By Ted Stricker, CFP®
A company you’ve never heard of goes public on a Tuesday morning, and by lunch the headlines are already calling it the trade of the decade. That’s the exact moment initial public offerings are built for, and it’s often the moment investors make their worst decisions.
We’re heading into a stretch of high-profile IPOs across artificial intelligence, space, fintech, and other fast-growing corners of the market. Clients ask us about these deals often, and the excitement is understandable. A new stock ticker with a familiar name feels like a rare chance to get in on the ground floor of something big.
Our answer is consistent: proceed with caution. That doesn’t mean these are bad businesses. Many of them are genuinely strong companies with real products and real revenue. But in our experience, the price you’d pay to own them on day one is rarely the bargain it appears to be, and the path to get there before that first trade is messier than it appears from the outside.
The Hype Is Already Baked Into the Price
By the time a company rings the opening bell on the stock exchange, its valuation usually reflects years of private fundraising rounds, each one bidding the price higher than the last. Early employees, venture capital firms, and late-stage private investors have typically already captured much of the easy upside.
What’s left for the public investor buying on day one is a price built on optimism about years of future growth that hasn’t happened yet. There is also considerable “hype” that occurs in the financial media prior to the offering date to drum up interest and excitement.
That’s simply how the mechanics work, and it says nothing about the quality of the company itself. The seller sets the terms of an IPO, and those terms are constructed to be attractive to the company and its early backers first, and to new public shareholders second.
Getting in before the bell rings is harder than it looks
Some investors try to solve this by getting exposure before the stock trades publicly, through secondary marketplaces, private funds, or special investment vehicles. Getting in pre-IPO is often restricted to accredited investors, or those with substantial wealth or income. On paper, this sounds like a shortcut to the early gains. In practice, these paths tend to come with real drawbacks.
Pricing is often negotiated rather than public, fees can stack on top of each other, and liquidity has a way of disappearing right when you need it most. Companies also often retain the right to block or delay a sale of these shares, which limits your control even after you’ve made the investment.
None of this means these vehicles are never appropriate. It means they deserve the same scrutiny as any complex investment, not the benefit of the doubt that comes with excitement over a familiar brand name.
History Isn’t Kind to Hot IPOs
Look back at the largest, most anticipated IPOs of the past two decades, and a pattern shows up again and again. Strong opening-day pops are often followed by a rockier stretch in the following months, as early enthusiasm meets the reality of quarterly earnings reports. While some of these companies do go on to become excellent long-term holdings, few of them traveled on a smooth ride to get there.
This history matters because it says something about timing as well as quality. A great company bought at an inflated price can still be a disappointing investment for years, until its earnings eventually catch up to the price investors paid. As famed investor Warren Buffett is often quoted, “Price is what you pay. Value is what you get.”
Why Patience Tends to Be Rewarded
If a newly public company grows into a large, successful business, it may eventually become a sizable piece of the broad market indexes that make up a well-diversified portfolio. Investors who hold globally diversified portfolios pick up that exposure automatically, with no early premium to pay and no private marketplace to navigate. They also keep the freedom to sell whenever they choose.
Waiting also allows the market time to do its job. The weeks and months after an IPO tend to be volatile, as buyers and sellers work out what the company is actually worth once the hype of opening day fades. Lockup expirations, which typically occur several months after a listing and allow early insiders to begin selling, can add pressure that creates a more reasonable entry point for new investors.
What We Watch for With Client Portfolios
When a client already holds a concentrated position in a company preparing to go public, often through employee stock options or years of accumulated shares, the conversation shifts. The priority becomes managing that concentration and understanding the tax consequences of any sale, rather than chasing additional exposure at the IPO price. This is the kind of planning our wealth management team works through with clients regularly.
For clients without an existing position, our guidance is simpler. A company can be genuinely impressive and still make for a poor investment at the wrong price and through the wrong access point. Judging the business and judging the investment are two different exercises, and IPO season has a way of blurring the line between them.
Guidance for Sound Decisions
IPOs will keep generating headlines, and some of the companies behind them will go on to build lasting value. Our role at Bernath + Rosenberg is to keep that excitement from overriding a sound decision-making process. For most investors, participating through a diversified portfolio after the initial volatility settles is a more reliable path than reaching for shares before the opening bell.
If you have questions about an upcoming IPO or how it might fit into your broader plan, we’re here to talk it through with you. To schedule a meeting, call (212) 221-1140 or email info@brwealth.com.
Frequently Asked Questions
Is it ever a good idea to buy stock on the day a company goes public?
It can be, but the price on that first day already reflects a great deal of optimism about the company’s future. A strong business isn’t automatically a strong investment at that price. Many investors are better served waiting for the market to settle before deciding whether to buy.
How can I get access to shares before a company goes public?
A few paths exist, including secondary marketplaces, private funds, and certain brokerage allocation programs, but each comes with trade-offs. Pricing is often less transparent, fees can run higher, and the ability to sell can be restricted for a period of time. These paths deserve careful review rather than a quick yes.
If I skip a hot IPO, will I lose my chance to invest in that company?
Not necessarily. If the company grows into a large, successful business, it will likely become part of the broad market indexes that many diversified portfolios already hold. Investors can gain exposure over time without needing to buy on the first day of trading.
About Ted
Ted Stricker, CFP®, is a partner at Bernath + Rosenberg with over 27 years of experience specializing in custom financial plans for business owners and affluent families. Since joining the firm in 2015, he has led the wealth management team in delivering practical, independent advice tailored to each client’s unique lifestyle and goals. Based out of the firm’s multi-state offices, Ted is a member of the Financial Planning Association and helps maintain Bernath + Rosenberg’s standing as a top-ranked national CPA firm in financial planning.
Professionals associated with Bernath & Rosenberg P.C. may be either (1) registered representatives with, and securities and advisory services offered through LPL Financial, Member FINRA/SIPC, a registered investment advisor; or (2) solely tax professionals of Bernath & Rosenberg P.C., and not affiliated with LPL Financial. Tax/accounting/CPA-related services offered through Bernath & Rosenberg P.C. is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax/accounting/CPA-related services.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing includes risks, including fluctuating prices and loss of principal.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
