By: Missing3 on Martedì 20 Novembre 2001 22:20
Henry Blodget: It's The Price, Stupid.
Henry Blodget confirmed that he's quitting his short-lived perch as Merrill Lynch's Internet tout in 2002. He gets an estimated $2 million buyout, and plans to write a book for Random House in which, he promises to explain–not defend–what happened to Internet stocks and his so-called analysis of them. Just for a sneak peek of his forthcoming insights, he proffers "one of the things that happened at the end of the bubble is people forgot about what the downside was, and that's why a lot of people got hurt."
Not that Blodget helped any of these people. Perhaps he thinks of "people" as a euphemism for himself, similar to the royal "we"? Lest he forget, many real people are eternally enraged at "People" for maintaining buy recommendations on Internet stocks that had lost virtually all of their value. At the height of his influence, Blodget rarely discussed stock prices. His overdue downgrades of the stocks he covered came far too late to help anyone get out or sell short. "People" seems to have forgotten about what the downside was, and it was his job to remember what the downside was. Not an easy task, but one reason he received a $5 million pay package last year. Fortunately, most people had been ignoring him for months.
In June 2000, Blodget defended his long-term buy-and-hold stance of the Internet stocks under his purview, telling millions of television viewers: "Since [the Internet move] began in 1995, it's pulled back 30 to 50 percent at least seven or eight times. So you obviously have to be willing to sit through that."
He then gave his prediction for the company that was the subject of his career-making prediction of December 16, 1998. "Ultimately, we think Amazon.com will try to drive toward at least cash-flow positivity by next year, and we think they'll get there...we do think the company will be profitable." Amazon.com lost $1.4 billion on $2.8 billion in revenue in fiscal 2000. Because of an arbitration suit, Merrill no longer allows Henry Blodget to appear on TV.
Trend followers can look at one Blodget comment rather gleefully: "From a pure stock-performance basis, sure," he says. "We could presumably have downgraded at the beginning of (2000)." Yes, this man was paid for his advice.
Prices of the companies he promoted tanked and initial public offerings dwindled. Blodget recommendations At Home, Pets.com and EToys went bankrupt. Others dropped lower than even a measly buck a share, some delisted for failing to meet standard requirements, such as, say, a value worth more than your typical lottery ticket.
Merrill settled a suit with a former client in July, paying him $400,000 after he lost about $500,000 from investing in InfoSpace because of Blodget's recommendation. Blodget was dropped from the complaint and all claims against him were dismissed according to Merrill's spokeswoman.
Make no mistake, the word "analyst" used to describe Blodget is a misnomer. Never judge an investment source by his job title, when his job description tells you what he's actually doing. Blodget was hired to drum up sales and underwriting for Internet stocks, so he was selling and pushing, not analyzing. Where's the analysis in straight salesmanship? There's no analysis involved in giving investors the exact story handed out by a company's CFO, with no independent research. That's an advertisement, masquerading as research.
How else do you explain Blodget's silence and stubborn optimism in the face of serious trouble that was apparent to the entire world, except the hot-shot "analyst" covering the stock? Merrill pulled in $100 million since 1997 for taking Internet companies public, but since 1999, that source of revenue has all but withered away.
Exit Blodget, a newlywed, with a tidy sum in severance and a hefty advance to tide him over until he finishes the book, then looks for work at a hedge fund or money management firm. A Merrill research head denied that Blodget had been pressured to resign by clients or management, deeming the move "a lifestyle decision for Henry."
Further to this example of a crash-and-burn-to-riches story, and perhaps more disheartening, Blodget was Institutional Investor's Number one-ranked Internet analyst in 2000. Even with the lawsuits, several charges of conflict of interest, the late downgrades, he was STILL rated Number Three in Institutional Investor's rankings that came out in October 2001.
What do you have to do to get ranked on this list? Apparently, make certain you cost your clients at least 75 to 90% of their capital.
Blodget's just one of many culprits lurking beneath a paper-thin veneer of professional respectability built up by a farcical ratings system that props up storytellers and salesmen, not analysts. Institutional Investor's annual rankings get the top-rated Wall Street darlings coveted airtime on CNBC and translate into fatter salaries and bonus packages.
And how are II's current set of rankings derived? "The directors of research and chief investment officers of major money management institutions" were sent questionnaires covering 79 industry groups and investment specialties this year. As were "key institutional clients from lists submitted by Wall Street research directors," as well as "analysts and portfolio managers at many top institutions." In other words, giving the big boys holes big enough to ram through several trillion dollars of market capital.
Each analyst's score is weighted "based on the size of the voting institution." Never fear, the "identities of the survey respondents and the institutions that employ them are kept confidential to ensure their continuing cooperation."
Institutional Investor's been doing this for thirty years, and they change the categories every year to keep up with the markets. They're running nothing more than a Miss America pageant buffed and polished with sham prestige and puffery. If there were the equivalent of a swimsuit competition, there would be nowhere to hide. Let it all hang out. Show us what you're selling. Perhaps Blodget's exit from the pageant is a new start on Wall Street? Don't count on it.
