Should you buy the hot IPO?
You are buying from someone who knows the company far better than you, on a day they chose. Act accordingly.
Decide with arithmetic instead of adrenaline.
How Should you buy the hot IPO? works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
Who the first-day pop actually enriched
If the shares open 40% above the offer price, that 40% is money the company could have raised and did not. It went to whoever was allocated shares at the offer, which was not you.
- 1
The pop is not for you
If shares open 40% above the offer price, that gain went to whoever was allocated stock at the offer, which was institutions. By the time you can buy, the pop has happened. You are not getting in early; you are the person the early people are selling to.
- 2
There is no rush, and the rush is the sales pitch
The company will still be listed next quarter, with two more sets of results, a lapsed lock-up and a far calmer price. Almost nothing is lost by waiting, and the thing you gain is data.
The fear of missing out is precisely the emotion the timing of an IPO is designed to produce.
- 3
The long-run record is not flattering
As a class, IPOs have historically underperformed the market over the years following their listing. That is an average, so it says nothing about any individual company, but it should shift your prior. The base rate is not on your side.
- 4
If you want it, wait for the lock-up
Insiders become able to sell after 90 to 180 days, supply arrives, and prices often soften. That is a known date. Patience is free and, here, it is usually paid.
You can explain who profited from the first-day pop, and why it was not you.
Read next
You are buying from someone who knows the company far better than you, on a day they chose. Act accordingly.
Newly listed companies, and the lock-up dates that are about to make a lot of shares sellable.