen. But that that is you know, what ends
39:09
Speaker 1: up really driving a lot of debates is how can
39:13
Speaker 1: you consistently make money above and beyond your costs, above
39:17
Speaker 1: and beyond your taxes? And the answer is usually I'm
39:21
Speaker 1: that good, but most people aren't. That's right, that's what
39:23
Speaker 1: most people think. And ultimately, most people think they're better
39:26
Speaker 1: than average drivers and better than average intelligence and so forth.
39:30
Speaker 1: We're overcomp lake exactly, and so ultimately I think that's
39:35
Speaker 1: the best strategy. Now, that said, the call that your
39:38
Speaker 1: partner is referring to is, yes, I believe that stocks
39:41
Speaker 1: right now are almost overvalued by a factor of two,
39:45
Speaker 1: and I think that what that means over the next
39:48
Speaker 1: ten years. I have no idea what's going to happen
39:50
Speaker 1: over the next year or two, But over the next
39:52
Speaker 1: year ten years, we're gonna have lousy equity returns. In
39:56
Speaker 1: my opinion, we're also, however, going to have lousy bond
39:58
Speaker 1: returns and allows the cash returns and probably allowsy real
40:02
Speaker 1: estate returns as interest rates ultimately regress back up toward
40:05
Speaker 1: normal levels. So I don't there's very little financially that
40:10
Speaker 1: you can invest and feel like there's a huge return.
40:12
Speaker 1: So I just think we're in a period where the
40:14
Speaker 1: next ten years are gonna be a lousy for financial
40:16
Speaker 1: assets of all kinds. What about you know, we look
40:18
Speaker 1: at Europe much cheaper than us, we look at emerging
40:21
Speaker 1: markets cheaper. Still, what about that as an opportunity? If
40:25
Speaker 1: you really believe in a global asset allocation model, don't
40:28
Speaker 1: you want to have exposure to perfectly fair And I
40:31
Speaker 1: think that most of the valuation models that I've seen
40:33
Speaker 1: do suggest that that, in fact, emerging is a much
40:36
Speaker 1: better opportunity, likely a better long term return, but more
40:41
Speaker 1: potential return. So let me lay out a let's play
40:45
Speaker 1: with a scenario, and I have this for past few years,
40:49
Speaker 1: I've been fending off earnings are at record highs. How
40:53
Speaker 1: is the market going to do better when earnings are
40:55
Speaker 1: record highs? And I turned around and say, well, we've
40:58
Speaker 1: had very very low hiring, we've had very limited capex.
41:03
Speaker 1: If um was it. The head of black Rock came
41:07
Speaker 1: out and said, hey, CEO s, start investing in your
41:09
Speaker 1: own companies. Lawrence Lawrence Fink came out, and a few
41:13
Speaker 1: other people have said, we're eating our seeding corn. We
41:15
Speaker 1: have to make more investing. So the more investments in companies.
41:18
Speaker 1: So the scenario that maybe says future returns aren't terrible
41:24
Speaker 1: is that we begin right, We've already seen wage pressure.
41:27
Speaker 1: We've already seen Walmart and McDonald's and targets say hey,
41:31
Speaker 1: we have to raise our lowest salary because we can't
41:33
Speaker 1: find people can hire people at those wages. Maybe we're
41:37
Speaker 1: starting to see the early stages of a virtuous cycle
41:41
Speaker 1: where wages go up. Ultimately this is inflationary, but it
41:46
Speaker 1: takes a few years to get their wages go up.
41:48
Speaker 1: There's more hiring, there's more spending, there's more profits. Companies say, okay,
41:52
Speaker 1: the financial crisis is behind us. They do a little
41:56
Speaker 1: more capex, you get another round of virtuous benefits and
41:59
Speaker 1: sun the stocks that looked kind of pricey are no
42:03
Speaker 1: longer all that pricy. I hope that happens. That is
42:06
Speaker 1: a great scenario. And we have been in a system
42:09
Speaker 1: that for really thirty years now has effectively put shareholders
42:14
Speaker 1: first and ordinary people who actually work second, because they're
42:19
Speaker 1: viewed as costs and the ideas you pay them as
42:21
Speaker 1: little as possible. Now you do have a lot of
42:24
Speaker 1: folks coming out, and it's a great sign that Starbucks
42:26
Speaker 1: and McDonald's and others are doing this where you voluntarily
42:29
Speaker 1: pay people more than you might absolutely have to. And
42:33
Speaker 1: what people forget is that wages that go out in
42:36
Speaker 1: the economy are revenue for everybody else. And so this
42:38
Speaker 1: idea that we're all just going to hike margins forever
42:41
Speaker 1: by firing as many people as we can, ultimately we're
42:43
Speaker 1: firing our customers. And that's the reins paradox of thrift.
42:47
Speaker 1: You can't, you can't cut your way to you can't.
42:50
Speaker 1: And so I hope that exactly what you laid out happens,
42:53
Speaker 1: that in fact, wages do go up, profit margins come
42:56
Speaker 1: down because we are sharing more of the economy's wealth
43:00
Speaker 1: with the people who create it by working that that
43:03
Speaker 1: creates more spending by consumers who are no longer strapped.
43:07
Speaker 1: That is a great scenario. Likely do you see that scenario.
43:09
Speaker 1: I hope that that happens. I think it is likely
43:12
Speaker 1: that wages go up. But to finish your scenario, which
43:15
Speaker 1: is that somehow in that environment we don't have rising
43:18
Speaker 1: interest rates at all, You're gonna have to have exactly
43:21
Speaker 1: you are. And so I think when rising interest rates
43:23
Speaker 1: go up, what arise. What happens is the housing market
43:26
Speaker 1: has to cool because mortgages get more expensive. Ultimately it
43:30
Speaker 1: costs more to borrow money. Uh, you stocks get revalued
43:34
Speaker 1: because suddenly the bond market is actually yielding something, and
43:38
Speaker 1: that we may go through a long period where equities
43:41
Speaker 1: do not return a lot. But again, bonds are looked
43:45
Speaker 1: terrible on a long term basis, to scary to invest in.
43:47
Speaker 1: And interest rates rise, you get hose there too. So
43:49
Speaker 1: it's not unless you hold them to know that. But
43:53
Speaker 1: but even then it's a it's a paltry return. We're
43:56
Speaker 1: just we're in a period stepping way back from everything
43:58
Speaker 1: from we have had this golden age of financial assets.
44:04
Speaker 1: I think that the levels on all these things are
44:06
Speaker 1: now going to go and reverse eventually, unless we're Japan,
44:09
Speaker 1: which is no great scenario where in stay at zero forever.
44:13
Speaker 1: Ultimately they reverse, and that the golden age of financial
44:16
Speaker 1: assets ends. And then maybe we go to real world
44:18
Speaker 1: assets like you described, which would be wonderful. We bring
44:21
Speaker 1: back innovation, start getting people coming out of NBA's They
44:24
Speaker 1: don't just want to go into finance. They want to
44:26
Speaker 1: go build things that are great for consumers in addition
44:29
Speaker 1: to financial products, which are also great for consumers. I
44:31
Speaker 1: don't want to hammer people in the financial industry, but
44:33
Speaker 1: there's a lot more other cool stuff out there to
44:36
Speaker 1: make other than financial products, and and so we could
44:38
Speaker 1: be headed for a golden age of that, which would
44:40
Speaker 1: be great. So when we look around the world, you've
44:42
Speaker 1: seen Japan at practically zero forever. Now Germany flirting with
44:46
Speaker 1: being depending on what time of the day it is.
44:49
Speaker 1: Sometimes the German Bund is actually cheaper than what we
44:53
Speaker 1: see in Japan. And why wouldn't that pull US bonds
44:57
Speaker 1: down with the rest of the world. Look, Switzerland is now, hey,
45:00
Speaker 1: you want to lend us money, It will only cost
45:03
Speaker 1: you two percent to lend Switzerland money. It's kind of
45:06
Speaker 1: off the charts crazy near term. Could rates go lower, absolutely,
45:12
Speaker 1: and I'm not looking at that again, I'm stepping back
45:14
Speaker 1: from it at some point. If things go the way
45:18
Speaker 1: we hope it will go, which is what you describe,
45:20
Speaker 1: which is companies start paying better, more people go back
45:23
Speaker 1: to work, we have full employment, you start to get
45:25
Speaker 1: more spending. Ultimately you get some inflation back in the
45:29
Speaker 1: system to a healthy level. Interest rates probably rise. I
45:33
Speaker 1: don't think we're in a period where you're gonna have
45:35
Speaker 1: negative or flat interest rates forever, and ultimately that wouldn't
45:38
Speaker 1: be good. It would not signify a healthy global economy.
45:41
Speaker 1: So one thing we didn't talk about when we were
45:43
Speaker 1: discussing the launch of Business Insider was the impact of
45:47
Speaker 1: social media. You mentioned you made reference to Twitter and
45:50
Speaker 1: Facebook and LinkedIn, but we really didn't delve into it. What, um,
45:54
Speaker 1: how does that impact the news business first and just
45:59
Speaker 1: the world of an testing as well on the news business.
46:04
Speaker 1: Social media effectively or another distribution channel that are very
46:08
Speaker 1: important for any media digital media publisher, whether it's news,
46:12
Speaker 1: whether it's movies, whether it's TV. Social is an incredibly
46:15
Speaker 1: powerful distribution platform and there are many different social networks
46:19
Speaker 1: they've carved out different niches for themselves. You have different
46:23
Speaker 1: groups of people on them. Twitter tends to be a
46:25
Speaker 1: very immediate group of people, news hounds. Facebook it's about
46:29
Speaker 1: your friends and it's about stories you might like. Maybe
46:31
Speaker 1: it's not compelling news that's happening now. Pinterest is very contemplative,
46:36
Speaker 1: beautiful pictures and places to go to, not immediate in
46:40
Speaker 1: the same way. So each social network has its own audience.
46:43
Speaker 1: People use it differently. But for those of us in
46:45
Speaker 1: the digital media business, they are wonderful distribution platforms and
46:49
Speaker 1: in terms of investing, Facebook is illustrated they can be
46:53
Speaker 1: marvelous investments once they gain a huge percentage of their market.
46:58
Speaker 1: Facebook right now is most of the upside there was
47:02
Speaker 1: captured before they went public, but it has been a
47:04
Speaker 1: very good public investment as well. And if you look
47:08
Speaker 1: at Facebook going forward, as long as things continue to
47:10
Speaker 1: go well they are they have taken their margins way
47:13
Speaker 1: down because they are investing incredibly aggressively for the future.
47:17
Speaker 1: That's five to ten years out and at some point
47:20
Speaker 1: they don't have any content creation costs. All they have
47:23
Speaker 1: to do is make the platform and other people publish
47:25
Speaker 1: into it, so eventually they should have very nice looking margins.
47:27
Speaker 1: And and what about Twitter, which is struggling a little bit,
47:30
Speaker 1: at least on the business side. I know, in terms
47:33
Speaker 1: of the content and news side. If I'm stuck out
47:37
Speaker 1: of the office and just grab my phone, I can't
47:40
Speaker 1: tell you how often non farm payroll I don't really
47:43
Speaker 1: care about non farm payrolls report. I think it's the
47:46
Speaker 1: most overhyped and I've written about this a ton of times,
47:49
Speaker 1: but I also I'm curious with the number. Is So,
47:53
Speaker 1: when if I'm out of the office, if I'm away
47:55
Speaker 1: from a Bloomberg terminal, and non farm payroll comes out,
47:59
Speaker 1: the first thing I do is I reached for Twitter,
48:01
Speaker 1: and I will get all the data, all the information, comments, observations, whatever,
48:06
Speaker 1: before it shows up anywhere else. Is Twitter the new tape?
48:11
Speaker 1: Is that? Is that? I think that's the way to
48:13
Speaker 1: think about It's the new tape. And and so what
48:15
Speaker 1: does that mean? Well, it means that those of us
48:16
Speaker 1: who are news addicts are all over Twitter all the time.
48:21
Speaker 1: Journalists are all over Twitter. Celebrities. It's a wonderful way
48:24
Speaker 1: to connect with millions of people who are interested in you.
48:28
Speaker 1: But it turns out that the news addict percentage of
48:31
Speaker 1: the population is probably ten of the population for most
48:35
Speaker 1: other people as Sure, if it's important, let me know.
48:38
Speaker 1: But I'm not going to be glued to a tape
48:40
Speaker 1: all the time. And Facebook is the one that has
48:42
Speaker 1: captured that market. It is. If it's really important, it
48:45
Speaker 1: will surface in my stream. Otherwise it's about friends and
48:49
Speaker 1: family and local stuff and that's meaningful to me. So
48:52
Speaker 1: that's interesting. So take us through a day in the
48:55
Speaker 1: life of Henry Blodgett. What you know, your colleague Joe
49:00
Speaker 1: Weasenthal who's now here Bloomberg along with you and everybody else,
49:04
Speaker 1: a few of Mike are swallowing the whole world. Well
49:08
Speaker 1: we have um. He very famously would would wake up
49:11
Speaker 1: at some ungodly hour and you know, basically start his day.
49:16
Speaker 1: What I miss? What's going on? What? What time does
49:18
Speaker 1: Henry start his day? Well? I used to do that.
49:21
Speaker 1: I used to be on the couch at five o'clock
49:23
Speaker 1: in the morning. And my wife will tell these stories
49:25
Speaker 1: about how I knew you were doing the right thing
49:26
Speaker 1: when I would hear this uproarious laughter with you amusing
49:30
Speaker 1: yourself at five fifteen in the morning. Coming up the stairs.
49:33
Speaker 1: She said, Okay, I know he's doing something that is
49:35
Speaker 1: good for him to do. We'll keep that up. Now
49:38
Speaker 1: we have other great people who do that. I get
49:40
Speaker 1: up generally around six, I see what the news is,
49:43
Speaker 1: I see how we're doing it. I go in. We
49:45
Speaker 1: now have a very big team of great people, and
49:47
Speaker 1: so a lot of what I'm focusing on is trying
49:49
Speaker 1: to make sure the ship is sailing in the right direction,
49:51
Speaker 1: getting everybody behind it and so forth. So, unfortunately, don't
49:55
Speaker 1: have as much time to write as I did before.
49:57
Speaker 1: I love to write, miss it, but sually we'll find
50:00
Speaker 1: a carve out some time to do that. You used
50:02
Speaker 1: to write at least daily. Now I barely see your byline,
50:05
Speaker 1: Go go buy once a week or so, that's right.
50:07
Speaker 1: I used to write five to ten stories a day
50:09
Speaker 1: because that the pace. Absolutely, that's right doing it back
50:15
Speaker 1: in and he taught us all how to do it,
50:17
Speaker 1: and and so I was definitely doing that, and then
50:19
Speaker 1: it went to about it once a day, and you're
50:21
Speaker 1: right now it's about once a week. So do do
50:23
Speaker 1: you miss that? Or is it good to step back
50:25
Speaker 1: and focus your efforts elsewhere. It's good for the company.
50:29
Speaker 1: Somebody needs to be looking ahead and hopefully heading us
50:32
Speaker 1: in an intelligent direction and getting everybody working together. And
50:35
Speaker 1: one of the things you realize is you grow a company,
50:38
Speaker 1: and I'm sure you've seen this as well, is it's
50:40
Speaker 1: just when you're leading and managing, you have this privilege
50:44
Speaker 1: of managing somebody, smart people. It's about them, and I
50:46
Speaker 1: want to help them become great. And so I do
50:51
Speaker 1: miss it. I love writing, and I love what we're
50:53
Speaker 1: doing now, and it's fun to continue to do that.
50:55
Speaker 1: And at some point, hopefully I'll be able to do
50:57
Speaker 1: a little bit more of that. But right now we're
50:58
Speaker 1: in a phase where we're growing incredibly rapidly, so all
51:01
Speaker 1: of my attentions focused on that. So who were some
51:03
Speaker 1: of your early mentors UM, either in this industry or
51:06
Speaker 1: on on Wall Street? Well? As an analyst, I was
51:11
Speaker 1: fortunate enough to get to know several other senior analysts
51:15
Speaker 1: who are excellent. One is Alice Schroeder, who I think
51:17
Speaker 1: is um been associated with Bloomberg along with pretty much
51:22
Speaker 1: everybody else in the world at one part or another.
51:23
Speaker 1: She wrote the book about Warren Buffett. Of course, very
51:26
Speaker 1: very smart and I think so, and she was a
51:30
Speaker 1: wonderful mentor. Steve Levy as a mentor of technology different
51:35
Speaker 1: different Steve Levy, but a technology analyst. I had a
51:38
Speaker 1: couple of folks. Chris Katowski, who is the head of
51:40
Speaker 1: research at Oppenheimer, was a great um mentor. So lots
51:45
Speaker 1: of people in the Wall Street sell side business, lots
51:48
Speaker 1: of great investors. One of the great privileges at that
51:50
Speaker 1: job is that you get to hang out with just
51:52
Speaker 1: seriously smart people. For me to sit down with Julian Robertson,
51:56
Speaker 1: have Julian say, like, Henry, what is it with this Amazon?
51:58
Speaker 1: It's a bookstore? It's iculous, And so I would hear
52:01
Speaker 1: how he was thinking about it. I would tell him
52:03
Speaker 1: how I was thinking about it, and to be extaviitled
52:05
Speaker 1: to change ideas with that, and and so many just
52:08
Speaker 1: one after the other, these incredibly smart people. So UH
52:11
Speaker 1: got a wonderful education there. And then after I left,
52:14
Speaker 1: I met Jack Bogol and I went through all the
52:16
Speaker 1: indexing and ultimately, as I said, became convinced that that
52:19
Speaker 1: was the smart way for individuals to invest. So on
52:22
Speaker 1: the on the research side and analytical side in Wall Street,
52:26
Speaker 1: I have wonderful mentors. In terms of business, there were
52:30
Speaker 1: a lot of pioneers in digital media and journalism that
52:33
Speaker 1: we looked to that were very helpful. And I had,
52:36
Speaker 1: in following a lot of dot com companies during the
52:38
Speaker 1: nine nineties, had seen lots of entrepreneurs and were was
52:42
Speaker 1: around the VC community and so got to know that
52:45
Speaker 1: very well. And my partner, Kevin Ryan was was had
52:47
Speaker 1: founded several companies by that time and built them, so
52:50
Speaker 1: it's very helpful to work with him. How did your
52:53
Speaker 1: relationship with Jeff Bezos developed well? I covered Amazon as
52:57
Speaker 1: an analyst and I met Jeff occasionally at analyst a
53:00
Speaker 1: is and was, as I said, very impressed with Amazon.
53:02
Speaker 1: Unfortunately worked out from a following at point of view,
53:04
Speaker 1: and Jeff delivered on everything he said he was going
53:06
Speaker 1: to deliver on, and I loved the service. And one
53:09
Speaker 1: of the things that Jeff hammers on again and again
53:13
Speaker 1: that has been so great for me to think about
53:16
Speaker 1: in in running a business is they're just obsessed with
53:19
Speaker 1: customers and making customers happy. And ultimately I feel like
53:22
Speaker 1: we do a great job with our readers and users
53:25
Speaker 1: that will everything else will take care of itself, and
53:27
Speaker 1: so that lesson has been very helpful. But so I
53:31
Speaker 1: fell out of touch with Jeff for ten to fifteen
53:34
Speaker 1: years and then I was writing a fair bit about
53:36
Speaker 1: Amazon on Business Insider, and one day I got a
53:39
Speaker 1: call saying, we want to have dinner. It's like, sure,
53:41
Speaker 1: be great dinner. So we went out to dinner and
53:43
Speaker 1: had a good too in New York and in New
53:45
Speaker 1: York talking, we talked about the old times, and we
53:48
Speaker 1: talked about the New Times, and we talked about the
53:50
Speaker 1: media business. This was before he had bought the walls
53:53
Speaker 1: the Washington Post, and he was a very interesting reaction
53:57
Speaker 1: to it. He said, look, I actually like this business.
53:59
Speaker 1: I think it's very interesting, and I think there's some
54:01
Speaker 1: similarities between commerce and media in digital and so we
54:06
Speaker 1: talked about that and that was interesting. And then six
54:08
Speaker 1: months later he said, hey can I invest in? It
54:11
Speaker 1: wasn't like you were you were pitching him basically, this
54:14
Speaker 1: was holy un un what's the word I'm looking for?
54:18
Speaker 1: This was unsolicited you Basically he said, hey can I invest?
54:22
Speaker 1: And You're like, okay, absolutely, the check that that is
54:26
Speaker 1: um So that's really quite an endorsement from from a
54:29
Speaker 1: guy like him who's been just so wildly successful, very
54:33
Speaker 1: much so. And just again, it's such a privilege to
54:36
Speaker 1: spend any time with him and and some of the
54:38
Speaker 1: guidance that he has given by what he does at Amazon.
54:42
Speaker 1: What Amazon does is tremendously helpful, but he's also just
54:45
Speaker 1: given me some individual guidance that's been wonderful. You know,
54:49
Speaker 1: a lot of people don't realize he was a D. E.
54:51
Speaker 1: Shaw the large hedge fund for a good couple of
54:54
Speaker 1: years before in the nineties, before launching Amazon. You know,
54:59
Speaker 1: he's a sending character. I think people really don't know
55:03
Speaker 1: who he is. I think that's right, and I think
55:05
Speaker 1: that he now that Amazon is is successful and is
55:09
Speaker 1: viewed as a success story, people are starting to appreciate
55:12
Speaker 1: the value of his long term view and commitment. But again,
55:17
Speaker 1: as an economy, I think we have so much to
55:19
Speaker 1: learn from that we have become so short term oriented,
55:22
Speaker 1: so obsessed with this quarter maximizing profits. He just shows
55:27
Speaker 1: again and again that if you have a vision and
55:29
Speaker 1: you're willing to make big bets, and you are communicating
55:32
Speaker 1: very clearly with your shareholders about this is what we
55:35
Speaker 1: are going to do again and again. If you don't
55:38
Speaker 1: like that, don't own the stock. Ultimately, there's a lot
55:42
Speaker 1: more flexibility than we think in how we run companies,
55:45
Speaker 1: and I just see so many Fortune five companies that
55:48
Speaker 1: are scared of the activist shareholder making such short term
55:53
Speaker 1: decisions cutting R and D, firing everybody they can, rather
55:58
Speaker 1: than saying, hey, there's a big future five ten years out,
56:00
Speaker 1: let's make a big bet and go after it. And
56:02
Speaker 1: we need more of that in the economy. You know,
56:04
Speaker 1: the rise of so called shareholder value, which is not
56:08
Speaker 1: the law, It was just a philosophy. I think it
56:11
Speaker 1: did a lot of damage and it's now starting to
56:14
Speaker 1: fall out of favor because you see companies like Apple.
56:18
Speaker 1: You couldn't have created an Apple without going back to
56:22
Speaker 1: that first iPod and willing to roll the dice on
56:25
Speaker 1: something like an iPhone or an iPad. And you know,
56:30
Speaker 1: most companies don't have the ability to make that sort
56:33
Speaker 1: of bet. By the way, if you ever want to
56:34
Speaker 1: have fun, use the way back machine, use Google and
56:38
Speaker 1: look at some of those early reviews for the iPad
56:42
Speaker 1: or the iPhone for that matter, and they were brutal.
56:44
Speaker 1: They were terrible. Um. John Gruber runs Daring fire Fireball,
56:49
Speaker 1: which is a blog I really like, calls it Claim Chowder,
56:52
Speaker 1: and he occasionally publishes them, and some of them are
56:55
Speaker 1: just so horrifically shortsighted. It's one thing when Steve Balmer says,
57:02
Speaker 1: you can't change the battery, what who's gonna buy one
57:05
Speaker 1: of these? He's biased and you expect him not to
57:08
Speaker 1: get it. But professionals who were supposed to be either
57:12
Speaker 1: tech journalists or vcs or I hate the word futurists,
57:16
Speaker 1: when these guys miss it. It's like, wow, what do
57:18
Speaker 1: these guys do for a living? It's amazing, that's right,
57:21
Speaker 1: And I think to your point, the if you go
57:23
Speaker 1: back to the early nineteen eighties, which is where the
57:26
Speaker 1: shareholder value movement started, we had Gordon Gecko, famously character
57:30
Speaker 1: in the movie Greed Is Good. In those days, our
57:34
Speaker 1: companies needed a kick in the ass, and you had
57:37
Speaker 1: managements over rewarding themselves huge perks on the company. We
57:42
Speaker 1: had different tax schemes, so ultimately you wanted to create perks,
57:45
Speaker 1: and the companies had incredibly low margins. We needed as
57:49
Speaker 1: an economy to be kicked into shape, make the company's
57:53
Speaker 1: more efficient, more profit to shareholders, and so forth. But
57:56
Speaker 1: now the pendulum is a strong way too far the
57:59
Speaker 1: other way, and we have forgotten that a great company
58:03
Speaker 1: will not only deliver current profit to shareholders, but ultimately
58:07
Speaker 1: will be a wonderful place to work, will sustain all
58:09
Speaker 1: the people who work there in a way that takes
58:12
Speaker 1: them above the poverty line, gives them a good life.
58:16
Speaker 1: Effectively the middle class that we had that we have lost.
58:18
Speaker 1: That's what we should be striving for. Our companies should
58:21
Speaker 1: be serving a balance of their constituencies, not just short
58:25
Speaker 1: term shareholders, especially not just activist shareholders who ultimately whether
58:29
Speaker 1: they do a lot of good. But there are also
58:31
Speaker 1: folks who clearly it's basically just pay me off so
58:34
Speaker 1: I will go away. I was always astonished at people
58:37
Speaker 1: going not to keep talking about Apple, But here is
58:40
Speaker 1: what is literally, not not an exaggeration, literally the most
58:45
Speaker 1: successful company in the world. And what makes you think
58:50
Speaker 1: that you, Mr Hedge fund manager, are going to tell
58:52
Speaker 1: these guys how to run their business. You live the
58:55
Speaker 1: vent the iPod. You didn't invent the iPhone. You didn't
58:58
Speaker 1: invent the iPad. You didn't invent Apple TV, you didn't
59:01
Speaker 1: vent Apple Watch, you didn't invent a MacBook Air. My
59:04
Speaker 1: laptop is such a delightful thing and I use it
59:09
Speaker 1: to death. That two years in the battery is like
59:12
Speaker 1: it used to last nine hours, eight hours. I could
59:15
Speaker 1: fly to California on on a charge, and I use
59:18
Speaker 1: it back and forth on the train every day, and
59:19
Speaker 1: I just charge and drain and charge and drain this
59:22
Speaker 1: battery twice a day. And eventually it's like, gee, I'm
59:26
Speaker 1: you know, I noticed by the time I got home, Wow,
59:28
Speaker 1: I got I'm really going so I want like this
59:32
Speaker 1: laptop so much. Hey, what's it gonna cost for a
59:35
Speaker 1: new battery? Great? Put it in. And they were a
59:38
Speaker 1: pleasure to deal with. And I know the next one
59:41
Speaker 1: is going to be fantastic. Um, but I just can't
59:45
Speaker 1: bring myself. It's it's not even two years old. It's
59:49
Speaker 1: that good. How can anybody tell these guys you need
59:54
Speaker 1: to do more share buy backs? You, Hey, they're looking.
59:57
Speaker 1: It's obvious they're looking at almost two dollars. They want some.
1:00:00
Speaker 1: It's it's that simple, that's right, And they're getting it.
1:00:02
Speaker 1: And Apple has listened on the share by backs, but
1:00:05
Speaker 1: the idea that they should suddenly dive it, end out
1:00:07
Speaker 1: all the cash and or buy or borrow. A huge
1:00:10
Speaker 1: amount of this is the technology industry changes quickly. Yes,
1:00:14
Speaker 1: they have a depression mentality because they went through the depression,
1:00:17
Speaker 1: got their butts kicked. So having a big mountain of
1:00:20
Speaker 1: cash as your savior or just sort of savings account,
1:00:24
Speaker 1: no problem with that at all. And people don't realize that.
1:00:27
Speaker 1: The young guns out there don't realize if it wasn't
1:00:30
Speaker 1: from Microsoft putting add into Apple, well, it's served Microsoft's purpose.
1:00:36
Speaker 1: Because of Apple went belly up, there would have been
1:00:39
Speaker 1: no other legitimate competing operating system to them, and so
1:00:43
Speaker 1: they just happened to be that. Steve Jobs came back,
1:00:47
Speaker 1: cut that deal with Bill and Lo and Behold ended up.
1:00:51
Speaker 1: He had to talk about having a ten year vision,
1:00:53
Speaker 1: but how many companies would have that free reign from shareholders.
1:00:58
Speaker 1: I talked to hedge fund guys who tell me they
1:01:01
Speaker 1: have clients who email them if they're you know, slightly
1:01:05
Speaker 1: soft for a week, forget quarterly, forgets monthly. There you know,
1:01:09
Speaker 1: the markets up and down for a week and they're
1:01:10
Speaker 1: not making money that week, and they get shareholders saying, hey, half,
1:01:14
Speaker 1: some of you guys aren't making me any money this week.
1:01:16
Speaker 1: That's right. We've got so many incredibly smart, aggressive, competitive
1:01:20
Speaker 1: people focused on a business in which unfortunately corporate investments
1:01:25
Speaker 1: like that and investments in R and D can't pay
1:01:27
Speaker 1: off in a week. Sometimes you do have to make
1:01:29
Speaker 1: a five to ten year bet. And we just need
1:01:32
Speaker 1: as an economy to figure out how to get balance
1:01:34
Speaker 1: back in the system, to have good profit margins, not
1:01:38
Speaker 1: record profit margins, and good salaries, not the lowest possible salaries.
1:01:43
Speaker 1: Otherwise we're gonna hollow out the economy, and that's a
1:01:46
Speaker 1: real problem. I know we only have you for a
1:01:49
Speaker 1: fineite amount of time, So let me ask you some
1:01:52
Speaker 1: of my and ever increasingly finite amount of time. Let
1:01:55
Speaker 1: me ask you, um, my last few questions, some of
1:01:59
Speaker 1: which I ask all of our guests. What do people
1:02:02
Speaker 1: not know about Henry Blodgett that you would want them
1:02:04
Speaker 1: to know? I think at this point everyone knows more
1:02:09
Speaker 1: than they want to know about Henry Blodgett. But it's
1:02:12
Speaker 1: wonderful to be here, and thank you for the question, okay, um,
1:02:16
Speaker 1: And and so now for our our standard big three questions,
1:02:20
Speaker 1: what has changed since you joined the industry? And is
1:02:23
Speaker 1: this a good thing or a bad thing since I
1:02:25
Speaker 1: joined the finance industry or are they well I'm now
1:02:29
Speaker 1: part of what has changed over the past twenty years
1:02:31
Speaker 1: in finance. The industry has just gotten unbelievably professionalized every
1:02:36
Speaker 1: step of the way. But just before I was an analyst,
1:02:39
Speaker 1: companies used to send out their earnings by facts. It
1:02:42
Speaker 1: wouldn't even hit a wire would go out of the facts,
1:02:45
Speaker 1: and maybe the analysts would call that night. There wasn't
1:02:48
Speaker 1: a call where everyone gets on and listens and all
1:02:51
Speaker 1: that stuff. To now we have earnings distributed, you've got
1:02:55
Speaker 1: regg f D, you've got these closed conference call. Everything
1:02:58
Speaker 1: else has just gotten so professionalized, and so I think
1:03:02
Speaker 1: ironically that has eliminated some of the opportunity that was
1:03:05
Speaker 1: there for some of the smarter asset managers back twenty
1:03:08
Speaker 1: years ago has now been effectively arbitraged away. Because when
1:03:11
Speaker 1: you've got to David Einhorn's competing with each other, they're
1:03:14
Speaker 1: both incredibly brilliant and see everything, there's not a lot
1:03:17
Speaker 1: of opportunity left, especially for somebody looking in from the outside,
1:03:20
Speaker 1: trying to trade from home. So then let me ask
1:03:23
Speaker 1: you the follow up question, which is what major shifts
1:03:26
Speaker 1: do you see coming up in the future, both in
1:03:29
Speaker 1: finance and in media. In finance, I think the recognition
1:03:34
Speaker 1: that indexing is the best way to go from most
1:03:37
Speaker 1: individual investors and a lot of corporate entities will gain
1:03:42
Speaker 1: increasing sway. Ultimately, it's just is it is the smart
1:03:46
Speaker 1: way to invest uh in media. I think that the
1:03:49
Speaker 1: big profound change that we're going to see is the
1:03:53
Speaker 1: current demographic that's described as millennials sixteen or thirty four,
1:03:58
Speaker 1: depending on how you want to describe it. They spend
1:04:00
Speaker 1: seven of their media time on digital, on the smartphone,
1:04:05
Speaker 1: at on computer, and then a little TV on top
1:04:07
Speaker 1: of that. That is the future in ten to fifteen years.
1:04:11
Speaker 1: They are the mass market, and those of us who
1:04:14
Speaker 1: grew up reading the newspaper are going to be on
1:04:15
Speaker 1: our porches surveying the last few years of sunsets before
1:04:20
Speaker 1: we leave this earth. Those media will leave the earth,
1:04:22
Speaker 1: you will have a whole new group of brands uh,
1:04:25
Speaker 1: some of which I think we're starting to see now.
1:04:28
Speaker 1: But ultimately, this idea that the millennial generation is going
1:04:31
Speaker 1: to reach thirty five and suddenly develop a hunger to
1:04:34
Speaker 1: get a newspaper in the morning is a little bit misguided.
1:04:36
Speaker 1: I still get the New York Times at home, and
1:04:39
Speaker 1: the only reason I get the print edition is because
1:04:43
Speaker 1: of my dog Max. His chore was to go out
1:04:46
Speaker 1: and get the paper, and since he passed away in February.
1:04:50
Speaker 1: I haven't had the heart to kill the paper that
1:04:53
Speaker 1: if that is coming. It's just, you know, I used
1:04:56
Speaker 1: to have ink stained hands. And then just similar for us,
1:04:59
Speaker 1: we got to in our family because we were worried
1:05:01
Speaker 1: that our our kids were brother growing up to be videots.
1:05:03
Speaker 1: They spend all the time in the screen. We've got
1:05:05
Speaker 1: to get the paper. And the paper sits in its
1:05:07
Speaker 1: tube on the front stoop all day and then I
1:05:10
Speaker 1: come home and pick it up and take it and
1:05:11
Speaker 1: stick it in the recycling. And it's not that it's
1:05:13
Speaker 1: not filled with great stuff. It's just that I get
1:05:15
Speaker 1: it through other means. I get the Wall Street Journal
1:05:18
Speaker 1: in the office, the Times at home, and very often
1:05:20
Speaker 1: it just they just end up the same thing. By
1:05:23
Speaker 1: the way, the Wall Street Journal app for for the
1:05:26
Speaker 1: iPad is great Times isn't that bad. But the Journal
1:05:29
Speaker 1: app is fantastic as a digital distribution device. But I
1:05:33
Speaker 1: still end up doing the bulk of what I do
1:05:36
Speaker 1: on the computer as opposed to the iPad or the
1:05:38
Speaker 1: I phone. Last question, everybody gets this, um, what do
1:05:43
Speaker 1: you know today about investing that you wish you knew
1:05:47
Speaker 1: when you began? And by the way, you can expand
1:05:50
Speaker 1: that to investing Wall Street Finance. What do you know
1:05:53
Speaker 1: about the industry today that you wish you knew way
1:05:56
Speaker 1: back when? If I had known what I know nowt
1:06:00
Speaker 1: about the difficulty of picking stocks successfully and beating the market,
1:06:05
Speaker 1: I would never have been able to do the job
1:06:07
Speaker 1: that I did in the ES. So in a way,
1:06:09
Speaker 1: I'm glad because it was a good experience for me.
1:06:12
Speaker 1: I loved watching the boom, the Internet boom, getting to
1:06:15
Speaker 1: know all these companies analyzing them. But after I left
1:06:18
Speaker 1: the industry and I read a lot of the academic
1:06:20
Speaker 1: research and really understood the arithmetic of active management and
1:06:25
Speaker 1: understood that, it became clear that unless you are getting
1:06:29
Speaker 1: paid to manage somebody else's money, that the best way
1:06:32
Speaker 1: to invest is to invest in index months. And that
1:06:36
Speaker 1: is it's not an opinion, it is demonstrably the fact.
1:06:41
Speaker 1: The math is hard to exactly, and so if I
1:06:44
Speaker 1: had known that, it would have been much more difficult
1:06:46
Speaker 1: for me to be a stock analyst. Although the primary
1:06:49
Speaker 1: constituency for most Wall Street stock analysts is helping active
1:06:53
Speaker 1: managers for trying to pick stocks, so that it's not
1:06:55
Speaker 1: a knock on anybody that's in that business, it is
1:06:57
Speaker 1: a wonderful, incredibly intellectually simulating business that's endlessly challenging, and
1:07:02
Speaker 1: some people do end up beating the market, and there's
1:07:04
Speaker 1: no reason not to try. But if you're an individual,
1:07:07
Speaker 1: your odds of finding those few people who are going
1:07:10
Speaker 1: to beat the market consistently after taxes and fees are
1:07:13
Speaker 1: so small that it is just simply not worth even trying.
1:07:17
Speaker 1: And if we look at indexing today, I want to say,
1:07:19
Speaker 1: it's about fIF of the total assets invested. Sure, Van
1:07:24
Speaker 1: Goard has three trillion dollars about which are indexes, But
1:07:29
Speaker 1: overall it's fairly early in the rise of indexing. It's
1:07:34
Speaker 1: not like, hey, this has already happened. This is still
1:07:36
Speaker 1: I don't know, second or third inning. Is that a
1:07:38
Speaker 1: fair Yes? I think so, And everyone said wow, But
1:07:41
Speaker 1: what if when index has become such a big percentage
1:07:43
Speaker 1: of the market, then there's that much opportunity, then alpha
1:07:46
Speaker 1: will be great. When we talk about right, when we
1:07:48
Speaker 1: get to seventy eight percent, then maybe you can start talking.
1:07:50
Speaker 1: I don't even think it will get that far. I
1:07:52
Speaker 1: think once you hit fifty or so percent, and there's
1:07:55
Speaker 1: nothing magic about that, but once it's half the market
1:07:59
Speaker 1: Suddenly the lack of opportunity that we've seen in hedge
1:08:01
Speaker 1: funds and stock pickers and mutual fund managers, suddenly there's
1:08:06
Speaker 1: that much less of them. The competition gets reduced, and
1:08:10
Speaker 1: maybe when everybody is quote unquote everybody is indexing, maybe
1:08:14
Speaker 1: that creates a greater opportunity for when it's of people
1:08:19
Speaker 1: stockpicking like you and Charlie Ellis said, the competition is
1:08:23
Speaker 1: so intense, all these guys sort of cancel each other out.
1:08:27
Speaker 1: Flip that around and say what happens when it's only
1:08:30
Speaker 1: thirty or stock picking. Hey, maybe the competition is that
1:08:34
Speaker 1: much less and the correlations go down a little bit
1:08:37
Speaker 1: and we see some alpha generation. Right now, it doesn't exist.
1:08:43
Speaker 1: It's tough. Well, Henry, thank you so much for being
1:08:45
Speaker 1: so generous with your time. I know you have to
1:08:47
Speaker 1: be somewhere um you've For those of you listening, be
1:08:51
Speaker 1: sure and check out I guess if you're listening this
1:08:54
Speaker 1: far into it, you probably are are familiar with the
1:08:57
Speaker 1: other podcast. You can look up an Inch, Down an Inch,
1:09:00
Speaker 1: and and find all the rest of our podcasts on
1:09:03
Speaker 1: either Bloomberg dot Com or Apple iTunes. Be sure and
1:09:07
Speaker 1: check out my daily column on Bloomberg view dot com
1:09:10
Speaker 1: or follow me on Twitter at rid Halts. I want
1:09:14
Speaker 1: to thank Um Henry for spending so much time. Barry,
1:09:17
Speaker 1: thank you. This is great. You're one of the best
1:09:19
Speaker 1: financial commentators and smartest guys out there, so it's a
1:09:22
Speaker 1: huge pleasure. Keep more, keep going, You're enormously six more.
1:09:26
Speaker 1: Sucking up is the line from from a Pretty Woman.
1:09:30
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.