With companies like SpaceX, OpenAI, Anthropic and other high-profile private businesses regularly in the headlines, it’s easy to imagine the excitement that would surround any one of them going public.
And when that excitement builds, I suspect we'll hear a familiar question:
Should I buy it?
I understand the temptation. Nobody wants to watch the next great company take off without them. I’ve had enough conversations with clients to know that the fear usually isn’t about the IPO itself. It’s the fear of watching something look obvious in hindsight and wondering why you didn’t act sooner.
But before rushing to buy the next high-profile IPO, I think there’s a better question to ask: What’s the rush?
If this really is going to become one of the great companies of the next 20 or 30 years, why do you need to own it during its first few days as a public company?
When Excitement Meets Scarcity
An IPO, or initial public offering, is what happens when a private company first starts selling its stock to the public.
That sounds simple enough. But here's the part many people don’t realize: when a company first goes public, not all of its stock is usually available for regular investors to buy and sell.
A lot of the stock may still be owned by founders, employees or early investors. In many cases, they have to wait before they are allowed to sell. So even though the company is technically public, there may not be that many shares available at first.
Dimensional looked at U.S. IPOs from 2005 through 2024. One month after going public, the average company had only about one-third of its shares available for public trading. Six months later, about half were available. A year later, it was still only a little more than half.
In plain English, the moment when everyone is most excited may also be the moment when there isn’t much stock available to buy.
It’s a little like tickets going on sale for a major concert. Thousands of people may be trying to buy a limited number of tickets at the same time. That can tell us a lot about demand in that particular moment, but it doesn’t necessarily tell us what those tickets are worth.
You're Often Paying for the Future
Newly public companies also tend to be expensive.
They can also be priced as if a lot of good news has already happened.
And many of these companies are still not profitable yet. From 2005 through 2024, Dimensional found that 60% of IPO companies were losing money when they went public.
That doesn’t mean they’re bad companies. Some may become extraordinary companies. But there is an important difference between saying:
“I think this company has an incredible future.”
and:
“I think this stock is a good investment at today's price.”
That distinction matters. A great company is not automatically a great investment at any price. If everyone already believes the company is going to be amazing, the stock price may already reflect a lot of that excitement.
So, What Happens If You Wait?
This is the part I find most interesting. Dimensional looked at IPO returns from 1980 through 2024 using data from University of Florida finance professor Jay Ritter, who has studied IPOs for decades. They focused on what happened after the first day of trading.
That matters because big first-day headlines can be misleading. When you hear that a stock “popped” on its first day, that gain may have happened before most regular investors had a realistic chance to buy it.
So, what happened after the excitement of that first day?
Over the next year, IPOs gained 5.6% on average.
The broader U.S. stock market, measured by the Russell 3000, gained 13.2% on average over that same kind of period.
In other words, waiting did not usually mean missing out. Historically, the average IPO did worse than the broader market after its first day of trading.
Even the Big Ones
Maybe you’re thinking those statistics include a lot of small companies you’ve never heard of. Fair enough.
So Dimensional also looked at 20 of the largest IPOs since 2005. These were not obscure companies. The list included names like Facebook, Visa, General Motors, Uber, Airbnb, DoorDash and Hilton.
Six months after going public, 90% of them had done worse than the broader U.S. stock market.
After a year, 78% had still done worse.
Facebook is one of my favorite examples.
We know today what Facebook became. But during its first year as a public company, Facebook’s stock fell 33% while the Russell 3000 gained 32%. Someone who didn’t buy Facebook during the frenzy surrounding its IPO hadn’t missed Facebook. They had plenty of time.
You Don't Have to Be First
That’s really the point. I don’t know what SpaceX will ultimately be worth. I don’t know what will happen to Anthropic, OpenAI or whichever exciting company comes next. Nor does anyone else.
Some of them may become enormously successful businesses. Some may disappoint. And some companies that haven't even been created yet may eventually dwarf all of them.
But investing isn’t about being the first person to spot the next big thing. A good investment plan should help you avoid making rushed decisions just because something is exciting.
If a company needs you to buy it during its first few days of trading for the investment to work, it probably wasn't the opportunity you thought it was.
And if it really does become one of the great companies of the next generation, you'll probably have years — perhaps decades — to participate in its success.
You don't have to catch the first train out of the station.
Sometimes it's perfectly fine to wait for the next one.
Sources: Dimensional Fund Advisors, using IPO data from Jay Ritter, University of Florida, and Russell 3000 Index data. Past performance is no guarantee of future results. This article is for educational purposes only and should not be interpreted as a recommendation to buy or sell any specific security.
