Henry Blodget was a poster boy for the internet bubble. As internet stock analyst for Merrill Lynch he was a shameless tout for internet stocks collecting and in his thorties collected annual compensation in the eight figure area in the process. He also was trashing in internal emails the same stocks he was praising in public. Then NY State Attorney General Elliot Spitzer got hold of the emails and Blodget got hold of copies of the emails, Blodget paid major fines and is banned from the securities industry for life. As Blodget himself notes in his book with regard to this “it is what it is”.
Blodget does not shy away from the episode. He doesn not revert to the excuse that “everybody did the same thing” or “that’s how the system worked (and works). While I personally would find neither explanation satisfying, to deny that they are true would be illusory. We are talking about an industry where one of the working mottoes in discussing a deal is IBGBT: “I’ll be gone by then”, in other words by the time the deal blows up the investment bankers will have collected their bonuses and either retired or moved on to bigger and better 9for them) deals.
But Henry Hurt III in the NYT does not hesitate to dwell on Blodget’s past and dismiss out of hand Blodget’s recent career as a financial writer for SLATE, Newsweek and other publications and his excellent new book The Wall Street Self Defense Manual.
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.
I for one strongly disagree with the above. I am in no position to judge Mr. Blodget’s rehabilitation but I certainly give him credit for not going down the road of folks of the Enron, Tyco type that proclaimed innocence all the way through. If Mr. Hurt thinks Blodget’s fine was too small he should have sharp words for now Governor Spitzer, not Mr. Blodget. I don’t recall any plea bargain in which the convicted felon insisted on a higher monetary penalty or time in prison. If Mr. Blodget, in his early forties, has chosen to devote his professional energies to better educating the public on investing, well it may not be up there with working in an AIDS clinic in Africa, but he is providing a public service.
As for Mr. Hurt, his journalistic opus has included NYT columns on the wonders of handmade shoes and suits with prices equal to the per capita income of most of the lesser developed world.
Now to the book and accompanying website themselves. It is the product of what Mr. Blodget calls a reeducation in which he unlearned everything he had learned about “investing” on Wall Street.
As someone who is familiar with most of the available books on investing for the general public, I would definitely put his book near the top. He doesn’t present any radically new advice, there is no reason to, and he just presents the case for true “sensible investing”: use of passive index instruments with no short term trading. He writes well and is quite thorough in his presentation of the case for passive investing, how to evaluate proposals from advisors, the nonsense spouted by the financial press (you know I loved that section) and how to evaluate “track records” by fund managers.
This lengthy except from the book’s introduction is worth posting here (my bolds):
….One benefit of getting tossed out of your industry is that you get to look at it from the outside. (And I should say here that by “industry,” I don’t just mean the brokerage business. I mean the whole brokerage industrial complex—brokerage firms, mutual funds, investment advisors, the investment media, and the dozens of other businesses that operate in and around the markets.) This perspective helped me see that there is still a vast gulf between how most outsiders think the business works and how it really works—a gulf that frustrates not only outsiders but insiders. It helped me discover that many investment practices I thought were worthwhile,were actually a waste of money and time. And it helped me understand how, in a variety of ways, often with good intentions, Wall Street helps many small investors screw themselves.(well, I wouldn’t be quite so charitable about the intentions of the industry)
The secret to intelligent investing is not news. It won’t fill you with excitement or make you feel like a market wizard. It won’t make you rich quick or solve your money problems. It won’t relieve you of the need to do what most Americans hate to do (save). It won’t impress your friends or make you the toast of cocktail parties. It will, however, make you a lot of money. Here it is:
Diversify your assets, reduce your costs, and get out of the way.
That’s it. No stock picking. No market timing. No forecasts. No tips. No TV. Why? Because the market odds are in your favor. In a casino, if you play long enough, you will lose. In the financial markets, if you play long enough—and don’t make mistakes—you should win. Unfortunately, not making mistakes is easier said than done.
One problem, much lamented, is that our interests differ from the interests of those who tell us what to do. Despite the squawks of the media, this isn’t scandalous; it’s just reality: There isn’t a business on the planet (including the media business) in which the interests of employees, customers, and owners are perfectly aligned. Another problem is that one size does not fit all: Good advice for a hedge fund might be terrible advice for you. A third problem is that, all else being equal, we would rather have fun than be bored, and investing unintelligently can be really fun. A fourth problem is that we are genetically programmed to make investing mistakes.
The upshot is that most of us throw away thousands of dollars a year on bad advice, shoddy or overpriced investment products, and poor choices—and far more over our lifetimes on subpar returns. If investing were only a diversion—like stamp collecting, say—this wouldn’t matter. Thanks to troubled Medicare and Social Security systems and a shift away from traditional pensions, however, intelligent investing has become critical to our future independence and self-esteem.
We invest unintelligently, in part, because we lack a framework with which to evaluate the bombardment of advice emanating from Wall Street, the media, advisors, and friends. The first part of this book, A Self-Defense Framework, provides one. The second part of the book, Practicing Self-Defense, applies the framework to financial advisors, mutual funds, hedge funds, investment research, and the investment media, and shows why,
despite Wall Street’s dangers, you will always be the biggest risk to your returns. The third part, A Solution, describes an investment plan that allows you to make mistakes but still generate an above average long-term return.
Investment books usually come in two flavors: the you-too-can-be-Warren-Buffett type, which promises to tell you how to get as rich as Croesus, and the what-they-don’t-want-you-to-know type, which portrays Wall Street as a conspiracy of shysters. This book is neither. The average investor will not get tremendously rich in the stock market, and Wall Street is actually not out to screw you.
We love to dream, and we never tire of scandal, so these two genres will always be with us. Unfortunately, neither will tell you what you most need to know to make smarter decisions and get Wall Street working for rather than against you. For that, there’s The Wall Street Self-Defense Manual.
As an investment advisor that charges an annual fee for investment management using the approach he describes I particularly appreciated his instructions for readers on evaluating whether or not to hire a financial advisor to manage their investments.
I fully agreed with Blodget, there are many good reasons not to use a financial advisor: the basic advice is available from very low price or free sources, and an intelligent person could pretty much do it themselves.
On the other hand: there are many people that “don’t want to deal with it”, that might not have the discipline to stick to the strategy and are uncomfortable doing it alone.
In that case Blodget advises that if you can find an advisor that
· Charges less than 1% per annum
· Gives access to investment vehicles not available to the general public (like maybe those of Dimensional Fund Advisors?)
· Makes use of an asset allocation approach with index instruments
· Does not promise to “beat the market”
· Tells you that one of his main functions will be to keep you from making the mistake of acting on emotions and straying from you long term strategy.
It may well be worth working with that person.
Obviously (since this is exactly what I do) I couldn’t agree more.
In a world in which the nonsense of Robert Kiyosaki’s Rich Dad Poor Dad and Jim Cramer’s “Watch TV, Make Money” top the bestseller lists. Henry Blodget’s Wall Street Self Defense Manual is a welcome antidote. Henry himself has some choice words about Cramer, you can read about it here,
or here
I plan to offer a free copy of the book to all my clients and prospects.
Good job Henry!
