Don’t Chase the Rocket: What We Advise Around IPO Season & Why

The excitement is hard to ignore right now. SpaceX just completed the largest IPO in history - raising $85 billion and valuing the company at $1.77 trillion. Anthropic, the AI company behind Claude, filed confidentially with the SEC on June 1st at a valuation approaching $1 trillion and OpenAI is close behind. And, if history is any guide, there will be others.

The excitement is completely understandable. These are genuinely extraordinary companies working on our future. And for the first time in a long while, some of these deals are making shares available directly to individual investors - not just the big institutions. It feels like an invitation to get in on something significant.

Here's our honest view: we don't chase IPOs. And we'd encourage you not to either.

That's not a reflexive position or a conservative one. It's what the data shows, what our experience confirms, and what we think every investor deserves to hear and understand before making the decision that is best for them.

Here’s why:

The Buzz Around A Big IPO Isn't Accidental 

By the time a company is ready to go public, it has spent months - sometimes years - preparing its story for investors: Their roadshow is polished, their press coverage is at a peak, and the company is presenting its best possible version of the future.

And, to be clear, these companies really are remarkable. SpaceX really is building rockets and Anthropic really is advancing AI in ways that truly matter. We’re not suggesting these are bad businesses. Instead, the question we are always focused on answering is whether buying their stock at IPO - at the price you'll actually be able to buy it - is a sound investment decision for you and your goals. 

Those are two very different questions and, in the excitement of the moment, they tend to get confused.

What History Actually Says About Chasing Hot IPOs

Truist Financial examined 30 of the most influential tech IPOs over the past 14 years and here’s what they found: 

Every single one experienced a significant drawdown at some point during its first year, even the ones that ultimately went on to become extraordinary long-term investments.

Zoom in further and the picture gets harder to ignore:

• Nearly two-thirds of IPOs are underperforming the broader market just three years after their debut.
• The largest tech IPOs globally have had a median year-one return of -22%. That includes household names like Facebook and Alibaba, who each dropped roughly 30% in their first 52 weeks before recovering.
• Longer-term academic research consistently finds that IPOs underperform market benchmarks over three-to-five year periods after going public.

None of this means every IPO underperforms. But, the problem is that no one reliably knows in advance which ones will perform and which ones won’t - and, in general, the odds are not favorable. 

By the Time You Can Buy, the Price Already Reflects the Hype

The majority of shares in a hot IPO are allocated to large institutional investors before trading ever begins. It's simply how the underwriting process works - large institutions can absorb enormous blocks of stock quickly, which is what the process requires. But here's what that actually means for the individual investor: many of those institutions aren't buying to hold. They're buying to flip, selling their shares quickly once trading opens to lock in a fast profit. 

So on the day an IPO debuts and individual investors are rushing in with excitement, a meaningful number of the sellers on the other side of those trades are the very institutions that got in first. You're not getting in early. You're arriving at the peak of the excitement, at a price that already reflects weeks of hype - and buying shares that earlier holders are actively selling.

SpaceX made an unusual move by allocating roughly 30% of its float to retail investors. But even so, the practical reality for most individuals is that they're buying in at or after the opening price, which by definition reflects all the enthusiasm already priced in.

Example: A client calls us the morning of a major IPO, excited to put a meaningful amount in at the opening bell. We walk through the math together. The company priced at $135 the night before. By the time trading opens, it's already up 15-20% on pure momentum. They'd be buying not at the IPO price - but at the premium the market has already added on top of it. The question isn't whether it's a great company. It's whether paying that premium, on day one, with no additional information than what's in the prospectus, is the right move for their family.

Sometimes people still choose to invest a small amount because they want to participate in the story. We understand that; but it should be a deliberate, eyes-open decision - not one driven by the fear of missing out.

And, for anyone wondering whether banking with a larger institution would change this: even the biggest retail brokerages have strict eligibility requirements for IPO access - minimum asset thresholds, formal application processes, and no guarantee of actually receiving shares. Bigger doesn't mean better access. It mostly means a more formal version of the same long odds.

FOMO Is Not a Strategy

The feeling driving most IPO purchases isn't analysis - it's FOMO, or the fear of missing out:  The sense that something important is happening, that the people who get in early will be the ones who look smart, and that waiting means losing.

We've seen this pattern many times. It happened with internet companies in the late 1990s. With SPACs in 2020 and 2021 and more recently with cryptocurrency. But, if you look closely, the pattern is amazingly consistent: extraordinary excitement, enormous media coverage, genuine underlying technology…and then widespread underperformance for retail investors who bought at the peak of the enthusiasm.

Take, as an example, the IPOs from 2021. That year saw over 1,000 IPOs which was a record. That IPO class of 2021 was up a modest 1.6% on a weighted average basis at year-end, while the broader market returned 24%. By 2022, however, the top 10 IPOs of 2021 by deal size were down between 40% and 73% year-to-date.

In our opinion, the answer is not saying "never" to anything and everything IPO-related but instead learning to separate the excitement of a story from the discipline of a smart, strategic decision. It’s not an easy decision to make either way, which is exactly why it’s the dynamic we help families navigate. 

What About AI? Isn't This Different?

We hear this question a lot, and in short, yes - artificial intelligence is a genuinely transformative technology. And, yes, the companies going public this year - SpaceX, Anthropic, OpenAI - are operating at the frontier of things that will matter for decades. We absolutely don't want to dismiss that.

But "this technology will change the world" has never been a reliable predictor of which companies deliver returns to shareholders who buy at IPO. The internet changed the world, yet most internet IPOs of 1999 and 2000 were disasters for investors. The automobile changed the world, but of the hundreds of early auto companies, nearly all went bankrupt.

Transformative industries tend to create enormous value but that value often accrues to a handful of eventual winners, while a large number of competitors fail or deliver poor returns. At the IPO stage, it's rarely clear which companies will be the lasting winners, which will be acquired, and which will struggle to grow into their valuations.

What We Recommend Instead

Our approach isn't to avoid growth or ignore the companies shaping the future. It's to access them in a way that's disciplined, diversified, and appropriate for each individual and family's full financial picture and risk tolerance.

In practice, that often means a few things:

• Broad market exposure: Many of our clients own the major AI and tech companies already - not through IPO bets, but through diversified index exposure that captures the sector's growth without concentrating in individual names at peak valuations.
• Waiting for a better entry point: History suggests that patience is rewarded. The lock-up period expiration - typically 90–180 days after an IPO - often creates a more rational entry point as insiders begin selling and the initial enthusiasm normalizes.
• Keeping a disciplined allocation: If you have a very strong conviction about a specific company and want exposure, we help you think through what an appropriate allocation looks like - one that doesn't disrupt your broader plan if the thesis takes time to play out or proves wrong.

The Question We Always Come Back To

When clients bring us an IPO opportunity, we always ask the same question:

"Does this fit your plan and support your goals, or does it replace discipline with excitement?"

Sometimes the answer is that a small, deliberately sized allocation makes sense for a client with a long time horizon, high risk tolerance, and the financial stability to absorb a loss without disruption. We can and will always work with that.

More often, however, what we find is that the impulse to invest in a hot IPO is coming from the same place that makes people want to move everything to cash when the market drops - emotion, not analysis. The solve in both cases is the same: a clear plan, an honest conversation, and the discipline to make decisions you'll be comfortable with in two years, not just two weeks.

We're Here When You Have Questions

If you're thinking about SpaceX, Anthropic, OpenAI, or any other opportunity in today's market - or if you just want to talk through how your current plan is positioned for the environment we're in - we'd welcome that conversation.

Reach out to your Entrust Wealth Partners advisor, or call us at (860) 838-3730 to get started.