The Single Most Stupid Call I Ever Heard

Working on Wall Street from the West Coast is an ordeal, especially for those people like me, who like to sleep. Since I was in charge of trading, and the market opened at 6:30 a.m. California time, I had to be up and at ‘em before my breakfast.

In December 1998, I flipped on CNBC as I do every morning for a dose of Squawk Box, to get a pulse of the market. You didn’t need a call from salesmen anymore – all the market impact calls were delivered over CNBC before the market opened. Analysts figured out that CNBC was a better medium to reach clients than a sales force, and it didn’t yell at you like a salesman would. I was skeptical of analysts using CNBC, because it was the old “I’m not paying for research that I can buy for 75 cents in the morning paper,” except that it was on television and free.

That morning, as I dragged a razor across my cheek, the buzz was about Amazon.com. Henry Blodget, an analyst at third-tier CIBC Oppenheimer was pounding the table on the stock, raising his price target to $400. I started laughing and had to stop shaving so I wouldn’t bleed to death.

This was the single most stupid call I had ever heard. I hated price targets, because they were bogus. You used them when you have run out of anything else to talk about, but wanted the attention. Now here was Henry Blodget making a name for himself. I had heard his name before, but only in passing. He was a former journalist. Good for him, he has learned the game quickly, I thought. Amazon’s stock popped 46 points, almost 20 percent that day. Now that’s marketing.

In December 1998, a few weeks after Henry Blodget’s price target splash, thestreet.com decided to do a webcast of an investment panel. In addition to Jim Cramer and editor Dave Kansas, columnist Herb Greenberg would represent thestreet.com. Outside panelists were Henry Blodget from CIBC, Ryan Jacob from the booming Kinetics Internet fund, a guy from Munder whose NetNet fund was also on fire, and me with a view from Silicon Valley.

The panel was a lot of fun. Henry pounded the table on Amazon and Yahoo and other “quality” Internet names. I told investors to stick with infrastructure companies, those that sold network equipment, chips, and software to these dotcom companies. Ryan Jacob, who looked about twelve and acted even younger, had some twisted views on spotting advertising trends and page views per share. I decided I wasn’t going to invest in his Internet fund.

I liked Henry. He could talk a mean game. I had been in that game of pitching the same stuff he was pitching, so could easily see the thorns from the roses. That’s OK. He believed in what he was saying, and conviction is important on Wall Street. You rise to the top if you can help portfolio managers buy shares by providing them with your strong conviction. Henry would do well.

In fact, as the year turned to 1999, he was hired away from sleepy CIBC to Merrill Lynch, which was losing the Internet investment banking battle to Morgan Stanley, Goldman Sachs and Frank Quattrone at CS First Boston. By hiring Henry, they were making a statement that they were players. Merrill Lynch needed all the help it could get.

In the midst of growing into technology players, there was even an effort to buy the boutique Hambrecht and Quist. It got shot down by internal politics and some talk that H&Q was doling out hot IPO shares to investors who later did banking business with them – so-called spinning. It smelled like Merrill Lynch wanted to emulate Frank Quattrone, and have a “boutique within a bulge bracket” firm. Now Merrill had Henry Blodget to peddle to dotcom companies.

In 1998 and 1999, there certainly were enough deals to go around. The trick was to have a visible enough analyst who could impress upon companies that they would support them in the market after the IPO. It was all about marketing. One hundred phone calls a month, the “Ohio Death March,” “Sherman’s March to the Sea,” Metroliner to D.C.? Nah. That was too much trouble.

Merrill Lynch hired a public relations firm instead. They got the best in the business, Pam Alexander at Alexander Ogilvy. I have known Pam since the 1980s and would run into Henry at various events and dinners Pam hosted. I offered him some advice, on how to make I.I. (as if it mattered anymore), how to keep on top of stories, get stock picking right and everything follows, hold off the bankers, and even some thoughts on marketing to institutions versus the retail crowd at Merrill Lynch. While he seemed grateful for the suggestions, I’m not sure he was terribly pleased to be offered advice by anyone. He was on a roll.

Then it hit me between the eyes. The mold of a successful analyst was broken. Getting ahead by working feverishly with discriminating institutional investors until your reputation and status were proved  – well, those days were over. The ducks didn’t care about reputation – they simply wanted stocks that were going up, and analysts to pound the table to keep them going up.

Good Investing,

Andy Kessler
- From Wall Street Meat

Editor’s Note: Andy Kessler is a former Wall Street analyst and hedge fund manager. He has written three books: Wall Street Meat, How We Got Here, and Running Money and is a frequent contributor to the Wall Street Journal, Forbes and other financial publications. He lives with his wife and four sons in the Bay Area.
 
His latest book, The End of Medicine, is due out July 3, 2006. You can read more from Andy Kessler - or pre-order a copy of his upcoming book - at his website. Follow this link:
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