By Dejan Ilijevski
Why history’s most exciting public offerings have, on average, been disappointing investments — and how an evidence-based portfolio handles them.
A wave of long-awaited mega-IPOs is on the horizon. SpaceX, OpenAI, and Anthropic are some of the most-talked-about private companies of the last decade, and the financial press is already setting expectations high. If you’re feeling the pull to buy in on day one, you’re not alone — and it’s worth a few minutes to look at what the data actually says before you do.
The Pattern Most People Don’t Hear About
The University of Florida’s Jay Ritter has tracked IPO performance since 1980. His research, drawing on more than four decades of data, finds a consistent pattern: in the five years after going public, IPOs have underperformed similar already-public companies by roughly 2 percentage points per year, on average.
Two points a year doesn’t sound like much. Compounded over five years, it’s the difference between a portfolio that grew and one that mostly stalled.
You don’t have to look far for examples:
- Facebook (2012) stumbled badly out of the gate before recovering.
- Uber (2019) is still trading near its IPO price more than five years later.
These weren’t bad businesses. They just weren’t bargains the day they went public.
Why This Happens
The mechanics matter more than the headlines. A few things are usually true at the same time when a hot IPO hits the market:
Most of the value has already been captured. By the time a company like SpaceX or OpenAI goes public, venture capital and growth equity firms have owned it for years — sometimes a decade or more — at far lower valuations. The bulk of the gains have already been earned by the people who took the early risk.
Retail demand is shaped by FOMO. Public attention peaks right around the IPO. Insiders and underwriters know this. They count on enthusiasm at exactly the moment when locked-up shares start becoming available to sell.
Profitability is often missing. Roughly 53% of companies that have gone public in 2025 are unprofitable. That doesn’t mean they’ll fail — but it does mean investors are paying for a story, not for current earnings.
Index funds become forced buyers. Recent S&P index inclusion rules have made it easier for newly public companies to be added to major indexes shortly after listing. That means index funds — including some that millions of investors hold — may be required to buy at elevated prices, regardless of what the fundamentals say.
What This Means for Your Portfolio
The good news: a properly built, evidence-based portfolio already accounts for this. Here’s how the managers we work with handle it.
- Dimensional and Avantis systematically tilt away from newly public stocks during the period when they tend to underperform. They wait for prices and fundamentals to settle before adding meaningful exposure.
- Vanguard’s index funds will own these companies at the weights the index dictates — that’s the trade-off of pure indexing. (Most of our Vanguard exposure is on the index side, so this is a known feature, not a bug.)
- Diversification means that even when an individual IPO disappoints, no single name dominates the result.
You’ll still own these companies. You just won’t be overpaying to be first in line.
The Bottom Line
The next twelve months are likely to be noisy. There will be pre-IPO buzz, day-one surges, and a steady drumbeat of “this one is different” coverage. Some of it may even turn out to be right.
But betting against four decades of data is a hard way to make money. The boring approach — broad diversification, a small-and-value tilt, low costs, and discipline — has rewarded patient investors more reliably than chasing the headline.
If you’d like to talk through how your portfolio is positioned, or whether anything should change ahead of these listings, reach out anytime.
Sources: Jay Ritter, University of Florida (IPO performance data, 1980–2024); Avantis Investors research; S&P Dow Jones Indices methodology updates.
This post is for informational purposes only and does not constitute investment advice. Past performance does not guarantee future results.
