Merrill Lynch analyst Henry Blodget took a lot of heat this week for his downgrading a group of shaky Internet stocks about a year too late.
But everyone wants to know why he decided to do it now.
It's like a pilot asking everyone to put on their seat belts as the 747 slams into a mountain. It's not going to do you any good, but at least his conscience is clear for that last nanosecond before impact.
To be honest, as a passenger on that flight, I'd rather hear nothing about seat belts and go to my grave clueless rather than having that last-second reminder rattling around my skull.
Plus, I'd rather have my remains thrown all about the wreckage rather than have some investigators come in and point to my seat and say "Yeah, look what's left of that poor bastard. He never knew what hit him."
It's not life or death, but you can't blame Internet investors if they feel like they've lived their own horrifying nightmare following the advice of Blodget and other Internet analysts this past year.
Blodget made his name in late 1998 when he set a $400 a share price target on Amazon.com (Nasdaq: AMZN) while he was with CIBC Oppenheimer.
At the time, it seemed ridiculous but the stock continued to shoot higher as investors threw millions at the online retailer based primarily on its incredible revenue growth. Profits were never much of consideration for these investors, the analysts pushing the stock or even the company itself.
And Blodget looked like a genius.
At the time, Blodget admitted that Amazon.com was "scary to buy" at those lofty levels but he also advised investors that any "significant weakness" in the stock should be viewed as a buying opportunity.
At around $30 a share this week, Amazon.com's about as weak as it's going to get, Henry. Does that mean it's still a great buying opportunity?
Fast-forward some 20 months and we find Blodget at perhaps the most influential house on Wall Street covering his and his firm's backside by downgrading a bunch of stocks that have all but fallen completely off Wall Street's radar screen.
Making matters worse, several of the stocks that compelled Blodget to add a "neutral" rating to his arsenal were brought public by Merrill Lynch.
There's nothing inherently evil or devious about underwriting an iffy Internet IPO and then following it up with a "buy" recommendation and some positive research notes. But it does serve as an important reminder to investors that these firms and their analysts have dueling agendas. And sometimes those agendas don't dovetail with an individual investor's needs.
On Monday, Blodget cut 11 stocks that lost an average of 63 percent of their value since he initiated coverage.
Barnesandnoble.com (Nasdaq: BNBN), Buy.com (Nasdaq: BUYX), eBay (Nasdaq: EBAY), eToys (Nasdaq: ETYS), Pets.com (Nasdaq: PETS), Webvan (Nasdaq: WBVN), iVillage (Nasdaq: IVIL), Quokka (Nasdaq: QKKA), 24/7 Media (Nasdaq: TFSM), DoubleClick (Nasdaq: DCLK) and Safeguard Scientifics (NYSE: SFE) were all cut reflecting what Blodget called "a more precise differentiation of our current opinions."
Make what you will of the semantics but Blodget called his moves a "resetting" of his investment ratings. To you and everyone else, it's known as a downgrade.
The point here is why would Blodget and Merrill Lynch even bother with the new "neutral" recommendation and all the backtracking?
Everyone knows that these 11 stocks, save DoubleClick, eBay and possibly 24/7 Media, were destined to return to earth after their IPOs.
It only makes Blodget look silly and pathetic for no good reason. One has to assume the firm made Blodget fall on his sword as some type of punishment for the poor direction he's given investors in the past year.
Or maybe he was just feeling guilty.
Like some half-hearted, sugar-coated "resetting" of these stocks is going to make investors holding thousands of shares of Pets.com, one of Merrill's babies, feel any better.
In his defense, Blodget said the move was intended to "provide an analytical framework to help investors evaluate the particular investment opportunities within the Internet sector."
He also points out that some of these stocks, such as Pets.com and Barnesandnoble.com, got caught up in the selling frenzy for the entire sector with no regard for each company's individual fundamentals.
That's what really irks me and undoubtedly some of the investors who've followed Blodget's career and the fledgling days of the Internet stock sector.
No one was paying attention to any of these companies' fundamentals when they were up 200 percent or 300 percent on hype alone back in December of 1998 and throughout most of 1999.
Where was the concern for Amazon.com's fundamentals, especially its enormous operating expenses, when it was flying past that $400 a share price target?
You can't have it both ways.
Obviously, Blodget wasn't the only Internet analyst who got caught up in the hype and perhaps he began to believe his own press clippings.
Heavy are the horns that hang on the head of "the" Internet bull.
But when you go from CIBC Oppenheimer to Merrill Lynch and make numerous appearances on CNBC to taut your calls, you set yourself up to either be a hero or a goat.
Now that Blodget has essentially started anew by adding a "neutral" recommendation, it will be interesting to see if he's lost the courage to go out a limb as he did with Amazon.com.
I guess it's only fair to give him another shot now that the market has separated the legitimate Internet companies from the pretenders.
Then again, that's what investors were hoping he and other Internet analysts were doing in the first place.