The IPO Market Is Roaring Back. Here's Why I'm Still Saying to Wait.
SpaceX just filed to go public last month at a targeted valuation near $1.8 trillion making it the largest IPO in history. It's not alone this year. A wave of high-profile technology and AI companies are lined up behind it, and Goldman Sachs is projecting U.S. IPO proceeds could hit a record $160 billion in 2026.
I get the question a lot right now: "Should I try to get into one of these?"
My answer hasn't changed, and it's not really about SpaceX or any other of these anticipated IPOs specifically. It's about what happens, on average, when investors buy newly public companies. The data on that is pretty clear, and it doesn't say what the headlines make you think it says.
The First-Day Pop Is Real. You Probably Won't Get It.
Everyone's heard the stories about the mystical white whale of a stock doubling on its first day of trading. That does happen. The problem is getting an allocation before it happens.
Those early shares go through the underwriting banks, and the banks don't hand them out evenly. Research on this has found a pattern that should give you pause: the offerings everyone wants tend to go to the banks' best relationships, while the shares that are easy for an average investor to get are disproportionately the deals that perform worst on day one. In other words, if you can get in easily, that's often a signal, not a gift.
For most investors, the realistic entry point isn't the IPO price. It's the open market price after the pop has already happened which could be weeks, months, even years later.
Once You Look Past Day One, the Numbers Get Worse
Set aside the first-day return you almost certainly won't capture, and look at how IPOs perform over their first year as a public company. Dimensional Fund Advisors studied more than 6,000 U.S. IPOs from 1992 through 2018. As a group, they lagged the broad market.
A hypothetical portfolio of IPOs from the prior 12 months returned 6.9% annualized over that full period, versus 9.1% for the Russell 3000 and 9.0% for the Russell 2000. And the gap widened in the more recent stretch of the study. From 2001 through 2018, IPOs returned 3.7% annualized against 6.0% for the broad market.
Annualized Return | 1992–2018 | 1992–2000 | 2001–2018 |
IPO Portfolio | 6.9% | 13.6% | 3.7% |
Russell 3000 | 9.1% | 15.7% | 6.0% |
Russell 2000 | 9.0% | 12.6% | 7.3% |
Source: Dimensional Fund Advisors, 2019. Past performance does not guarantee future results.
This isn't bad luck. It's what you'd expect from the type of company an IPO usually is.
Newly public companies tend to look a certain way as a group: small, growth-oriented, low profitability, high reinvestment. Decades of research on stock returns tie that exact profile to lower expected returns over time. The underperformance isn't mysterious, it's the fundamentals playing out.
Lockup Expirations Can Work Against You
There's a second dynamic that catches a lot of investors off guard. Company insiders and early investors are usually restricted from selling for six to twelve months after the IPO. When that lockup expires, a wave of new shares can hit the market right around the time individual investors have settled comfortably into the position. That can put real pressure on the stock at exactly the wrong moment.
Be Careful With "Access" Offers
Because getting into a hot IPO directly is hard, some investors get pitched on special purpose vehicles that promise a way in. I'd encourage real caution here. These structures can carry heavy fees, and some are layered, meaning a vehicle invests in another vehicle, each with its own cost stacked on top. I've seen situations where fees ate up close to a fifth of the underlying value before the investor saw a dollar of upside. If someone offers you access this way, you really have to dive into the full fee structure before you sign anything.
Where This Leaves You
None of this means IPOs never work out. Some go on to become extraordinary long-term investments. But most don't beat the market, the outcomes are wildly inconsistent, and the excitement around a debut tells you almost nothing about what happens over the next five years.
Here's the part I think gets missed most often. If a company behind this year's headlines actually becomes a great long-term business, it's going to end up in the major market indices eventually. If you're already invested in a diversified, disciplined portfolio, you're going to own it anyway, on a schedule that doesn't require you to guess right on day one.
That's the version of "getting in" that I'd rather build for you.
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