[executivevice]

> Approximately 56% to 60% of U.S. initial public offerings (IPOs) lose absolute value over a five-year period. Historically, the median IPO stock has lost roughly 41% of its value five years after its first day of trading.

Ipos are somewhat notoriously risky investments.

[DanielHB]

I remember seeing a video about this subject, since large IPOs are automatically included in index funds it is kinda of a way to extract value from passive investors. Insiders cash out before it hits the indexes, index crashes by a fraction for a %, all pensions in the country (and many overseas) pay for it.

But with OpenAI and SpaceX IPOing roughly at the same time it will likely be more than fraction of a % in this/next year.

[jjav]

> since large IPOs are automatically included in index funds

No, this was not allowed. Until a certain someone with deep connections to the corrupt government (coughspacexcough) changed the rules for themselves for the upcoming IPO. It's going to be.... ballistic.

[DanielHB]

What do you mean? If a US company is big enough it ends up on the S&P500 _eventually_. I know index funds don't auto-include IPOs immediately, but eventually they are forced to buy into them.

[pas]

but also, getting IPOs included captures the upside.

of course, public markets nowadays are definitely paying a pretty serious "agent-principal premium". (since public exits are usually very good for the C-suite and for all those vested stocks.)

but that's the cost of access to equity (compared to PE - which nowadays underperforms public markets https://www.hamiltonlane.com/2026-market-overview/performanc... )

so yeah, it seems it would make sense to buy the post-IPO dip, but then you would need to have some kind of formula for that, and ... that seems ripe for gaming by speculators ... so all in all, it's just more efficient to do what the rule of the index says. (and of course there's already speculation at the discontinuity.)

[pas]

sure, but does that risk have good returns to go along? if IPOs are known to be very bad bets why do institutions (supposedly savvy professional investors) participate?

[executivevice]

Because they (should) have sophisticated risk models that account for the long tail. If even a few ipos become Google or Facebook, the risk is worth it. But for average retail investors ipo participation will be bag holding exercise. That said betting your conviction is one of the only ways to beat the market, even if it comes with additional risk (emotional+intellectual attachments). If you really believe in ai or space exploration, the upcoming ipos represent an opportunity to bet on your beliefs and predictive capability

[pas]

you mean that if average Retail Ronnie directly buys the new hot stock at IPO versus getting exposure to it through whatever ETF they have?

yes, directly buying a stock at IPO sounds really strange for me. (because either you know it's undervalued, but then it's insider trading. if not, then why compete with irrational fanatics?)