Henry Blodget, Redeemed?

The banned-from-the-biz ex-analyst's candid commentary has become a must-read

I owe a debt of gratitude to Henry Blodget. Yes, he of the great dot-com bunco—you know, that $400 Amazon call, his fat Merrill Lynch (MER) gig, the compromised research and e-mails that got him banned from the industry.

In 2000, when I left Wall Street to be a business writer, castigating him won me instant cred with readers. "You tell 'em, Farzad!" all the indignant e-mails seemed to say.

So I must tell you, I now admire Henry Blodget—for his audacious reincarnation as a tech and media blogger and author. I find his work indispensably frank, stuff you see all too rarely from an ex-insider.

You might think I'm a sucker. Indeed, my editor is cringing even as I write this. The knock on Blodget, after all, is that he's permanently damaged goods. In 2003 he settled securities fraud charges with the SEC, paying millions in fines. I lost a ton on a stock he privately called "such a piece of crap" (not that I bought it because he told me to). And who knows if Blodget 2.0 might relapse and loot Fort Knox—or worse, hawk mortgages? Fine—I'll take that risk.

Wall Street outcasts, not exactly paupers, usually crawl under a rock for good, ideally on a golf course in the Caribbean. Instead, Blodget has braved ridicule and scorn (and invited more) to have a say in the Web 2.0 market debate.

Last year, as if cruising for a bruising, Blodget famously called stock-picker Jim Cramer "perhaps the worst thing to happen to the financial security of average Americans since the crumbling of the Social Security system." When Cramer blasted back, calling him "a disgrace to the business and a creep," Blodget upped the ante in another column.

Those were not just empty pyrotechnics. They were part of a compelling body of work in Slate, New York magazine, and the Huffington Post. Blodget's year-old Silicon Alley Insider blog has rapidly become a must-read for techies, and he unapologetically anchors a Yahoo! (YHOO) videocast. Still, not-so-old impressions die hard. "Somebody muzzle Blodget," slammed blog TechCrunch in October. One book reviewer wrote of Blodget's 2007 The Wall Street Self-Defense Manual: "I've already given my copy the same kind of treatment that the author used to give certain Internet stocks in private—I've trashed it."

And yet, wiping the rotten tomato off his tie, Blodget keeps at it, chiming in loudest on stuff that most concerns mom and pop. "He was so discredited on the Street that no one there has given him a second thought since," says Steve McClellan, a former tech analyst who worked with Blodget at Merrill and is the author of Wall Street users' guide Full of Bull. "The thing is, he's rebuilding his reputation not with professional investors but with the individual investors to whom he did such a disservice—and whom the Street still neglects."

Blodget's overarching message: Trying to beat the market is a fool's game. "Even I used to pick winners," he wrote, "until I picked some losers, too, and blew myself up." Calling himself "a moron," he owned up to squandering $700,000 personally on dot-com investments "minutes before the bubble burst." Never have I seen anyone argue so persuasively for low-cost index investing. If Blodget has been faking this conversion, he should be on Broadway.

Not that he has been reduced to Personal Finance 101. In August his blog offered a cut-to-the-chase look at the deteriorating financials of New York Times Co. (NYT), with a breakdown of if-then scenarios across both Web and print. His brutal conclusion was one you just won't see in a daily sell-side report: There is no way for the paper to go completely digital without eviscerating its newsroom, and thus its prestige. "This, in short, is why newspapers are screwed." Over the next six months, Times shares lost a third of their value on worsening fundamentals.

In a world that has since moved on —Eliot Spitzer has been defrocked; Amazon (AMZN), adjusting for splits, would have been a bargain at $400—Blodget's work is his penance. No teary appeal on 60 Minutes. No revisionist press packet.

And here I am, totally unconflicted, urging a Buy.

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