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

about two forty dollars. It was his one year out price target. It hit that target in three weeks and actually in a month had gone to five hundred dollars UM. Henry covered a lot of other companies he was at Oppenheimer at the time. He ended up going to Merrill Lynch and really becoming one of the top ranked institutional analysts that covered UH technology and dot com stocks. When everything collapsed, Henry got into quite a bit of trouble

with the SEC and with Elliot Spitzer. UH. The Spitzer case actually ended up going nowhere, but the SEC find him about four million dollars and banned him from the industry for life. That was the one question I meant to ask and didn't get to ask him, which was, hey, would you ever like to apply to get readmitted? But I remember a period of time when you couldn't mention Henry's name without people really getting terribly, terribly upset. Oh

he's such a bad guys. This is that. I always thought he was a a very thoughtful, very sincere guy, and I think he was. There's an argument to be made that he was made a scapegoat as much as anything. Look, you could have found any analysts who had put really high price targets on just about all of those crazy dot com stocks, all of which collapsed. Henry had been foolish enough to actually tell his honest feelings about what he thought about this stuff and emails to his colleagues

at Mary Lynch. I always interpreted what he had written as, Hey, we're really way too highly ranking these things. Why don't we down grad? Why don't we bring these things down? Um? And you know, some of these stuff is just junk. And I believe the phrase was pos You can figure out what that stands for, and it's not the point of sales. Um. And so when Spitzer began his investigation, you know blog, it really got dragged from the mud, really got um shredded, and I think he suffered quite

quite a bit through that. And and and there are people who said, hey, too bad, the guy was making twelve million dollars a year for putting high price tags on stuff that turned out to be worthless. But I think it's a lot more nuanced than that, and there's a lot more subtlety there. I've always found him to be very intelligent, very thoughtful. I think he brings a very very interesting approach uh to looking at the world of equities and looking at technology and following as I called

it in his wandering in the desert. For a few years he launched a new media company which is essentially a modern digital media firm, called Business Insider, and it has since become one of the most successful digital media outfits there is. H So, I found this conversation to be really quite fascinating. Um, he's really a colorful and and more less colorful and less controversial than I think

his reputation has created. But I found this to be an absolutely fascinating conversation, and I hope you will also so, with no further ado, here's my conversation with editor in chief and co founder of Business Insider Henry Blodgett. This is Masters in Business with Barry Ridholds on Bloomberg Radio. My guest today is the famous and infamous Henry Blodgett, who I've actually known. You will save that story for a long time. I want to say back till nine A long, a long time for those of you who

may not know who. Henry is. A b A in history at yale H lived in San Francisco, taught English and Japan and then ultimately became a nationally ranked tennis player before moving into finance, where he became famous for call on Amazon, which we'll get into a lot of details later on. The Institutional Investor all star team of analysts at one point making at least a corner of Wikipedia twelve million dollars a year, and Merrill lynch Um, Henry,

welcome to Bloomberg. It's great to be here. And before you get an army of fact checkers. The nationally ranked tennis player part that's actually now, but it's only technically because I am a partner with my dad and the father and son Ultra Senior system. He is great. I am the weak link on the team. But he has gotten us nationally ranked. But I was not nationally ranked as a singles player. So you come with the kind of unusual background. You really began in journalism. How did

you find your way to Wall Street? I found my way to Wall Street after being a journalist writing a book. As you say, I spent a year in Japan. I worked for about three years as a freelance journalist and wrote a book. Ultimately ended up at CNN Business News. My father had been in finance, I'd grown up around it. I had this weird liberal arts education that basically taught me that capitalism was bad and one should go anywhere

but to Wall Street and finance and so forth. By my late twenties, I could no longer deny that I actually found it fascinating. Started to interview, went through lots of different interviews, and then ultimately joined an investment banking training program and credential securities. So what was that training program? Like a good introduction to a liberal arts specialist in accounting and finance. And then a couple of years of

working in different groups. I did private equity and then ultimately was in the technology group, and that was when the Internet was really getting started, and so I did several transactions in that and then ultimately found my way to research. One of the advantages of a new industry coming along like that is it creates thirty empty chairs effectively in Wall Street research departments. And I got an Internet browser before everybody else, so I knew a little

bit more about it. It was a great fit with the journalists background combined with the finance background, so it was ultimately a great place for me to be on on Wall Street. So then you move over to Oppenheimer, and that's really where you began to garner some public recognition. What what was the analysts group like in uh in Oppenheimer? Back then, Oppenheim was a great small firm. There were lots of tech boutiques in those days, and Oppenheimer was

one of those. So there lots of action, lots of responsibility for people like me who didn't have decades of experience, but they would give you a chance. And so I was handed a bunch of internet companies, which I've followed at Prudential as a banker actually as well, So I knew the industry a little bit, but was able to roll out coverage on a O L, Yahoo, Amazon, some of the other early Internet pioneers new sector, huge excitement. As you remember, the stocks were doing incredibly well in

late nineties. Year after year after year, people predicted, oh, it's just a bubble, it's going to end in disaster, and then it would be yet another year where these five years, five years later they were absolutely right. But you have by double digit in one year. Even the NAZZAC doubled for years and years. If you if you ran for the hills at the first time of overvaluation, you missed one of the great bubbles of all time.

That's right, and that was the first lesson for me that bubbles and booms and busts, or as much of the part of the free market as weather, basically in the climate, we're never going to get away from them. There are reasons why the pattern keeps happening for us. Now we find in ourselves in another big tech boom that is going to end in a bust. It's nothing like the nineties, but it's bit's shaping up to be

a pretty impressive boom. Money is falling out of the sky for a lot of tech companies, so so let's stick with the nineties. From now, we'll come back to and so so in you make a famous call at the time, Amazon, a little known book or somewhat known online bookseller uh is trading in the mid two hundreds to forty I believe, and you put a four hundred dollar price target on it, and the world goes crazy. The world went crazy, and I was at that point, I had been doing the job of a Wall Street

cell side research channelists a couple hundred institutional clients. It's a relatively closed community. You're talking to people who are experts. Ultimately, what happened there was when I had initiated coverage on Amazon, it was a very controversial company. People either thought it was going to zero or it was going to be monstress. I ran a whole bunch of different scenarios and said, look, the stock could be worth anywhere between zero and five hundred.

My salesforce after watching me increase my price target to ten to fifteen percent above the stock price several times, basically said look, Henry, this is so frustrating. When you just tell us what you think this can do. The stock keeps going up. We keep missing it because you're being too conservative in your price targets. What do you think? So I ran a bunch of scenarios again, they triangulated on and I said, okay, here's my target four dollars.

And of course that is no different than raising a price target on a stock, but that extra zero made a lot of difference. For whatever reason, it plucked the chords of the zeitgeist. And that day was quite an adventure. Let me tell you. I suddenly went from very much institutional obscurity to a name that was used. I don't know what. I don't even to say it. Everyone had put It was a raw shack test. Everyone had different reactions to the call. Unfortunately worked out, but it was

worked out. And let's clarify that in three weeks hit your one year target of four hundred dollars, and within a month it was at five hundred dollars. So to say it worked out is a is a little bit of understatement. What was the subsequent pushback to the to the call. Well, the pushback the immediate pushback was this is ridiculous. Ultimately it's just a bookstore. Everyone who thought Amazon's not making money some of the same things you

hear today with Amazon fifteen years later. People were not sold on it. People didn't fully appreciate how big the Internet could be, and ultimately I had no in expectation that the stock was going to go through the roof right away and to be so that was a huge surprise, huge surprise, went through the roof, and then ultimately crashed to something like thirty dollars a share split adjusted or six.

I think possibly even wrote it all the way down and then obviously it's come back and on a split adjusted basis that four is about sixty seven dollars, So doing well over the long haul. I'm Barry Hults. You're listening to Masters in Business on Bloomberg Radio. My guest today is Business Insiders founder editor in chief Henry Budget. We were discussing the rocketship ride of Amazon in the late nineties. It went from two forty to four hundreds

of five hundred, really went kind of crazy. Um, there were some kind of copycat analysts. I recall someone putting a thousand dollar price target I think on Cisco, and then someone else tried to outdo them, putting two thousand dollars on Qualcom. Do you recall that sort of mayhem? I remember some that came later on many stocks there were there are a lot of stocks that were hot, they were out of my sector, so I wasn't following those.

But that sort of begat an era of you know, evaluation doesn't matter, Let's just let's just go for it. And ultimately the lesson was valuation does matter. And with Amazon in particular, I, like a lot of other people, had a spreadsheet about what was possible. I ran a bunch of scenarios, and there were certainly scenarios where the company would go bankrupt, but there were other scenarios where the company could be a lot bigger than folks were

expecting in the late ninety nineties. And one of the things that Jeff Bezos and others in Amazon saw relatively early was in digital, unlike the physical world, you could have a single company that could be both incredibly deep in a particular sector and incredibly broad, and that created the opportunity for the company to be massive if they got it right. And in Amazon's case, happily that came to reality. In many other cases where folks were effectively saying, look,

we're going after this massive market opportunity. If we only get a tiny piece of it, we're worth fifty x where we are now. In many many cases that didn't work out. But if you step back from the whole process, Ultimately, anytime there's a new opportunity, like the Internet, you have to do a lot of experimenting as an economy to figure out what works, what the models are, which companies

come out of it. Usually there is mass carnage and a few companies come out of it, and ultimately that is what happened in the although I have to say the magnitude of the crash caught even me by surprise them. We have a mutual and Dan Gross who wrote a book about bubbles called pop why bubbles are good for the economy, And he uses the example of of railroads and automobiles and television and radio and cars and fiber optics, and same situation. You have this land grab where everybody

piles into the space. There's a handful of survivors, a handful of winners, and then everybody else sort of builds on the bones of of what the investors essentially subsidized that failed. But now all that infrastructure eventually gets used. Railroads are probably the best example. Railroad is a great example,

and the Internet is a great example. If you look how the Internet has gone on to change the economy, it's actually vindicated a lot of what the crazy pundit seemed to be saying in the nineties about how big it would be. It's changing everything now and we're still in the relatively early phases of that as we roll out. So it was as profound as a lot of folks were saying. But ultimately there was a lot of money made and a lot of money lost, relatively quickly because

the companies got creamed. So so let's talk about some of the companies that didn't get creamed. You know, again, back to the late nineties, we had firms like Intel and Microsoft, and del and Cisco and E m C and Oracle and Son that essentially, even though they got dinged up in two thousand, they essentially survived and thrived going forwards, some obviously more than others. Um But how do those companies compare to the pets dot com of the day. Well, a lot of those were hardware companies.

We've needed a lot of hardware and the Internet boom, there has been a whole new hardware opportunity that's been created that Apple has taken incredible advantage of and and Samsung has taken incredible advantage of But even with pets dot Com. Interestingly, there are plenty of now online pet supply companies that are doing fine. The question was did they have enough capital to get there? Was there too

much competition at that point. I remember in the pet war there were at least five pets dot COM's, all coming out of the gate at the same time, all the same idea, all with huge pots of capital, spending it to kill each other. None of them had time to get to escape velocity. And yet now we have online pet supply. The idea wasn't crazy, It was just that there was really too much competition and too much

capital at the right. When we look at Amazon, they're kind of unique in that there isn't a ton of competition for them, and they very successfully expanded. Look the most recent earnings for what we got, people were shocked at how much their cloud business has developed. So they've kind of turned into a technology company at least as

much as a book or other sort of retailer. And Amazon's extraordinary and the big advantage that Amazon has had from the beginning because of who it is owned by Jeff Bezos, is a very long term focus, and Amazon from the beginning has been willing to make seven year bets where they will lose a ton of money in the early years, knowing that a lot of those bets will fail, but if they make a couple that work,

it pays off in spades. And that's exactly what's happened with Cloud is that they had this big infrastructure themselves. They start they realized, hey, wait a minute, we've had to build this. Everyone is going to have to read this. Let's rent it out effectively and see if we can turn it into a business. And they did this in secret for a long long time before everyone figured out, hey there's a business here, and by that time they

were miles ahead. And as you say, they just pulled that rabbit rabbit out of the hat, and the market is quite impressed. What's fascinating is how many other companies would the market tolerate not generating a lot of revenue and profits. Well, let me clarify that they generate a ton of revenue, but they don't make a lot of profits. Some people have argued, if we use gap accounting, they're

making no profits. To me, what you're saying that's so fascinating about Bezos is simply how patient his investors have been. I think, far more patient than just about any other tech company out there who could have done what he's done. As long as he's done and not been called okay, want are you going to start throwing off some profits? Some people are saying that all the time. When are you going to throw off profits? Amazon isn't profitable. It's

a running joke within a certain community. And then, as you point out, Amazon's core shareholders are okay with that. Now, let me disclose I have owned Amazon for more than ten years, so I've benefited from the run. Jeff Bezos is an investor in my company. I think Amazon is great, and I think he in his approach, is wonderful for

the economy. But what he would say about the shareholders is, as long as you are very clear about what you are going to do and what your philosophy is, the shareholders who support that philosophy will find you and you don't have to worry about everybody else. And what I would say is it's very important. What they are doing

is reinvesting cash flow. They're saying, our opportunity is so massive that rather than build up a huge pile of cash that we don't know what to do with except buy back our stock like so many pennies are doing, We're gonna keep investing in new projects. And as a shareholder, you either trust that that is smart or you think it is stupid and you complain about the profitability. In case of Amazon has worked out well, I'm very redults. You're listening to Masters in Business on Bloomberg Radio. My

guest today is Henry Blodgett. He is the editor in chief and founder of Business Insider, which we'll talk about in a few minutes. But before we get to that, let's talk a little bit about a wee bit of trouble that you ran into in the two thousands, and

let me just set the stage for this um. So, the dot COM's collapsed, and as often happens, we start looking for somebody to blame, and the SEC really kinda was looking around, but it turned out it was the New York Attorney General, Elliot Spitzer, who wanted to blame the analyst community for what was essentially everybody losing their heads and getting way too exuberant. And you were the poster out with the New York a g and he came at you pretty hard. Ultimately, had you kicked out

of the industry. I believe it was a voluntary UH agreement and paid a nice fat fine was it four million dollar or something like that fat? And ultimately you kind of wandered in the desert a little bit after that. Is that Is that a fair assessment? It's a little

bit conflated. Elliot Spitzer, as you say, he was the one who launched the investigation, and the investigation was between the relationship between the research department and the banking department at investment banks, and in the ninety nineties, as you remember,

analysts had been a part of the financing process. They were part of the RPO process, part of the pitch representing the exactly and Elliot Spitzer came in said this is outrageous as a conflict of interest and and so forth, and he was right that it was a conflict of interest. It's certainly not the only conflict on Wall Street. Many others. I'm sure you know from talking about security is one of the biggest conflicts is everybody wants you to be positive.

Nobody wants you to be negative about anything. Because everybody owns stocks, they want them to go up. They don't want to be anybody to be embarrassed. So that's a big conflict with the institutions. But so Spitzer focused on that one conflict, found a lot of nice emails in which my team and I were venting back and forth. Now let me interrupt you right there, because here's where I know Elliott. I like him. Here's where I think

that I disagree with him. I read and all your emails, which is my nightmare, is all my emails are published in the Wall Street Journal. Um, but your emails about this is a pos and really negative about companies. I always read them in the context of, Hey, why do we have a by rating on this? This is crap. Let's downgrade it as opposed to ha ha, we have a by rating on a piece of junct. Am I am I misreading that? Or did I get that more

or less right? You got it right. Now, let me preface it by saying that there are two different situations here. The SEC is actually the entity with whom I settled and got kicked out of the end of streak. Um, Elliott Spitzer actually dropped to me from the case, so I can talk about that. But the the original allegation, yes, that was our position was these are taking out of context. We're talking about Sure there's friction back and forth, but

that doesn't mean that the research report is misleading. So forth, the implication was right that there was a conflict and therefore the reports were misleading. And let me see what I said then, which is that I never wrote a single word in a research report that I didn't believe, but the fact that there was a conflict undeniable but exactly um and so anyway, so that's how it played out with ether Spitzer. And to finish that story, life is very long. Elliott and I are now actually sort

of friends. Elliott went through his own touch of He started his comeback by writing it Slate, which is where I had started my journalism come back after I got objected from the industry. So Elliot and I've had a lot to talk about over the years, uh, and it's been very interesting. One of the things somebody said to me when I was in the middle of that where it was just being really crushed in the press and you you whipped pretty badly, was take a long view ride.

It out there will be another side, even though it doesn't look like it now. And I certainly didn't believe that at the time. I thought when my professional life certainly was over. Second half so not uncommon here, They're not uncommon, They're not impossible, and people have recovered from a lot worse and gone to do great things. And

that was a very big motivating factor for me. But somebody did give me the advice just to take the long view, and I'm glad so Kenna Letta did a piece on you and he said that you had written a book on your experiences, but the SEC wouldn't let you publish it. Is this true? It's not the SEC. It was I was actually when I left Wall Street. I left in two thousand one, this was before Elliot Spitzer filed his allegations. I left to write a book about the bubble, and to me, it was a fascinating story.

I had grown up in the sort of family ethos of a far off relative of mine made a pile of money, and the family story was he was on the Siberian railway, he lost everything in became a pauper. So I was always I just obsessed with this idea of bubbles is this is this what we're going through, And people in the said, oh no, now we have the SEC and we have accounting and we're much smarter and so human nature. Well, there you go. You understand it in a way that a lot of us did not,

including me at that point. The SEC is never going to stop bubbles. I think we all no one is. They're just part of the free market and we should learn to live with them, if not love them. But anyway, so I was writing a book about that, and then the Elliott spits are allegations hit, and the lawyers kindly took me in a back room and wrapped duct tape around my head and said there will be no publishing of anything. And ultimately, so now that's old years later

and resolved. The I actually read it recently. It's okay, it holds up, it holds up. All right, that's great. I'm Barry Ridhult. She listening to Masters in Business on Bloomberg Radio Mike US today Henry Blodgett. He is the founder and editor in chief of Business Insider. Welcome, Henry,

great to be here. So let's talk a little bit about what you did following your running with Elliot Spitzer, you kind of wandered the desert a bit, and then not too long thereafter, one Martha Stewart got into a little trouble of our own, was accused of insider trading. And I don't know who who reached out to who, but the editor of Slate tagg you or vice versa, and said, Hey, Henry, would you like to cover this trial? What as you say? That was in the middle of

my getting creamed publicly in the press. My reputation was destroyed. I had I don't think it's an exaggeration to say millions of people who'd have the privilege of listening to me in the ninety nineties had been just told I should go off with my life, and I didn't. Ultimately, I wanted to do whatever I could do to earn back the trust from people who would give me the chance to do that. And one of the things I could do was right. I was a journalist before I

went to Wall Street. I wasn't prevented from doing that. I didn't know whether anybody would publish me. But I called a friend of mine in New Yorker and said, look, Martha Stewart's in trouble. I know something about being in trouble at securities case. I could write about this. Is there anybody that would publish me? And she said, I know just the person and it's exactly what you said,

Jacob Weisberg. It's slate. Was kind of say, you're on board cover the trial for us, and so I went down to the courtroom every day and I covered the trial. Got started in journalism again was digital. Ultimately did a lot of freelancing over the next couple of years, wrote a book about investing, started a blog and that led to Business Inside Or. A friend of mine called me and said, look, what do you think about a publication focused on technology business? And this was Kevin Ryan. That's right,

Kevin Ryan. And you knew him. I knew from back in the nineties as an analyst. I was covering the company Double Click had gone public and now they're a part of is it Google? Yeah, that's right. Um, so you guys launched this what was the early days of Business Inside Or, Like, the theory was digital is a new medium. If you go back through the history of media, what you find is that in the days of a new medium, existing media sort of take their product and

they try to shove it into the new medium. Early TV news broadcast where people reading newspapers in front of a micro not not particularly compelling. But then this amazing new medium of TV with pictures all of the world evolves. It's very different from print, but it's very powerful. So the idea was digital will evolve its own form of journalism, with its own model and storytelling and distribution. It will be very different. Let's not try to jam a square

peg and around hole. Let's figure out what works. And ultimately we experimented a lot over several years to try to figure out what worked, what people wanted, how to distribute the stories, how to tell the stories, and ultimately we have evolved. What is in the early stages I think of being a very successful, long term digital journalism business with a native digital model, and it's as different from print and television as in television are from each other.

But demographically, twenty five year olds are seventy digital now computers and mobile, and so the media consuming public is only going to get more so over the next ten years. So let's let's follow this progression. When you launched, how

many employees did you launch with one? Me? And we had two others when we launched the site, so it was three of us in the loading dock of another startup, writing frantically and the door would open once in a while and the Fresh Direct guys would deliver soda for that startup. One of us would go on vacation, our readership would drop because we didn't have We weren't filling the space exactly. But over time's grown. Now we're at two hundred and fifty. We have a hundred and twenty

five journalists just producing great stuff to global publication. And now we're the number one business publication by reach about seventy million liters a month, and we're number one in Australia. And because the data point, I was going to ask you about twenty four million monthly uniques a year ago, so you're telling me you're growing that rapidly globally. That's right,

that's right. We launched in the UK last year and the site is already number one in the UK in terms of business and it's because we're approaching it as a new medium. We're not again trying to clone print or TV, and we've been able to resonate with a new generation of leaders, which is who we're writing for. So who is the typical business insider reader? Typical business

side readers? Thirty five year old executive with a smartphone getting his or her news on the go, want to share it, want to get it how they want to get it, which maybe through Twitter or Facebook or linked in or coming to the site or email. Wants to share it with everybody very easily. Wants a wide variety of stories, from video to long articles to short posts, many different kinds. But are are the main readers we care to are? They're part of the digital generation? So

who do you look at as your competition? Clearly it's not the New York Times in the Wall Street Journal. Is it more along the lines of BuzzFeed and courts and recode? Or who is the competition? Fact think, mostly the way the news business or organizes itself is there are many business publications and then there are general news publications New York Times as general news, Washington Post. We

don't really compete with them at all. We do compete generally with digital business publications like the Wall Street Journal, like Bloomberg's web presence, which is quite different from obviously the terminal business, which is a spectacular Business As is the website very good. There are many good competitors in the space. Good news is. The desire for business news and information is exploding globally, and so there is room to support a lot of players, and and we're in

that sector. Let's talk a little bit about some of the accusations that have have come up, um, not just two Business and Sider, but to a lot of the digital companies out there. Hey, you guys just cut and paste mainstream media stuff or or slightly annotated. You're really not doing a lot of original writing. How do you respond to that? I just think it's complete misunderstanding of what the better publications are doing. And and don't forget, this is an industry. It's in its early stages. You've

got a lot of experimentation going on. Media has always built upon stories generated by other media. I remember when I was at CNN Business News in THEES. My first job was stand by the Reuters machine, rip off the paper as they come out with the stories, and then run with the stories over to the producer who will circle the ones she wants with a red pen, and then you write them up. So CNN's news was Reuters in those days. And New York Times often reports a

story that was reported by the Wall Street Journal. Media has always built on itself. What we do is we use all of the sources that are out there in the world, which include all other media organizations, but also include Twitter and commentators like you, and Facebook, and the direct feeds of many many influential people that we follow, plus the telephone, plus in person meetings, plus pretty much any reporting tool you could imagine, and then we combine

all those into stories. And sometimes we're building on a story that's reported by the New York Times or others. Sometimes they're building on our stories. And as we get bigger and bigger, and as as a lot of the digital companies get bigger and bigger, ultimately we're getting woven into the fabric of mainstream media. And if you look demographically for the younger generation, BuzzFeed is squarely mainstream media right now, and in ten years from now they will

be in the middle of the mass market. And and our hope is that it's the same for the new generation of leaders. That that's really quite fascinating. Um, when do you let me ask you a question that I bet you asked a lot of corporate executives in your day, When are you guys going to become profitable? We have been profitable, believe it or not, at different times marginally.

So when we started, I was scarred by the dot com bubble watching so many companies that were promising effectively fly into the mountain because the funding machine shut off and they ran out of cash. They got out too far ahead built up to my infrastructure. So we have always run the company conservatively. We've raised enough money and we have done a plan over a year or two to get to break even with the cash that we have.

Each time we've done that, the opportunity has seemed so much larger that it seemed to make sense to raise new capital and invest it. So we now have a new big partner in addition to Jeff Bezos and and a couple of our VC partners. We now are a German media company named Axel. Springer is a big investors. So this will be an investment year for us. Next year will be investment. But a few years ago we did make a profit. It was enough to buy one MacBook.

It was not coining money. But again we're not in a position, or not in a place right now where we want to drive bottom line. What we want to do is continue to effectively invent the future for digital journalism. And when we look at digital media, it's changing so rapidly and so constantly. How can anybody stay on top of what has really just become a hilacious rate of change. It's it's Unbelievable's right, the rate of innovation is spectacular.

But I think you can fall back and be sure of one thing, which is people are always going to want the latest news and intelligent, good storytelling. Question is how are those stories told? In what medium? How are they distributed? Ultimately? As a reader, how do you find them? How are you going to go to a TV? You're gonna go to Facebook. But the fact that we want stories, we are human storytelling animals, and we want to know what's going on in the world, we can be very

sure of that. The question is ultimately, what does the business model look like? And I do think, based on our experience and BuzzFeed and others, including Bloomberg's media business, which is excellent, there is a lot of advertising money that can support a lot of great journalism, and then there are subscription models for folks who want much more narrowly focused journalism or much longer or more expensive journalism,

and those models are going to work. And the latest frontier the TV industry is finally starting to crack the traditional industry and there's gonna be huge opportunity there for new video storytelling producers to come in with a different model and approach and ultimately create stories for platforms like Netflix or HBO or even the broadcast networks, which we'll be looking for it, and ultimately you'll have a whole

new age of video journalism as well. We've been speaking with Henry Blodgett of Business Insider in addition to Business insider dot com. If people want to find you online, where's the best place for them to track you down? At H blodge It on Twitter at h blodget on Twitter. Uh, be sure and check out the rest of our conversation where after we finish the broadcast portion, we just let the tape run and and keep going. Feel free to check out my daily column on Bloomberg View dot com.

Follow me on Twitter at rid Halts. I'm Barry Hults. You're listening to Masters and Business on Bloomberg Radio. I'm Barry rid Halts, and this is the podcast portion of Masters in Business on Bloomberg Radio. But if you're listening to this, you probably already know that this is the podcast portion. UM. I saved this story for this part because it's actually where we first met and a very true story and more appropriate for the podcast than for

the radio. So in I want to say it was either nine it was, and you'll know by the story exactly what it is. I had gone to a conference that then was called Silicon Alley Insider. It was all the way downtown, and it was after Henry's famous four

dollar call. And he shows up at this conference, and by a twist of fate, I go to the men's room and Henry and I, who had never met, are standing literally next to each other at the arnals, and you are wearing a name tag and it says Silicon Alley Insider, Henry Blodgett Oppenheimer, and then in magic marker crossed off Oppenheimer and the words Merrill Lynch printed underneath. And I saw that, and I knew the whole Amazon story, and I leaned over to you and said, save that tag.

It's gonna be worth something one day. Does that ring a bellrier? Great? Investor. It does not ring a bell. I can place it in time just because I know what the day that had to be early to be February. That was that. And I don't know if you remember that conference. It was the top floor of this massive UM. It was this massive, old windowed conference facility. And I just and I went home and told I went back

to the office and told the story. Hey, you'll never guess who I bumped into in the men's room at the Silicon Alley inside. And I've told that story many many times, and so there are other people who can who can verify that. UM. So happy to be good material for you know it was actually UM. Well, I've actually been holding it for sixteen years and now I got to now I got to trot it out. But the hands of God, that's absolutely true. So let's talk a little bit about UM some recent calls and some

recent things that I know. We only have you for a finite amount of time, which is true about everybody on the planet, but a really finite amount of time. So my head of research, Mike Batnick, who you know as the relevant investor UM, said, ask Henry about that. Barriss call UM. So I'm gonna ask you, do you think stocks are still wildly overvalued as they were back

in Yes, I do. And I think if I go back in time to where I got really vocal about it, it was about eighteen months ago, and I think what I said is they're super overvalued. Sometime in the next couple of years, we're looking at a possible draw down oft. So we have six months left and then you can make merciless fun of you. You said you're not selling your stocks. Let's mark it is wildly of value. But I'm not selling my stuff. I am not a trader

at all. And one of the things that I learned as an individual investor, both on Wall Street and then after Wall Street is ultimately, for most individual investors who are not being paid to manage somebody else's money or give advice, just managing their own, the smartest thing to do is to hold a portfolio of index funds and rebalance once in a while when the asset allocation. That's

what we do. That's right, and I really think that is the best strategy for most individuals and a lot of major institutions because the market is so competitive now and there are so many smart people that to have a consistent edge and to consistently beat all the other poker players at the table and beat them by so much that you can cover your transaction costs. Really difficult to do. That's Charlie Ellis's theory. We had him on

a few weeks ago. He was totally delightful. And those of you who haven't heard that, do yourself a favor and go listen to it. Is uh, truly lasts. They will make them like that. They do old school, old school gentlemen. But that that is you know, what ends up really driving a lot of debates is how can you consistently make money above and beyond your costs, above and beyond your taxes? And the answer is usually I'm that good, but most people aren't. That's right, that's what

most people think. And ultimately, most people think they're better than average drivers and better than average intelligence and so forth. We're overcomp lake exactly, and so ultimately I think that's the best strategy. Now, that said, the call that your partner is referring to is, yes, I believe that stocks right now are almost overvalued by a factor of two, and I think that what that means over the next

ten years. I have no idea what's going to happen over the next year or two, But over the next year ten years, we're gonna have lousy equity returns. In my opinion, we're also, however, going to have lousy bond returns and allows the cash returns and probably allowsy real estate returns as interest rates ultimately regress back up toward normal levels. So I don't there's very little financially that you can invest and feel like there's a huge return.

So I just think we're in a period where the next ten years are gonna be a lousy for financial assets of all kinds. What about you know, we look at Europe much cheaper than us, we look at emerging

markets cheaper. Still, what about that as an opportunity? If you really believe in a global asset allocation model, don't you want to have exposure to perfectly fair And I think that most of the valuation models that I've seen do suggest that that, in fact, emerging is a much better opportunity, likely a better long term return, but more potential return. So let me lay out a let's play with a scenario, and I have this for past few years,

I've been fending off earnings are at record highs. How is the market going to do better when earnings are record highs? And I turned around and say, well, we've had very very low hiring, we've had very limited capex. If um was it. The head of black Rock came out and said, hey, CEO s, start investing in your own companies. Lawrence Lawrence Fink came out, and a few other people have said, we're eating our seeding corn. We have to make more investing. So the more investments in companies.

So the scenario that maybe says future returns aren't terrible is that we begin right, We've already seen wage pressure. We've already seen Walmart and McDonald's and targets say hey, we have to raise our lowest salary because we can't find people can hire people at those wages. Maybe we're starting to see the early stages of a virtuous cycle where wages go up. Ultimately this is inflationary, but it takes a few years to get their wages go up.

There's more hiring, there's more spending, there's more profits. Companies say, okay, the financial crisis is behind us. They do a little more capex, you get another round of virtuous benefits and sun the stocks that looked kind of pricey are no longer all that pricy. I hope that happens. That is

a great scenario. And we have been in a system that for really thirty years now has effectively put shareholders first and ordinary people who actually work second, because they're viewed as costs and the ideas you pay them as little as possible. Now you do have a lot of folks coming out, and it's a great sign that Starbucks and McDonald's and others are doing this where you voluntarily pay people more than you might absolutely have to. And what people forget is that wages that go out in

the economy are revenue for everybody else. And so this idea that we're all just going to hike margins forever by firing as many people as we can, ultimately we're firing our customers. And that's the reins paradox of thrift. You can't, you can't cut your way to you can't.

And so I hope that exactly what you laid out happens, that in fact, wages do go up, profit margins come down because we are sharing more of the economy's wealth with the people who create it by working that that creates more spending by consumers who are no longer strapped. That is a great scenario. Likely do you see that scenario. I hope that that happens. I think it is likely

that wages go up. But to finish your scenario, which is that somehow in that environment we don't have rising interest rates at all, You're gonna have to have exactly you are. And so I think when rising interest rates go up, what arise. What happens is the housing market has to cool because mortgages get more expensive. Ultimately it

costs more to borrow money. Uh, you stocks get revalued because suddenly the bond market is actually yielding something, and that we may go through a long period where equities do not return a lot. But again, bonds are looked terrible on a long term basis, to scary to invest in. And interest rates rise, you get hose there too. So it's not unless you hold them to know that. But

but even then it's a it's a paltry return. We're just we're in a period stepping way back from everything from we have had this golden age of financial assets. I think that the levels on all these things are now going to go and reverse eventually, unless we're Japan, which is no great scenario where in stay at zero forever. Ultimately they reverse, and that the golden age of financial assets ends. And then maybe we go to real world

assets like you described, which would be wonderful. We bring back innovation, start getting people coming out of NBA's They don't just want to go into finance. They want to go build things that are great for consumers in addition

to financial products, which are also great for consumers. I don't want to hammer people in the financial industry, but there's a lot more other cool stuff out there to make other than financial products, and and so we could be headed for a golden age of that, which would be great. So when we look around the world, you've seen Japan at practically zero forever. Now Germany flirting with being depending on what time of the day it is. Sometimes the German Bund is actually cheaper than what we

see in Japan. And why wouldn't that pull US bonds down with the rest of the world. Look, Switzerland is now, hey, you want to lend us money, It will only cost you two percent to lend Switzerland money. It's kind of off the charts crazy near term. Could rates go lower, absolutely, and I'm not looking at that again, I'm stepping back

from it at some point. If things go the way we hope it will go, which is what you describe, which is companies start paying better, more people go back to work, we have full employment, you start to get more spending. Ultimately you get some inflation back in the system to a healthy level. Interest rates probably rise. I don't think we're in a period where you're gonna have negative or flat interest rates forever, and ultimately that wouldn't

be good. It would not signify a healthy global economy. So one thing we didn't talk about when we were discussing the launch of Business Insider was the impact of social media. You mentioned you made reference to Twitter and Facebook and LinkedIn, but we really didn't delve into it. What, um, how does that impact the news business first and just the world of an testing as well on the news business.

Social media effectively or another distribution channel that are very important for any media digital media publisher, whether it's news, whether it's movies, whether it's TV. Social is an incredibly powerful distribution platform and there are many different social networks they've carved out different niches for themselves. You have different groups of people on them. Twitter tends to be a very immediate group of people, news hounds. Facebook it's about

your friends and it's about stories you might like. Maybe it's not compelling news that's happening now. Pinterest is very contemplative, beautiful pictures and places to go to, not immediate in the same way. So each social network has its own audience.

People use it differently. But for those of us in the digital media business, they are wonderful distribution platforms and in terms of investing, Facebook is illustrated they can be marvelous investments once they gain a huge percentage of their market. Facebook right now is most of the upside there was captured before they went public, but it has been a

very good public investment as well. And if you look at Facebook going forward, as long as things continue to go well they are they have taken their margins way down because they are investing incredibly aggressively for the future. That's five to ten years out and at some point they don't have any content creation costs. All they have to do is make the platform and other people publish into it, so eventually they should have very nice looking margins.

And and what about Twitter, which is struggling a little bit, at least on the business side. I know, in terms of the content and news side. If I'm stuck out of the office and just grab my phone, I can't tell you how often non farm payroll I don't really care about non farm payrolls report. I think it's the most overhyped and I've written about this a ton of times,

but I also I'm curious with the number. Is So, when if I'm out of the office, if I'm away from a Bloomberg terminal, and non farm payroll comes out, the first thing I do is I reached for Twitter, and I will get all the data, all the information, comments, observations, whatever, before it shows up anywhere else. Is Twitter the new tape? Is that? Is that? I think that's the way to think about It's the new tape. And and so what

does that mean? Well, it means that those of us who are news addicts are all over Twitter all the time. Journalists are all over Twitter. Celebrities. It's a wonderful way to connect with millions of people who are interested in you. But it turns out that the news addict percentage of the population is probably ten of the population for most other people as Sure, if it's important, let me know. But I'm not going to be glued to a tape all the time. And Facebook is the one that has

captured that market. It is. If it's really important, it will surface in my stream. Otherwise it's about friends and family and local stuff and that's meaningful to me. So that's interesting. So take us through a day in the life of Henry Blodgett. What you know, your colleague Joe Weasenthal who's now here Bloomberg along with you and everybody else, a few of Mike are swallowing the whole world. Well

we have um. He very famously would would wake up at some ungodly hour and you know, basically start his day. What I miss? What's going on? What? What time does Henry start his day? Well? I used to do that. I used to be on the couch at five o'clock in the morning. And my wife will tell these stories about how I knew you were doing the right thing when I would hear this uproarious laughter with you amusing yourself at five fifteen in the morning. Coming up the stairs.

She said, Okay, I know he's doing something that is good for him to do. We'll keep that up. Now we have other great people who do that. I get up generally around six, I see what the news is, I see how we're doing it. I go in. We now have a very big team of great people, and so a lot of what I'm focusing on is trying to make sure the ship is sailing in the right direction, getting everybody behind it and so forth. So, unfortunately, don't have as much time to write as I did before.

I love to write, miss it, but sually we'll find a carve out some time to do that. You used to write at least daily. Now I barely see your byline, Go go buy once a week or so, that's right. I used to write five to ten stories a day because that the pace. Absolutely, that's right doing it back in and he taught us all how to do it, and and so I was definitely doing that, and then it went to about it once a day, and you're right now it's about once a week. So do do

you miss that? Or is it good to step back and focus your efforts elsewhere. It's good for the company. Somebody needs to be looking ahead and hopefully heading us in an intelligent direction and getting everybody working together. And one of the things you realize is you grow a company, and I'm sure you've seen this as well, is it's just when you're leading and managing, you have this privilege of managing somebody, smart people. It's about them, and I want to help them become great. And so I do

miss it. I love writing, and I love what we're doing now, and it's fun to continue to do that. And at some point, hopefully I'll be able to do a little bit more of that. But right now we're in a phase where we're growing incredibly rapidly, so all of my attentions focused on that. So who were some of your early mentors UM, either in this industry or on on Wall Street? Well? As an analyst, I was fortunate enough to get to know several other senior analysts

who are excellent. One is Alice Schroeder, who I think is um been associated with Bloomberg along with pretty much everybody else in the world at one part or another. She wrote the book about Warren Buffett. Of course, very very smart and I think so, and she was a wonderful mentor. Steve Levy as a mentor of technology different different Steve Levy, but a technology analyst. I had a couple of folks. Chris Katowski, who is the head of

research at Oppenheimer, was a great um mentor. So lots of people in the Wall Street sell side business, lots of great investors. One of the great privileges at that job is that you get to hang out with just seriously smart people. For me to sit down with Julian Robertson, have Julian say, like, Henry, what is it with this Amazon? It's a bookstore? It's iculous, And so I would hear

how he was thinking about it. I would tell him how I was thinking about it, and to be extaviitled to change ideas with that, and and so many just one after the other, these incredibly smart people. So UH got a wonderful education there. And then after I left, I met Jack Bogol and I went through all the indexing and ultimately, as I said, became convinced that that was the smart way for individuals to invest. So on the on the research side and analytical side in Wall Street,

I have wonderful mentors. In terms of business, there were a lot of pioneers in digital media and journalism that we looked to that were very helpful. And I had, in following a lot of dot com companies during the nine nineties, had seen lots of entrepreneurs and were was around the VC community and so got to know that very well. And my partner, Kevin Ryan was was had founded several companies by that time and built them, so it's very helpful to work with him. How did your

relationship with Jeff Bezos developed well? I covered Amazon as an analyst and I met Jeff occasionally at analyst a is and was, as I said, very impressed with Amazon. Unfortunately worked out from a following at point of view, and Jeff delivered on everything he said he was going to deliver on, and I loved the service. And one of the things that Jeff hammers on again and again that has been so great for me to think about in in running a business is they're just obsessed with

customers and making customers happy. And ultimately I feel like we do a great job with our readers and users that will everything else will take care of itself, and so that lesson has been very helpful. But so I fell out of touch with Jeff for ten to fifteen years and then I was writing a fair bit about Amazon on Business Insider, and one day I got a call saying, we want to have dinner. It's like, sure,

be great dinner. So we went out to dinner and had a good too in New York and in New York talking, we talked about the old times, and we talked about the New Times, and we talked about the media business. This was before he had bought the walls the Washington Post, and he was a very interesting reaction to it. He said, look, I actually like this business. I think it's very interesting, and I think there's some similarities between commerce and media in digital and so we

talked about that and that was interesting. And then six months later he said, hey can I invest in? It wasn't like you were you were pitching him basically, this was holy un un what's the word I'm looking for? This was unsolicited you Basically he said, hey can I invest? And You're like, okay, absolutely, the check that that is um So that's really quite an endorsement from from a guy like him who's been just so wildly successful, very

much so. And just again, it's such a privilege to spend any time with him and and some of the guidance that he has given by what he does at Amazon. What Amazon does is tremendously helpful, but he's also just given me some individual guidance that's been wonderful. You know, a lot of people don't realize he was a D. E. Shaw the large hedge fund for a good couple of years before in the nineties, before launching Amazon. You know, he's a sending character. I think people really don't know

who he is. I think that's right, and I think that he now that Amazon is is successful and is viewed as a success story, people are starting to appreciate the value of his long term view and commitment. But again, as an economy, I think we have so much to learn from that we have become so short term oriented,

so obsessed with this quarter maximizing profits. He just shows again and again that if you have a vision and you're willing to make big bets, and you are communicating very clearly with your shareholders about this is what we are going to do again and again. If you don't

like that, don't own the stock. Ultimately, there's a lot more flexibility than we think in how we run companies, and I just see so many Fortune five companies that are scared of the activist shareholder making such short term decisions cutting R and D, firing everybody they can, rather than saying, hey, there's a big future five ten years out, let's make a big bet and go after it. And we need more of that in the economy. You know, the rise of so called shareholder value, which is not

the law, It was just a philosophy. I think it did a lot of damage and it's now starting to fall out of favor because you see companies like Apple. You couldn't have created an Apple without going back to that first iPod and willing to roll the dice on something like an iPhone or an iPad. And you know, most companies don't have the ability to make that sort

of bet. By the way, if you ever want to have fun, use the way back machine, use Google and look at some of those early reviews for the iPad or the iPhone for that matter, and they were brutal. They were terrible. Um. John Gruber runs Daring fire Fireball, which is a blog I really like, calls it Claim Chowder, and he occasionally publishes them, and some of them are just so horrifically shortsighted. It's one thing when Steve Balmer says, you can't change the battery, what who's gonna buy one

of these? He's biased and you expect him not to get it. But professionals who were supposed to be either tech journalists or vcs or I hate the word futurists, when these guys miss it. It's like, wow, what do these guys do for a living? It's amazing, that's right, And I think to your point, the if you go back to the early nineteen eighties, which is where the shareholder value movement started, we had Gordon Gecko, famously character

in the movie Greed Is Good. In those days, our companies needed a kick in the ass, and you had managements over rewarding themselves huge perks on the company. We had different tax schemes, so ultimately you wanted to create perks, and the companies had incredibly low margins. We needed as an economy to be kicked into shape, make the company's

more efficient, more profit to shareholders, and so forth. But now the pendulum is a strong way too far the other way, and we have forgotten that a great company will not only deliver current profit to shareholders, but ultimately will be a wonderful place to work, will sustain all the people who work there in a way that takes them above the poverty line, gives them a good life. Effectively the middle class that we had that we have lost.

That's what we should be striving for. Our companies should be serving a balance of their constituencies, not just short term shareholders, especially not just activist shareholders who ultimately whether they do a lot of good. But there are also folks who clearly it's basically just pay me off so I will go away. I was always astonished at people going not to keep talking about Apple, But here is what is literally, not not an exaggeration, literally the most

successful company in the world. And what makes you think that you, Mr Hedge fund manager, are going to tell these guys how to run their business. You live the vent the iPod. You didn't invent the iPhone. You didn't invent the iPad. You didn't invent Apple TV, you didn't vent Apple Watch, you didn't invent a MacBook Air. My laptop is such a delightful thing and I use it to death. That two years in the battery is like

it used to last nine hours, eight hours. I could fly to California on on a charge, and I use it back and forth on the train every day, and I just charge and drain and charge and drain this battery twice a day. And eventually it's like, gee, I'm you know, I noticed by the time I got home, Wow, I got I'm really going so I want like this laptop so much. Hey, what's it gonna cost for a new battery? Great? Put it in. And they were a pleasure to deal with. And I know the next one

is going to be fantastic. Um, but I just can't bring myself. It's it's not even two years old. It's that good. How can anybody tell these guys you need to do more share buy backs? You, Hey, they're looking. It's obvious they're looking at almost two dollars. They want some. It's it's that simple, that's right, And they're getting it. And Apple has listened on the share by backs, but the idea that they should suddenly dive it, end out all the cash and or buy or borrow. A huge

amount of this is the technology industry changes quickly. Yes, they have a depression mentality because they went through the depression, got their butts kicked. So having a big mountain of cash as your savior or just sort of savings account, no problem with that at all. And people don't realize that. The young guns out there don't realize if it wasn't from Microsoft putting add into Apple, well, it's served Microsoft's purpose.

Because of Apple went belly up, there would have been no other legitimate competing operating system to them, and so they just happened to be that. Steve Jobs came back, cut that deal with Bill and Lo and Behold ended up. He had to talk about having a ten year vision, but how many companies would have that free reign from shareholders. I talked to hedge fund guys who tell me they have clients who email them if they're you know, slightly

soft for a week, forget quarterly, forgets monthly. There you know, the markets up and down for a week and they're not making money that week, and they get shareholders saying, hey, half, some of you guys aren't making me any money this week. That's right. We've got so many incredibly smart, aggressive, competitive people focused on a business in which unfortunately corporate investments like that and investments in R and D can't pay off in a week. Sometimes you do have to make

a five to ten year bet. And we just need as an economy to figure out how to get balance back in the system, to have good profit margins, not record profit margins, and good salaries, not the lowest possible salaries. Otherwise we're gonna hollow out the economy, and that's a real problem. I know we only have you for a fineite amount of time, So let me ask you some of my and ever increasingly finite amount of time. Let me ask you, um, my last few questions, some of

which I ask all of our guests. What do people not know about Henry Blodgett that you would want them to know? I think at this point everyone knows more than they want to know about Henry Blodgett. But it's wonderful to be here, and thank you for the question, okay, um, And and so now for our our standard big three questions,

what has changed since you joined the industry? And is this a good thing or a bad thing since I joined the finance industry or are they well I'm now part of what has changed over the past twenty years in finance. The industry has just gotten unbelievably professionalized every step of the way. But just before I was an analyst, companies used to send out their earnings by facts. It wouldn't even hit a wire would go out of the facts,

and maybe the analysts would call that night. There wasn't a call where everyone gets on and listens and all that stuff. To now we have earnings distributed, you've got regg f D, you've got these closed conference call. Everything else has just gotten so professionalized, and so I think ironically that has eliminated some of the opportunity that was there for some of the smarter asset managers back twenty

years ago has now been effectively arbitraged away. Because when you've got to David Einhorn's competing with each other, they're both incredibly brilliant and see everything, there's not a lot of opportunity left, especially for somebody looking in from the outside, trying to trade from home. So then let me ask you the follow up question, which is what major shifts do you see coming up in the future, both in

finance and in media. In finance, I think the recognition that indexing is the best way to go from most individual investors and a lot of corporate entities will gain increasing sway. Ultimately, it's just is it is the smart way to invest uh in media. I think that the big profound change that we're going to see is the current demographic that's described as millennials sixteen or thirty four,

depending on how you want to describe it. They spend seven of their media time on digital, on the smartphone, at on computer, and then a little TV on top of that. That is the future in ten to fifteen years. They are the mass market, and those of us who grew up reading the newspaper are going to be on our porches surveying the last few years of sunsets before

we leave this earth. Those media will leave the earth, you will have a whole new group of brands uh, some of which I think we're starting to see now. But ultimately, this idea that the millennial generation is going to reach thirty five and suddenly develop a hunger to get a newspaper in the morning is a little bit misguided. I still get the New York Times at home, and the only reason I get the print edition is because

of my dog Max. His chore was to go out and get the paper, and since he passed away in February. I haven't had the heart to kill the paper that if that is coming. It's just, you know, I used to have ink stained hands. And then just similar for us, we got to in our family because we were worried that our our kids were brother growing up to be videots. They spend all the time in the screen. We've got

to get the paper. And the paper sits in its tube on the front stoop all day and then I come home and pick it up and take it and stick it in the recycling. And it's not that it's not filled with great stuff. It's just that I get it through other means. I get the Wall Street Journal in the office, the Times at home, and very often it just they just end up the same thing. By the way, the Wall Street Journal app for for the iPad is great Times isn't that bad. But the Journal

app is fantastic as a digital distribution device. But I still end up doing the bulk of what I do on the computer as opposed to the iPad or the I phone. Last question, everybody gets this, um, what do you know today about investing that you wish you knew when you began? And by the way, you can expand that to investing Wall Street Finance. What do you know about the industry today that you wish you knew way

back when? If I had known what I know nowt about the difficulty of picking stocks successfully and beating the market, I would never have been able to do the job that I did in the ES. So in a way, I'm glad because it was a good experience for me. I loved watching the boom, the Internet boom, getting to

know all these companies analyzing them. But after I left the industry and I read a lot of the academic research and really understood the arithmetic of active management and understood that, it became clear that unless you are getting paid to manage somebody else's money, that the best way to invest is to invest in index months. And that is it's not an opinion, it is demonstrably the fact. The math is hard to exactly, and so if I had known that, it would have been much more difficult

for me to be a stock analyst. Although the primary constituency for most Wall Street stock analysts is helping active managers for trying to pick stocks, so that it's not a knock on anybody that's in that business, it is a wonderful, incredibly intellectually simulating business that's endlessly challenging, and some people do end up beating the market, and there's

no reason not to try. But if you're an individual, your odds of finding those few people who are going to beat the market consistently after taxes and fees are so small that it is just simply not worth even trying. And if we look at indexing today, I want to say, it's about fIF of the total assets invested. Sure, Van Goard has three trillion dollars about which are indexes, But overall it's fairly early in the rise of indexing. It's not like, hey, this has already happened. This is still

I don't know, second or third inning. Is that a fair Yes? I think so, And everyone said wow, But what if when index has become such a big percentage of the market, then there's that much opportunity, then alpha will be great. When we talk about right, when we get to seventy eight percent, then maybe you can start talking.

I don't even think it will get that far. I think once you hit fifty or so percent, and there's nothing magic about that, but once it's half the market Suddenly the lack of opportunity that we've seen in hedge funds and stock pickers and mutual fund managers, suddenly there's

that much less of them. The competition gets reduced, and maybe when everybody is quote unquote everybody is indexing, maybe that creates a greater opportunity for when it's of people stockpicking like you and Charlie Ellis said, the competition is so intense, all these guys sort of cancel each other out. Flip that around and say what happens when it's only thirty or stock picking. Hey, maybe the competition is that much less and the correlations go down a little bit

and we see some alpha generation. Right now, it doesn't exist. It's tough. Well, Henry, thank you so much for being so generous with your time. I know you have to be somewhere um you've For those of you listening, be sure and check out I guess if you're listening this far into it, you probably are are familiar with the other podcast. You can look up an Inch, Down an Inch, and and find all the rest of our podcasts on

either Bloomberg dot Com or Apple iTunes. Be sure and check out my daily column on Bloomberg view dot com or follow me on Twitter at rid Halts. I want to thank Um Henry for spending so much time. Barry, thank you. This is great. You're one of the best financial commentators and smartest guys out there, so it's a huge pleasure. Keep more, keep going, You're enormously six more. Sucking up is the line from from a Pretty Woman. You've been listening to Masters in Business on Bloomberg Radio.