The Wall Street Self-Defense Manual

Remember Henry Blodgett, who gained fame saying "Buy Amazon," and became the fair-haired-boy internet analyst at Merrill Lynch? He went down in flames after the dramatic discovery (I was shocked, shocked!) that wire-house buy recommendations were marketing tools, not investment opinions.

Barred from Wall Street, Blodgett has used his way with words to move into financial journalism. Now he's written a book, The Wall Street Self-Defense Manual, based on a series of articles he wrote for Slate.

This week Slate posted two excerpts.

In the first, Blodgett goes full Monty (or full Andrew Tobias) and recommends low-cost index funds. He also offers illuminating illustrations of compounding. For instance:

Initial Investment: $100,000
Annual Return: 10 percent

10 Years: $259,000
20 Years: $673,000
30 Years: $1,745,000
40 Years: $4,526,000

Note that most of that $4.5 million is created in the final ten years. Getting rich requires both money and time.

The second excerpt discusses hedge funds. Pretty much the same message delivered by Yale's endowment genius, David Swensen, but not quite so dull.

Blodgett points out that hedge fund investors face not only high expenses but, in many cases, stiff taxes.

But let's look on the bright side: With average hedge fund returns lagging the S&P last year, hedge fund investors don't have much profit to be taxed.