Should you buy into an IPO or wait?

Question

Rich Dad · Accepted Answer

IPOs are like opening night at a casino — the question isn’t whether you should play, it’s whether you understand who really owns the house.
Let’s get something straight: most IPOs are designed to benefit founders, venture capitalists, and early insiders — not you. By the time a company goes public, early investors may have bought shares at $1–$10. You’re being offered them at $30, $60, sometimes $100+. The IPO is often a liquidity event — a polite Wall Street term for “cashing out.” Look at Facebook in 2012: priced at $38, dropped nearly 50% within months. But if you held long term? It became a monster. Same story with Amazon in 1997 — volatile early, life-changing later. The real question isn’t “IPO or wait?” It’s “Is this a generational asset or a hype balloon?”
Here’s what the data says: According to multiple studies, the average IPO underperforms the market over 3–5 years. Why? Overpricing and hype. Investment banks pump excitement. Media fuels FOMO. Retail investors rush in. Then reality sets in when lock-up periods expire (usually 90–180 days), insiders start selling, and price often dips 10–30%. That dip? That’s often where smart capital steps in. If you’re not getting insider allocation, you’re usually buying emotion.
Now — here’s where I get bold. If you have high risk tolerance and a small “asymmetric bet” allocation (say 5–10% of your portfolio), IPOs can be rocket fuel. You’re not betting the farm. You’re buying an option on explosive growth. Think about Snowflake — IPO at $120, surged to $300+. Traders made fortunes. But it later dropped below $150. Timing matters. Strategy matters. Blind enthusiasm? Expensive.
Instead of chasing opening-day fireworks, I prefer one of three plays: (1) Wait 3–6 months post-IPO and watch price stabilization. (2) Study revenue growth — is it 40%+ annually with strong margins? (3) Invest after the first earnings cycles when real numbers replace marketing decks. Institutions often accumulate quietly during this phase.
Counterpoint: Sometimes waiting means missing massive early runs (like LinkedIn doubling on day one). True. But wealth isn’t built on lottery tickets. It’s built on calculated aggression. If you’re buying IPOs because of headlines, you’re prey. If you’re buying because you deeply understand the business model, cash flow trajectory, TAM (total addressable market), and competitive moat — then you’re an investor.
IPOs aren’t dangerous. Ignorance is.
If you must play opening night, treat it like venture capital: small allocation, long horizon, thick skin. Otherwise? Let the confetti settle and buy the business — not the buzz.

Poor Dad · Answer

IPOs are like brand-new cars — they’re exciting, shiny, and usually overpriced on day one.
My advice is simple: wait. When a company goes public, there is enormous excitement, media coverage, and speculation. That hype often inflates the price beyond what the fundamentals justify. Studies have shown that many IPOs underperform the broader market over the next three to five years. That’s not because they’re bad companies — it’s because investors overpay at the start.
Consider the Facebook IPO in 2012. It debuted at $38 and quickly dropped below $20 within months. Investors who rushed in lost nearly 50% before any recovery happened. Yes, it eventually became very successful, but many early buyers sold at a loss because they couldn’t handle the volatility. The same happened with Uber in 2019 — it IPO’d at $45 and fell below $25 before stabilizing years later. Emotional investing is dangerous.
Another practical issue is the lock-up period. Typically 90 to 180 days after the IPO, early insiders are allowed to sell their shares. When that happens, there is often increased supply in the market, which can push the stock price down. Waiting until after this period allows you to see how the company performs without artificial scarcity propping up the price.
From a risk management perspective, IPOs are speculative. Newly public companies don’t have a long track record of quarterly reporting. You can’t easily evaluate how they perform under public market scrutiny. I prefer companies with at least 3–5 years of consistent earnings growth, stable cash flow, and manageable debt. Investing should not feel like gambling.
Now, could you miss out on early gains? Yes. Some IPOs double quickly. But investing is not about catching every opportunity — it’s about avoiding major mistakes. A diversified index fund averaging 7–10% annually over decades will likely build wealth more reliably than chasing hot IPOs.
If you are determined to invest in an IPO, limit it to a small percentage of your portfolio — no more than 5%. Make sure your retirement contributions, emergency fund (6 months of expenses), and core investments are already secure.
Slow and steady may not be glamorous, but it keeps you financially safe.
Excitement fades — fundamentals endure.

Should you buy into an IPO or wait?

Rich Dad Says

Poor Dad Says

The Bottom Line

Whose advice would you follow?

Share this debate

What do you think? (0)

More debates