Financial Advice From 'That Henry Blodget'
"LET us take pause on this glorious Sunday morning and imagine that financial misconduct is a stock. The question before us is whether to invest or not to invest.
If I were a preacher, I'd denounce investing in financial misconduct as tantamount to investing in evil itself. But if I were a securities analyst, I'd give it a strong ''buy'' rating. After all, market research clearly shows that misconduct pays -- especially on Wall Street, online and in the publishing world.
Just ask Henry Blodget, the 40-year-old disgraced former technology stock analyst who now refers to himself as ''that Henry Blodget.'' That Henry is the author of ''The Wall Street Self-Defense Manual: A Consumer's Guide to Intelligent Investing'' (Atlas Books, $12.95). Some of the content is based on his columns for the online magazine Slate. Most, if not all, of the promotional value is based on his career in white-collar deception.
That Henry was recently barred from the securities industry for life. I say recently, but his banishment actually occurred in 2003, more than three years ago. True believers in the growth potential and value of stock in financial misconduct see that as a positive. They'll remind you that in America, repentance, rehabilitation -- yea, even resurrection, reincarnation and redemption -- can occur almost overnight.
And why not? America is the land of second chances. We know the practical virtues of forgiveness. The bad can do us good. We can profit from studying financial misconduct. Erudite miscreants can teach us the tricks of their trade, and how not to be tricked again. Our enlightenment-fund management fees are minimal; we need only log on to the Internet or buy a book. Bottom line: everyone ultimately gains by putting their stock in financial misconduct.
It certainly helped That Henry on Wall Street. In 1994, he joined Prudential Securities as a 28-year-old trainee. He had an undergraduate degree from Yale, and some experience in financial journalism. Two years later, Oppenheimer & Company hired him to fill a tech industry research position. In late 1998, he raised his target price for the online bookseller Amazon, then hovering around $240 a share, to $400 a share.
Two weeks later, Amazon surged past $400, and almost overnight That Henry became a world-class financial celebrity. In 1999, he joined Merrill Lynch for a salary of $3 million a year. By 2002, his salary was $12 million. But even as he publicly promoted Internet stocks to help Merrill bring in investment banking business, he privately fired off a series of e-mail messages branding many of those same stocks ''junk,'' ''toast'' and several unprintable terms.
Then Eliot Spitzer, the New York attorney general at the time, and the Securities and Exchange Commission cracked down. As luck and some high-priced lawyers would have it, Mr. Blodget wound up negotiating a settlement in which he neither admitted nor denied any wrongdoing. As he puts it in the mea culpa section of his new book, ''Along with others, I agreed to pay a humongous fine and be barred from the industry.''
''The Wall Street Self-Defense Manual'' proves that Mr. Blodget is one heck of a storyteller, and that he has a sense of humor as droll as David Letterman's. He counsels readers to take the exact opposite approach to the stock market he touted as an analyst. He declares that ''passive'' investors who hold stocks for the long term and reinvest the dividends will fare much better than ''active'' investors who buy and sell stocks short term.
That may sound like familiar, conservative advice, but Mr. Blodget turns it into snappy sound bites. He cites, for example, a 2005 study of investment decision-making in which a group of brain-damaged people, whose specific ailment impaired their emotions but not their IQs, outperformed a group of ''normal'' people betting on a series of coin flips. No. 8 in his top 10 rules of Wall Street self-defense: ''Remember that brain-damaged people will outtrade you.''
Alas, two nagging problems provoked cries of outrage by the time I finished Mr. Blodget's book. Problem No. 1 is his hypocrisy. During his three years at Merrill, he earned upwards of $18 million in salary, according to Mr. Spitzer. The fine he paid was $4 million. That leaves him a whopping $14 million ahead of the game, not counting taxes and the legal fees attendant to his settlement agreement. The mea culpa section of his book neglects to do this math.
Problem No. 2 is that Mr. Blodget is still reaping rewards from his past actions. In addition to writing his column for Slate, he has contributed to Fortune, Newsweek International, New York magazine, and the Op-Ed page of The New York Times. He is legally prohibited from offering investment advice to specific individuals, and yet he markets advice to mass audiences about the very industry that barred him for life.
MAYBE I'm brain-damaged, but all that just rubs me the wrong way. I believe that everyone has a right to free speech regardless of past transgressions. By the same token, everyone has the right to evaluate speech and speakers, as well as the right to vote with their pocketbooks. The advice that Mr. Blodget now offers may be sound, but it's also rather mundane. Would a similar book written by Joe Blow attract similar attention?
Which brings us back to the larger question that began our inquiry: whether to invest or not to invest in financial misconduct. I don't buy That Henry's rehabilitation, and I don't recommend that you buy his book. In keeping with publishing-industry custom, I received a free review copy.
But I hereby state in public that I've already given my review copy the same kind of treatment that the author used to give certain Internet stocks in private -- I've trashed it.
OFF THE SHELF"