What a wave of huge IPOs does to the market
New shares are new supply. A market absorbing a lot of new paper has to sell something else to buy it.
Understand the mechanical effect of issuance, separate from whether any one IPO is any good.
How What a wave of huge IPOs does to the market 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.
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The market is a pool of money, and shares compete for it
When a very large company lists, index funds and institutions must buy it, often on a schedule. To buy it, they sell something. The something is whatever else they own. This is a mechanical flow, and it has nothing to do with the merits of the business.
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Insiders choose the moment, and they choose it well
Companies float when conditions favour sellers, which is by definition when they are least favourable to buyers. A cluster of enormous IPOs is itself information: the people who know these businesses best have decided that now is a good time to sell some.
That is not a reason to short anything. It is a reason to be sceptical of the pricing.
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Watch the lock-ups, which are a scheduled supply shock
Insiders are typically barred from selling for 90 to 180 days. When that window opens, a large volume of shares becomes sellable on a date that was known in advance. Prices frequently come under pressure, and everyone acts surprised.
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Index inclusion is the second wave
When a big new listing eventually enters the major indices, every index fund on earth must buy it, regardless of price. That is forced, price-insensitive demand, and it is worth knowing the schedule.
You can explain why a great IPO can still be bad news for the rest of your portfolio.
Read next
New shares are new supply. A market absorbing a lot of new paper has to sell something else to buy it.
Newly listed companies, and the lock-up dates that are about to make a lot of shares sellable.