For a lot of folks, especially those from Silicon Valley, I imagine when they hear “IPO” they think about getting in on the ground floor of an investment that’ll make them rich. After all, we’ve heard so many stories about early Google/Facebook/Yahoo/etc. employees that became mega wealthy after their company’s IPOs.
Actually, IPOs are typically a bad investment for retail investors (that’s you and me).
If you’re considering investing in an IPO, you should first consider The New Issues Puzzle study:
Companies issuing stock during 1970 to 1990, whether an initial public offering or a seasoned equity offering, have been poor long-run investments for investors. During the five years after the issue, investors have received average returns of only 5 percent per year for companies going public and only 7 percent per year for companies conducting a seasoned equity offer.
...while the exact magnitude of the underperformance of issuing firms is dependent upon the benchmark used, both IPOs and SEOs have underperformed all of the commonly used benchmarks: the CRSP-equally weighted and value-weighted Amex-NYSE and Nasdaq indices, and the S&P 500. The underperformance relative to the S&P 500 Index is particularly noteworthy, for it does not include dividend income.
There you have it. A study that tells you that you’d be better off buying the S&P 500 than a hot new IPO.
But those nerds don’t get it. It’s 2026 and you have a Robinhood account, they’re not talking about you. They’re talking about other investors. Fine, let me offer another take…
What’s the rush?
You wouldn’t be wrong if you said, “Jon, if you get into the right business at the right time (typically early before everyone gets wise to how good of an investment it is), you can make a lot of money”. The trick there, of course, is choosing the right business and not the business that’ll do well for a little while then collapse or eventually lag behind the S&P 500. Remember: even the most educated, most experienced investors fail to beat the S&P 500.
My feeling - which is based on reading and listening to the legendary investor Peter Lynch - is to just relax and let businesses prove that they're good businesses before you decide to give them your hard earned dollar.
Take Apple for example: if you got in on the ground floor of Apple, you would’ve gone for one hell of a ride. If you managed to keep your nerve during the years while it looked like it was a dying company, you would’ve come out the other side feeling pretty good (and rich). But it’s important to remember that most investors don’t have the stomach or capital to experience multiple years of chopping waters and, don’t fool yourself, we’re most investors.
But let's say you decided to invest in Apple long after they’ve proven themselves as a business. Let’s say you decided to invest in Apple even long after they released the first iPhone and even after Berkshire Hathaway decided to buy in.
Let’s say you invested in Apple the day it became a one trillion dollar company. One trillion dollars. How much more upside could there be? Well, if you had invested $10,000 on the day Apple became a one trillion dollar company, your investment would’ve grown to $45,200 today. That’s a 352% return on a business that absolutely everyone has heard of. Not bad!
I know it’s not the “parabolic returns” that the r/WallStreetBets crowd are after, but I would much rather have a boring 352% return than an exciting 0% return.