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A Personal Note

Before sharing some thoughts from the Web 2.0 conference in San Francisco, I want to offer a heartfelt thanks to everyone who has posted or sent encouraging comments in the last few days.  The readership of the blog exploded after John Batelle and others linked to the Microsoft note on Tuesday, and I am relieved and grateful that so much of the feedback has been positive.

Of course, some of the feedback has not been positive, and I also want to briefly address this.  For those of you who aren’t familiar with my background, I was a high-profile Wall Street analyst during the Internet boom in the 1990s.  My career followed the trajectory of many early Internet companies (i.e., a parabola). Over the course of eight years, I went from a training program to the top of my field—in 2000, I was the “most read” analyst on Wall Street—and then, ultimately, to humiliation and disgrace.

One reason for my success in the boom years is that I was optimistic about the prospects for a handful of Internet companies at the right time—namely, when, quarter after quarter, year after year, they were blowing even the most exuberant projections away.  I expected a big future for some of these companies, and in some cases, happily, it came to pass.  Of course, many other predictions I made did not come to pass, and I had numerous opportunities to agree with my first boss that one hazard of being an analyst is the frequent need to fall on your sword.

The first stage of my own personal dotcom bust came when, along with many others, I stayed optimistic too long. For me, this was especially frustrating because I had expected that there would be a major reversal at some point, that the industry would follow a typical boom-bust-boom pattern and that most early entrants would fail. I got the macro pattern right, but I blew the timing.  I also vastly underestimated the impact the bust would have on the Internet leaders, the technology industry, and, ultimately, the broader economy.  Like most economic phenomena, these events are screamingly obvious in hindsight, and I will always regret not nailing them ahead of time.

The second stage of my fall—the one that vaulted me from a vast pool of red-faced analysts into a regrettable place in history—was a regulatory investigation into the interaction between the research and investment banking functions at Wall Street brokerage firms.  In the course of this investigation, the SEC alleged that some remarks that I and my colleagues made in emails were inconsistent with professional opinions in our published research, and charged me with civil securities fraud (to read the complaint and emails, please visit www.sec.gov). Along with other parties in the research complaint, I settled the charges without admitting or denying the allegations, paid a humongous fine, and agreed to be barred from the industry.

As anyone who has been involved in a legal proceeding can attest, one of the most frustrating and painful side effects is that, except for standard boilerplate, you can’t discuss the allegations publicly.  In my case, for a variety of reasons, the blackout is still in effect, and I have been unable to talk about the details outside of a legal context.  I won’t be able to talk about them here, either, unfortunately, but I do want to say that my silence is not an attempt to ignore or disavow the seriousness of what happened.  Everyone who listened to me in my Wall Street years deserves forthright answers to many perfectly reasonable questions, and someday soon, I hope to be able to provide them (preferably this century, preferably pre-humously).

Since the 1990s, I have had the privilege and responsibility of having a lot of people be interested in what I have to say.  I take—and have always taken—this responsibility extremely seriously.  In the last few years, I have written a fair bit about the bubble, Wall Street, investing, and other subjects, and I have tried to shed light on many popular misconceptions about Wall Street and the investment world (including the role of research analysts in the investment process).  I hope that you find some of this writing—as well as some of what appears here—worth reading.

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19 thoughts on “A Personal Note”

  1. Henry,

    Great comments and damage control – maybe you should consider a career in PR in your next life 🙂 Everybody deserves a second chance.


  2. I am fascinated by your re-emergence into the public sphere. Particularly given the warm welcoming that many highly notable people have given you in top tier periodicals and venues. As you point out the positive as outweighed the negative response. It is a masterful rehabilitation that would not be given to many.

    I am very curious to know what you attribute this to?

  3. I’m a 27 year old investor, father of 2 and new to the game. My initial impression of what you’ve written here is that you couldn’t have been the only one who got it wrong. In the few years I’ve been into this, there have been a number of stocks bearing a Buy rating that I’ve gotten into and sold at a loss…happily I might add, as most of them reach lower a lower base and the reccomendation eventually changes.

    Carpe diem (being a former Latin student, I hope I got that right) – this is the most important thing for investors to keep in mind.

    Unless you were paid by the companies you were providing analysis on, I’m not assuming your story is any more scandalous than that of millions who over the span of history have made mistakes and paid dearly for it.

    You’re brave for getting back in the game, and I’ll be reading your opinions with an open mind.


  4. Henry – count me on the positive side of the register. You’ve experienced the accolades and the opprobrium, but you’ve retained your voice. I’m looking forward to hearing your future stories and analyses.

  5. In response to chaacke, he WAS paid by the companies. Not directly, but the advisory fees (IPOs, mergers, acquisitions, disposals and financing)went into the big investment bank melting pot of a bonus pool that he may have been credited with getting a disproportionately large share of on the back of his work.

    I can’t condone what he did but I do understand. Morality is determined by society, not the individual. It wasn’t that long ago that it was okay to send small children up chimneys or to own black people as slaves. The merged bonus pool was standard practice for all banks (and to a certain extent still is) but perhaps ML felt the wrath of Spitzer more than most because of its significant base of retail customers.

  6. and in response to Internet Hype, whether you make money investing depends on your entry and exit points (unless the company goes bust of course, but even they you may still get a positive return on liquidation).

    Your examples:
    InfoSpace – 570% return since Sept 2002
    24/7 Media – 221% return since May 2005
    Lifeminders – 325% return since Mar 2001
    Homestore.com – 234% return since April 2005
    [email protected] – liquidated
    Internet Capital Group – 153% return since April 2005

    Hindsight is a wonderful thing. Pick any technology company you like and predict its revenues for 2010. If you can do this to within 10% then please apply to your nearest investment bank for your $250k position.

  7. I don’t know if I’d have the balls to show my face after the public dress-down you received and the legal issues that ensued. Hats off to you for that alone. But just like VC’s who, frankly, look for people that have been wildly successful *or* have failed hugely, both have learned and both have value. You obviously have learned quite a bit, have the gonads to wear your Scarlet Letter publically and are moving forward.

    Set your intention and go. Forget about those that will naysay forever (provided your intentions are, in fact, honorable). You’ve learned a lot and have played the game at a high level and undoubtedly fully understand what’s in front of you to regain the trust and credibility in this space. Good luck.

  8. I only wish it was you up there on the stage at Web 2.0 discussing the future of the Internet and not you know who. It is a sad irony that at a celebration of Web 2.0 we remain stuck in a Wall Street 1.0 mindset. The Internet industry continues to shuffle deck chairs on the Titanic that is Wall Street. The lessons you (and I and others) learned from the end of the first bubble need to be shared openly. It is nice to believe that things have changed since 2000 in terms of disclosure and a level playing field for companies and investors; while the fact remains that transparency has been a victim not a beneficiary over the past few years. The public does not really need another startup AJAX MSFT-killing word processor; nor does it need another vertical search application monetized through Adsense. It does however need an honest, humble context for making sense of all this noise. And that is where you come in. Your readers will vote with their clicks and RSS subscriptions. These are far more meaningful than the votes of a mutual fund or the discretionary bonus of a sell side boss.

  9. Henry: there seems to have been a lot of rear mirror thinking going on in regulatory circles. Until 2000 I worked for a number of US investment banks and all followed the same practices around chinese walls and remuneration. Unfortunately to my mind you (and probably Quattrone) became the fall guys. Still it is now time to move on. You will I am sure bring great value to this online debate. You are now on my RSS list and best of luck!

  10. Great to read that you’re back in business. I remember reading the events in Amsterdam. Glad that the clouds have parted and that Version 2 is going to fun again.

  11. Welcome back Henry! Know that there are a lot of us out here that think that the attacks on you, legal or otherwise, were complete BS. Looking forward to reading more of your insights.

  12. Henry,

    You had a tough fall, and we know that certain pressures you probably dealt with were overwhelming. I didn’t agree with all of your calls, but valuing techs was never an easy task. However, I did enjoy reading your work, whether I agreed with them or not. Anyhow, best wishes on your blog, and I look forward to reading and commenting on your future posts.

  13. Henry, I’m from Texas, the West, where a man can go to restart a life that may not have gone right. You admitted you’re short-comings. Fair enough. Like others have said, it’s time to roll up our sleeves and move on. I’ve screwed up too–two failed start-ups–and it is tough to come back. But back here is where you need to be. And unincumbered by the BS that is still out there in the market. Frankly, I can’t think of anyone that can give those of us who have not worked in the markets a better and more insightful vantage point into the how’s and why’s than you. Youre talent speaks for itself. So, I’m glad you’re here.

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