Blodget's Gone, But The Sickness Remains

People may dance on the grave of Henry Blodget's career at Merrill Lynch, but he doesn't deserve the disrespect. He was merely a poster boy. The real blame for the "Internet Bubble" goes to the media and the investment houses. They are the ones that made Henry a star and promoted him over better analysts. They played him for gain, and now they are dumping him for the Next Big Thing.

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By Brian Lund (TMF Tardior)
November 15, 2001

Get ready to hear a chorus of crowing and cat-calls from reporters and investment professionals. Henry Blodget -- a.k.a. Internet Bull Blodget, Dot-Com Cheerleader Blodget, Fair-Haired Symbol of Internet Mania Blodget, and innumerable other denigrating digs -- has accepted a buyout offer from Merrill Lynch (NYSE: MER). The masculine symbol of the Big Bubble (Mary Meeker fills the role for the other sex) is gone. The Bubble has popped. America can get back to the business of investing wisely.

Blodget doesn't deserve to be swimming in this sea of anger. I'm not going to say that he has demonstrated, as far as I've seen anyway, any great gift for security analysis. He probably didn't deserve higher prestige and pay than all Merrill's hard-working senior analysts, who happened to cover small-wheel manufacturers instead of high-flying Internet companies like Amazon.com (Nasdaq: AMZN). He stumbled into fame through an egregiously optimistic and baseless call on Amazon, saying it would soar from $240 per share to $400 (that's $40 to $67 in split-adjusted terms, but it sounds so much worse with the bigger numbers, so that's what you'll see in the news reports), which it promptly did thanks to a dose of investor insanity.

But Blodget is -- was -- just a pawn. He made his call based on whatever, and it brought him to fame. Why? Because he became a media darling, who used him to stir up excitement and suck in viewers. He replaced Merrill analyst Johnathan Cohen, who had a bearish target of $8.33 (split-adjusted) on Amazon. Why? Because Merrill Lynch wanted Blodget to sprinkle more magic dust, in order to draw in hungry investors and lucrative investment banking business.

These are the forces that drove insanity in the markets in 1999: media hype and greedy investment-bank firms. Blodget may have been the poster boy, but he was just a face. The fault doesn't belong with him, and the madness will not depart with him.

There's no need to savage Blodget. He is merely a symptom of the problem that creates irrational markets. He may have been cured for now -- to the tune, reportedly, of $2 million in severance -- but the sickness is embedded deep, waiting to manifest itself again. Maybe next time it will be excessive pessimism rather than excessive optimism. Maybe it will be infatuation with banking stocks or dirt-movers or turkey farms. Whatever it is, the media and Merrill will play up the trend, milk it for what they can, and then dump it like Blodget on the scrap-heap of life.

Good luck to you, Henry. I hope you can get back to a settled, enjoyable professional life.

Brian Lund is only rationally exuberant, but you can decide that for yourself. He doesn't own any of the stocks mentioned. The Motley Fool is investors writing for investors.

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