This week we heard about two more investment banks that want to offer shares of stock. This trend should be recognized as both a warning and an opportunity.

In the late 1980s I worked for Shearson Lehman Brothers as an investment consultant. Shearson announced that they were selling stock to the public at $32 per share. We were precluded from selling shares to our clients because of regulatory conflicts. However, we were all asked to “do our part.” This meant that sales had to be unsolicited.

When my manager asked how my sales were going I offered that I must not be a very good salesman because I have not been able to get any buyers. I was focused on tax-free bonds at the time so that made my excuse more plausible.

Just a few years later Shearson Lehman shares had dropped 60% to less than $12 per share. Investors were left holding the bag. A tendering of all shares was announced at $12 per share. Investors saw the stock as a loser and gladly handed back their shares. This tender was at the wrong time and the wrong price. With so many brokerage firm mergers since then, you can only imagine what those shares would be worth 17 years later.

If a Wall Street investment firm is buying back their shares you know the market is near a low. When that same firm is selling you shares you know it is time to be cautious.

It is common for investment ideas to come full circle. The investors may be new but the cycles seldom change.

Recently, hedge funds have been the hottest area in the investment markets. They are being sold through brokerage firms the way wrap accounts were sold to investors a decade ago. The assets of these funds have grown exponentially. When great sums of money are placed in any investment area two things eventually occur: investments are purchased at inflated prices and returns are reduced. There are simply too many dollars chasing too few opportunities. For example, Blackstone Group recently announced that they are paying $47 per share for Hilton Hotels. Four years ago the stock was $14 per share, or 70% cheaper. Last month Microsoft announced that it was buying aQuantive for $67 per share. Four years ago aQuantive stock was $4 per share, or 95% cheaper. Both Blackstone and The Carlyle Group have spent billions of dollars buying up businesses this year. The time to buy was four years ago when the S&P 500 Index was at $840. Is it realistic to think that the market has many good opportunities now that it is at $1,512 or 72% higher?

Now that significant amounts of money have been made in stocks worldwide, the gurus running the investment firms are the sellers. The Blackstone Group went public last month and shareholders are down. KKR, the most famous buyout firm in the U.S., known for some of the most high profile purchases in investment history also announced that a public offering is on the way. Even Prince Alwaleed bin Talal, the 13th wealthiest person in the world is planning to publicly offer shares of his Kingdom Holding Company. These people are very, very smart investors who understand the markets. When they are sellers you should be a seller. When they are buyers you should also be a buyer.

When these offerings occur, do not be tempted. It is time to be cautious. Watch the market levels and be patient.

Lakeside maximizes value for our clients by working to take advantage of the best opportunities in the marketplace.

Our team at Lakeside has a wealth of knowledge and experience regarding both rising and falling markets. We understand the fundamental concepts that really matter to you and your Net Worth. Our historical perspective and personal experience are valued assets when analyzing opportunities for our clients. Our investment counselors have witnessed the crash of 1987, the recession of the early 1990’s, the stock and real estate market gains of the late 1990’s, the technology stock collapse of the new century and the rebound that has followed.

Today, we are modifying our clients’ portfolios to take advantage of the areas where we see opportunity, and reduce risk in areas where we see value declining.

Lakeside focuses on Net Worth Growth while others focus on just one element of your portfolio. Lakeside’s ability to take advantage of many different types of investment opportunities allows our clients to consistently grow their wealth throughout different market cycles.