Think Twice Before Buying an IPO
Ken Fisher argues that IPOs are typically poor investments for retail buyers, coining the phrase 'IPO means it's probably overpriced.' He explains that companies choose to go public when valuations favor them, not investors, and that IPOs historically underperform the market over one, three, and five year periods. Fisher warns that a wave of mega-IPOs in 2026-2027 may be a sign of market euphoria near the end of a bull market.
Summary
Ken Fisher opens by referencing a phrase he coined in his 1987 book 'The Wall Street Waltz': 'IPO means it's probably overpriced.' He argues this reframing of the acronym captures a fundamental truth about the nature of Initial Public Offerings as investments for the general public.
Fisher supports his claim with two main arguments. First, he points to historical data showing that IPOs, when tracked one, three, and five years after issuance, tend to be money losers and market laggards on aggregate. While some IPOs become spectacular long-term winners — he cites Microsoft, Amazon, and Google as examples — the majority underperform, and investors tend to remember the winners while forgetting the failures. He compares the odds to Las Vegas, where the house has the structural advantage.
Second, Fisher explains the structural reason IPOs are priced against the buyer: companies are not obligated to go public, especially in today's environment with abundant private equity capital. When they do choose to go public, they do so because the pricing is favorable to them — meaning higher valuations relative to other financing alternatives. This inherently makes the deal less attractive for the investor purchasing those newly created shares.
Fisher then connects the timing of IPO waves to bull market cycles, invoking John Templeton's famous quote that 'bull markets are born on pessimism, grow on skepticism, mature on optimism and die in euphoria.' He argues that IPOs tend to come out in large numbers during the euphoric late stage of bull markets, when compelling narratives are easy to sell. He points to a current pipeline of so-called 'mega IPOs' — companies like SpaceX with potential trillion-dollar market caps — as a potential sign of this euphoric phase in 2026-2027.
Fisher concludes by estimating that roughly eight out of ten IPOs will perform badly, and cautions viewers against trying to time hot IPO streaks, which he characterizes as luck rather than rational strategy.
Key Insights
- Fisher argues that IPOs historically underperform the market when measured one, three, and five years after issuance, making them money losers on aggregate despite a few high-profile success stories.
- Fisher contends that because companies are not forced to go public — especially given the abundance of private equity capital — they only choose to do so when the pricing is favorable to them, structurally disadvantaging the public investor.
- Fisher invokes John Templeton's framework that bull markets 'die in euphoria,' arguing that large waves of IPOs with compelling stories are a characteristic sign of that late-stage euphoric phase.
- Fisher identifies an emerging pipeline of 'mega IPOs' — including companies like SpaceX with market caps approaching $1 trillion — as a potential euphoric signal heading into 2026 and 2027.
- Fisher estimates that eight out of ten IPOs will perform badly, and characterizes short-term hot streaks in IPO performance as a matter of timing and luck rather than something that can be rationally predicted or exploited.
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