Think Twice Before Buying an IPO

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.