Go With the Pros and Grab Blackstone

Let's focus on Blackstone in particular, which is down 20% from its initial public offering in June and down 35% from its high a few days later. Its performance in the market over its first few months is reminiscent of what happened to Goldman Sachs(GS Quote) when it went public in the spring of 1999.

After its IPO, Goldman, the undisputed king of American finance, fell 30%, from $75 to $53, amid a tumultuous summer that included the Clinton impeachment process and numerous raids on highflying technology and financial stocks. The stock then went on to advance by 100% in the next year and to quadruple in the next seven years as its undeniable strengths became better recognized and appreciated.

Outclassing the Field

Although not nearly as well known, Blackstone is in the same category as Goldman -- a company at the top of its game that is led by experts in mergers, restructurings and global finance who have proven their worth time and again in stressful markets. Blackstone earns an enviable return on invested capital, and it attracts the best and brightest to its ranks. Amazingly, it has only 350 employees, which must be some kind of record for a company with a market capitalization of $27 billion.

By all accounts, it is run in much the same way now as when it only had $400,000 under management instead of $83 billion -- with all department heads in a regular Monday morning meeting at which every aspect of the business is discussed, and virtually anyone can veto a deal.