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Should you invest in IPO’s on day one?

IPO's, should you invest in them on day 1?

IPO's, should you invest in them on day 1?


After the Coinbase IPO, do you regret buying early?

After the IPO of Coinbase ($COIN) yesterday, you might be left wondering if you should’ve bought it? (Well probably not, since it had a rather underwhelming first day of trading). Or maybe you bought at yesterday’s top and you are wondering if you should’ve waited a little longer before going in balls deep.


Coinbase’s rocket runs out of fuel at launch


Initial public offerings (IPO’s) have an exciting, almost exotic ring to them. You can have the bragging rights of being one of the first investors in a company. True, some IPOs succeed in creating overnight millionaires. But it’s far from the case most of the time.

For the new investor, IPO’s may prove to be only a little bit more profitable than ordinary stock investing. Maybe you’ll make a lot of money on a single trade, and maybe you won’t. Maybe you will be left bagholding.

But is an IPO Investment worth your time and money? Especially on the first day of trading


IPO Performance 2009–2018



Initial public offerings outperformed the market in some years. But other years, they underperformed it. For example, in 2018, when the S&P 500 had nearly 30% gains, IPOs provided only 5%. In 2015, a year in which the general market was flat, IPOs showed a loss of 9%.

Before even considering investing in an IPO, you should be aware that they don’t always have a happy ending. In some cases, the outcome can be terrible for the equity holders. One that comes to my mind would be Pets.com. Pets.com was one of four (yes, four) online pet stores that arose during the Internet boom of the late 1990s.





Which would be later coined as the “Dot.Com Bubble”

Pets.com attracted big-name investors like Amazon.com, which came to own a 30 percent stake in the San Francisco-based company.

Pets.com had its IPO in 2000 and raised $82 million. The stock went from a high of $14 per share at the IPO to a low of 22 cents a share. In the end, the company tried selling sock puppet replicas and memorabilia, but even their famous mascot couldn’t save them.

Only nine months after the IPO, Pets.com went to doggy heaven. It had failed. Uber would be an example that hasn’t failed but hasn’t been doing that great either.


I think buying new offerings during hot periods in the market … I don’t think it’s anything the average person should think about at all

Warren Buffet


The data suggests that if you had just waited until the next day, you would have been more successful in your trade

While the difference is quite small between the first two days, waiting a month or two had worse results. Buffett said Investors are often buying into an IPO because of the hype involved with them and because they want to catch up with others getting rich and that’s not a sound basis for an investment. Had you pounced on Uber when it opened, you’d be sitting on a loss of approximately 25% over a space of just 14 months.

If you are in the stock for the long term and believe the company has fundamental value, then the early volatility and the risk of price drops are of less concern. But for most of us, an IPO investment is just too risky. Especially on day one. Either way, if you still consider buying an IPO, you should do your own research and due diligence.

More ventures nowadays are choosing to be acquired by another company rather than becoming an independent public company. Others are choosing to stay private much longer than they could. This is partly due to the risk of IPO’s.







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