Should you buy into an IPO on day one or always wait and see?

Question

Rich Dad · Accepted Answer

IPOs are like opening night at a blockbuster movie — the real money is made by the people who financed the film, not the ones buying popcorn.
Let’s get something straight: by the time you can buy on day one, the venture capitalists, founders, and institutional investors have already bought in at a fraction of the price. Snowflake IPO’d in 2020 at $120 and popped to $245 on day one — retail investors piled in, feeling smart. Within a year, it traded under $140. Rivian debuted at $78, rocketed to $179 within days, and then fell below $30. The pattern? Day-one buyers often fund early investors’ exits. That’s not investing — that’s being liquidity.
Now, am I saying never buy an IPO early? No. I’m saying have a strategy, not FOMO. If you’re getting pre-IPO access at institutional pricing — different story. But if you’re buying after a 40–80% first-day spike, you’re gambling on momentum, not fundamentals. Studies show that, on average, IPOs underperform the broader market over 3–5 years after the initial pop. Why? Overvaluation, lock-up expirations (usually 90–180 days later), and hype fading into reality.
Here’s the smarter aggressive play: wait for the lock-up period to expire. Insiders can’t sell for about six months. When that window opens, supply floods the market and prices often dip. Facebook IPO’d at $38 in 2012, stumbled below $20 within months, and skeptics declared it dead. Those who bought during that pessimism saw it climb over $300 within a decade. Patience turned panic into profit.
But let’s not ignore opportunity cost. If the company is a category killer — think Google in 2004 or Airbnb in 2020 — and fundamentals justify it, buying early and holding long-term can be powerful. The key is position sizing. Put 5–10% of your portfolio in high-conviction IPO plays, not 50%. Treat it like venture capital inside your public portfolio: high risk, asymmetric upside.
Counterargument? "But what if I miss the rocket ship?" Good. Missing one rocket won’t bankrupt you. Chasing every rocket might. Wealth isn’t built on excitement — it’s built on disciplined aggression. I’d rather buy a great company 30% off after hype fades than brag about getting in on day one and quietly bleed for two years.
So here’s the rule: If you’re buying because it’s trending, wait. If you’re buying because you understand the business deeply and can hold 5–10 years, size it smartly and go in with eyes open.
IPOs don’t make you rich — ownership over time does.

Poor Dad · Answer

If you feel pressure to buy something on its very first day, that’s usually a sign to slow down.
IPOs are exciting, heavily marketed, and often surrounded by media hype. But excitement and investing don’t mix well. Historically, many IPOs are priced aggressively to maximize what the company raises. Investment banks and insiders have strong incentives to set optimistic valuations. Research has shown that while IPOs may jump 10–20% on the first day, their average 3-year performance often trails the S&P 500. That should make any cautious investor pause.
Consider real examples. Facebook’s IPO in 2012 was widely anticipated, yet the stock fell nearly 50% within months. Rivian, as mentioned, soared above $170 shortly after debuting in 2021, only to drop more than 80% over the next year. Even highly respected companies like Uber went public in 2019 at $45 and traded below that price for over a year. If you had simply waited 6–12 months, you could often buy at a more reasonable valuation — with actual earnings reports to analyze.
Waiting gives you something incredibly valuable: information. After two or three quarterly earnings reports, you can examine revenue growth, margins, cash flow, and management guidance. You can compare price-to-earnings or price-to-sales ratios to industry peers. For example, if a company debuts at 25 times sales while competitors trade at 8–10 times, that’s a red flag. Patience allows the market’s initial emotional reaction to settle.
There is also personal risk to consider. If you are investing for retirement, a home down payment, or your children’s education, you likely cannot afford large swings. IPO stocks can move 20–40% in a single month. That kind of volatility can derail short-term financial goals. A diversified index fund averaging 7–10% annually may be less exciting, but it is far more predictable over decades.
Of course, occasionally an IPO performs well immediately and continues rising — Airbnb nearly doubled on day one and maintained strong performance afterward. But building a financial plan around exceptions is dangerous. It is better to miss a few spectacular gains than to expose yourself to repeated high-risk speculation.
My advice is simple: wait at least 6–12 months, review the fundamentals, and invest only if the company fits into a diversified, long-term strategy. Investing is not a race. It is a marathon toward security.
It’s better to arrive at retirement safely than to chase every shiny new stock along the way.

Should you buy into an IPO on day one or always wait and see?

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