IPOs: Should You Invest?

What Exactly Is An IPO?
What Kinds of IPOs Are There?
IPOs: Should You Invest?
Which IPO is the best for investing?  
IPOs: How Do They Work?
How To Buy an IPO?
How Do I Participate in an IPO?
Why Do an IPO?

Are IPOs a Good Investment?

Investing in an IPO includes dangers, just like any other sort of investment, perhaps even more so than purchasing shares of well-established public firms. For private enterprises, there is less data available, thus investors are making decisions with more unknowable variables.

Despite all the accounts you have read of people making enormous profits from initial public offerings, there are plenty more that are negative. In fact, after five years, more than 60% of IPOs between 1975 and 2011 experienced negative absolute returns.

Consider Uber's rival in the ride-sharing market, Lyft. In March 2019, Lyft went public for $78.29 per share. The stock price fell right after, and after a year, it fell to a low of about $21. As of the time of writing, the stock price has increased to above $57. However, even if you had invested in Lyft at the time it went public, you wouldn't have made back your money.

Other businesses succeed over time but have trouble getting off the ground. The initial public offering price for Peloton was $29 per share, but it began trading at $25.24 in September 2019 and struggled for the first six months before reaching $19.72 in March 2020. The mega-IPO launch is ranked as the third worst in history. (An IPO of a firm valued at more than $1 billion is referred to as a mega-IPO or Unicorn IPO.) By February 12, 2021, its stock would have risen to $154.67 if you had stayed with Peloton. Would you have been able to persevere through Peloton's lows to experience its Covid-19-induced highs?

Chancey asserts that a company's becoming public does not imply that it will be a wise long-term investment. Consider Pets.com, the most notorious victim of Y2K, which went public and earned almost $1 per share before seeing its stock plummet to $0.19 in less than 10 months as a result of tremendous overvaluation, high operational costs, and the collapse of the Dot Com market.

On the other hand, a business might not be a wise investment at an inflated IPO price. The best firm in the world might be purchased, but Chancey warns that if you overpay for it by ten times, it will be difficult to recoup your investment.

According to Gagliardi, most buyers who purchase IPOs are speculating rather than investing because many of the shares allotted in the offering are sold on the first day. "Wait a few weeks or months when the frenzy has disappeared and the price has come down, and then buy it if you really like the stock and plan to hold it as a long-term investment."