Insights from a Disgraced Wall Street Stock Analyst

Do you remember Henry Blodget? Blodget was the highly touted Merrill Lynch internet analyst that later banned for life from the securities industry by the S.E.C. after is was disclosed that he gave private, internal assessments on stocks that were less than glowing from the reports he published for his firm. He initially came to fame at Oppenheimer where he predicted Amazon would hit $400 (presently trading at $71.60), which it did one month after his pronouncement.

Blodget has turned to writing and is now doing articles for Slate, The Atlantic, and The New York Times. He’s also editor-in-chief of the Silicon Alley Insider, which he launched last year.

What does a former stock analyst who intimately knows the ins and outs of the markets and Wall Street think about index funds and asset class investing?

Here are his comments from the current issue of Fast Company?

“After I left Wall Street, I studied a lot of academic research, and I was startled to discover that stock picking, market timing, and other popular investment activities usually hurt investors rather than help them. This is an indisputable fact, but it’s actually not common sense. On the contrary, most people think it’s ridiculous. Most people assume that index funds only do well because most investors are stupid – which is delusional. Until you understand why indexing works, you’ll always be wasting money and time searching in vain for the next great stock-market guru.”

You wonder how many Wall Street investment managers earn fortunes charging high fees to pick stocks, but privately invest like Asset Class investors.