As we turn the corner toward fall, we thought we’d take a look at a topic that tends to generate plenty of headlines, and often plenty of investor interest: initial public offerings, or IPOs.

There’s something inherently exciting about a company going public. Familiar names, compelling growth stories, and the possibility of “getting in early” can make IPOs especially appealing to investors. But does that excitement typically translate into better investment returns? As is often the case in investing, the answer is “no.”

In fact, a look at what’s happening in the broader market today offers a useful reminder that successful investing rarely requires chasing the latest headline.

Market Snapshot: Broad Strength vs. Headline Hype

"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ... You only have to stay squarely within your circle of competence." — Warren Buffett, 1996 Shareholder Letter

As we move through mid-2026, broad market performance offers plenty of reasons for optimism. A standout story this year is small- and mid-sized companies taking center stage: The Russell 2000, a widely followed index comprised of 2,000 smaller U.S. companies, is up roughly 20% year-to-date, driven by rising corporate profits and reasonable valuations rather than a concentration in just a few tech giants.

While diversified portfolios quietly do their job, initial public offerings (IPOs) routinely grab the loudest headlines and generate client questions. When a trendy company goes public, media buzz can make it feel like a can't-miss opportunity.

In these moments, we recall Warren Buffett’s classic advice: stick to what you know. Real financial confidence isn't built by chasing shiny objects on Wall Street; it comes from trusting a disciplined, long-term plan and focusing on business fundamentals rather than debut-day hype.

The IPO Reality Check: Demanding a Margin of Safety

"The three most important words in investing are 'margin of safety.'" — Warren Buffett, 1992 Shareholder Letter

Initial public offerings are exciting, but debut enthusiasm rarely translates into a smooth ride for individual investors buying at the first-day close. Looking past the fanfare, decades of academic research from Dr. Jay R. Ritter ("Mr. IPO") and broader market studies reveal a clear pattern:

1-Year Returns: The median 1-year return for individual investors buying at the first-day close consistently lands in the -20% to -25% range.
Loss Rate: Roughly 60% of newly public companies trade below their first-day closing price 12 months later.
Long-Term Performance: In multi-decade datasets tracking U.S. operating companies, tech IPOs underperformed the broader market by an average of -12.7% on a 3-year market-adjusted basis.

Even world-class powerhouses that became massive long-term successes — such as Meta (down over 54%) or Uber (down over 64%) — suffered severe drops exceeding 50% from their first-day closing price during their initial year as public companies.

This illustrates why Buffett insists on a “margin of safety”, which is the discount between what you pay for the shares and what the company is worth. IPOs are almost always priced for absolute perfection on day one. When a stock is valued on flawless future growth, even a minor operational speed bump can cause public shareholders to pay a steep price.

Investing vs. Speculating: Looking for Economic Moats

"In business, I look for economic castles protected by unbreachable moats... Speculation is most dangerous when it looks easiest." — Warren Buffett, 1995 & 2000 Shareholder Letters

It is easy to mistake a cool product or household brand for a great stock purchase. Behind the excitement, newly public companies face distinct structural realities:

Lockup Expirations: Early insiders are usually restricted from selling for 90 to 180 days. When lockups expire, a flood of new shares hitting the market can suddenly depress prices.
Unproven "Moats": Many debuting companies haven't yet proven they possess a lasting competitive advantage, or what Buffett calls an economic moat, to protect their profits over time.
Future Dilution: Many newly public businesses operate at a loss, requiring future share issuances to raise cash, which dilutes early public investors.

Understanding this separates investing from speculating. Speculating is buying a stock hoping someone else will pay more for it tomorrow based on buzz. Investing is buying a piece of an established business that generates real, predictable cash flow today.

Before jumping into a flashy debut, consider two practical questions:

Do you need this single-stock risk to achieve your financial goals? (For a well-designed plan, the answer is often “no.”)
Can your portfolio handle a heavy drawdown? (Just because you can afford to lose doesn’t mean you should take an unnecessary risk.)

Our Guidance: If you have strong conviction in a newly public company, keep the position small relative to your overall net worth, consider tax consequences when raising cash, and dollar-cost average into the stock over time rather than buying all at once on day one.

True Wealth: Freedom, Joy, and Sticking to the Plan

"Risk comes from not knowing what you're doing... The most important quality for an investor is temperament, not intellect." — Warren Buffett, 1993 Shareholder Letter

It’s natural to feel FOMO (fear of missing out) when headlines feature explosive debuts. However, when we look at what brings lasting satisfaction to the families we advise, it is never found in chasing high-risk market hype.

The most fulfilled clients define wealth as freedom: the ability to live life on their terms, support their families, fund meaningful experiences, and secure a multi-generational legacy. Their wealth grows steadily because it is anchored to a disciplined, diversified strategy built for the long haul.

An IPO might turn into a winner, or it might lose half its value by next year. Either way, you don't need to bet on headline hype to achieve what matters most. Stick to what you know, trust your plan, and focus on true value.

If you ever want to discuss a specific market opportunity or review your overall portfolio strategy, please reach out anytime.

Academic References

Loughran, Tim, and Jay R. Ritter. "The New Issues Puzzle." The Journal of Finance, vol. 50, no. 1, 1995, pp. 23–51.
Ritter, Jay R. "The Long-Run Performance of Initial Public Offerings." The Journal of Finance, vol. 46, no. 1, 1991, pp. 3–27.
University of Florida Warrington College of Business. Dr. Jay R. Ritter's IPO Data Set (U.S. Operating Company IPOs, 1980–Present).