You Don’t Need to Be First
Welcome to issue #27 of The Davem Dish. Every two weeks I share what actually works in investing based on my 20 years of wins, losses and expensive lessons. You’ll also get my thoughts on solopreneurship and life in general because the same principles apply — keep it simple, stay consistent and focus on what matters.
Should you buy SpaceX when it IPOs? Or Anthropic. Or OpenAI. Maybe all three?
The 2026 IPO calendar is one of the biggest in modern memory. SpaceX is targeting a $1.75 trillion valuation. OpenAI is reportedly preparing for a debut at up to $1 trillion. Anthropic is in talks at around $900 billion. Three companies, any one of which would be the largest IPO in history.
The pitch you’re being sold, implicitly or explicitly, is that you need to be there on day one. Get in before the run. Don’t miss the next NVIDIA or the next Amazon.
I want to tell you. You don’t need to be first.
The history of public markets is full of investors who built fortunes off companies they bought years after the IPO. It’s also full of investors who lost real money buying IPOs at the open. The structural design of the IPO favors the people selling to you, not the people buying. Patience costs you almost nothing on the companies that turn out to be great long-term investments, and it saves you on the ones that don’t.
Let me show you why.
How an IPO Actually Works
People picture an IPO as a moment when shares simply become available to the public. That’s not quite what happens.
When a company goes public, the underwriting bank allocates most of the shares to institutional clients — pension funds, mutual funds, hedge funds — at what’s called the “offer price.” That’s the number you see in the headlines, like “SpaceX priced at $X per share.” Retail investors generally cannot buy at that price. We can only buy in the open market after trading begins.
Trading usually opens at a substantial pop. Decades of academic research has tracked this pattern — IPOs are systematically underpriced on average, which means the institutions that received offer-price allocations have an immediate same-day gain available to them. They sell. Retail investors buy. The “pop” you’re cheering on the news is the institutions flipping shares to you.
That’s the first piece. The next one is the lockup period. Insiders — founders, executives, employees, venture capital firms, and pre-IPO investors — sign agreements with the underwriting bank promising not to sell their shares for a fixed window after the IPO. The standard is 90 to 180 days. The stated purpose of this agreement is “to ensure share-price stability and prevent a potential stock price drop resulting from a sudden influx of shares.”
In other words, the lockup exists because everyone involved — the bankers, the company, the insiders — knows that if insiders could sell immediately, the stock would crater. So they pre-commit to not tank the stock until the date the lockup expires. Then, on that date, the supply of sellable shares can multiply many times over.
The third piece, the one that ties the first two together, is what happens when the lockup expires. Researchers in 2001 found stocks consistently drop when lockups expire. The effect is strongest for venture-capital backed firms and technology firms, exactly the categories we’re discussing this year. The clearest example was when Twitter’s lockup expired in May 2014, the stock dropped roughly 18% in a single day, despite major shareholders having publicly promised they would not sell.
The IPO is engineered, at every step, to favor the insiders who are selling to you. None of this is illegal or even unethical. It’s the structural design of the product.
The Data on What Happens Next
If the mechanics of an IPO weren’t enough, the long-term data should be.
Finance professor Jay Ritter’s 1991 paper studied 1,526 IPOs from 1975 through 1984. Over the three years after going public, the average IPO returned 34.5%. A matched control sample of comparable already-public stocks returned 61.9%. Roughly 27 percentage points of underperformance over three years.
The pattern has been replicated and confirmed across decades, markets, and methodologies. And it’s gotten worse, not better, in the modern era.
Take the Renaissance IPO ETF which tracks the largest US IPOs over their first three years as public companies. From 2020 through 2022, the ETF returned a cumulative -20% while the S&P 500 returned +25%. That’s a 45-percentage-point gap over three years. The 2021 cohort specifically — over a thousand companies that went public in the biggest IPO year since the dot-com bubble — returned roughly 1.6% on a weighted-average basis in 2021 while the S&P returned nearly 29%. By mid-2022, the top ten 2021 IPOs by deal size were down 40-73% from their offer prices.
The familiar names from that cohort tell the story of what happens in the first year or two. Rivian priced at $78 in November 2021, peaked at $179 a week later, and was trading below $20 within 18 months. Robinhood priced at $38 in July 2021, briefly hit around $85 in November, then bottomed at $7 by June 2022 — a 82% decline from the IPO price in less than a year. DiDi delisted from the NYSE within months. Bright Health collapsed and was eventually taken private at a fraction of its IPO value. Oscar Health, Beyond Meat, Peloton — each fell 70-90% from their IPO highs by 2022. Some of these names eventually recovered. Robinhood now trades well above its IPO price after riding the AI and crypto rally. Most didn’t recover. The pattern that holds is the brutal first 12-24 months, not the eventual long-run outcome. A patient investor who waited for the wreckage would have been able to buy almost every one of these names at 50-90% off the IPO price and could also have avoided the ones that never came back.
That’s the recent record. Worth keeping in mind when you’re being told that this time will be different.
When the Money Was Made
Plenty of IPOs did work. The question is when the money was actually made.
Amazon went public in May 1997 at $18 per share. By December 1999, it had climbed to $113. Then the dot-com bust took it down by more than 95%, all the way to about $6 in October 2001. The investor who bought at the IPO and held watched two years of gains evaporate. The investor who waited five years and bought during the bust got Amazon at a fraction of the IPO price. From there, the stock compounded into one of the great wealth-creation stories of modern markets.
Apple debuted on the public markets in December 1980. The stock then spent more than a decade going essentially nowhere, hitting its IPO-day price again and again before the real run began in the late 1990s. Buying Apple at the IPO meant holding through long periods of dead money. Buying Apple at almost any point in its first 15 years as a public company would have produced extraordinary returns from there.
NVIDIA’s IPO was in 1999, and the stock then spent the next several years trading in a wide range as the dot-com bust and financial crisis played out. The investor who bought the IPO did not see consistent appreciation for years. The investor who bought later — it wasn’t until 2016 before the stock started to move appreciably — captured staggering returns.
The pattern is clear. The companies that turn out to be great long-term compounders give you years of opportunity to buy after the IPO. You almost never need day one. In many cases, day one is the worst day of the first decade to buy.
On the IPOs that fail, day one is the most expensive day to buy. On the IPOs that succeed, day one is rarely the cheapest. Patience costs you almost nothing on the winners and saves you a fortune on the losers.
What Waiting Actually Looks Like
The view I’m taking has four steps.
First, wait for the lockup to expire. That’s 90 to 180 days after the IPO. This is when insiders can finally sell, and when the market starts pricing the stock based on supply-and-demand realities rather than carefully managed scarcity. Often the price drops in the days around lockup expiration as anticipated insider selling hits. That drop is information.
Second, wait for at least two quarterly reports as a public company. Companies tell one kind of story in their S-1 prospectus, where the disclosures are designed to support the offering. Companies tell a different kind of story in their quarterly reports, where they have to face investors and analysts every ninety days. Two quarters gives you a starting picture of whether the growth, margins, and unit economics the company described pre-IPO are holding up under public scrutiny.
Third, compare the post-lockup valuation to peers. A pre-IPO valuation is a negotiation between the company, its bankers, and a small group of institutional buyers. A post-lockup valuation is a market-clearing price after the insiders have had a chance to sell. The two numbers can be dramatically different, and the second one is much more useful.
Fourth, only then consider a position — sized appropriately. Use half what you would for a stable large cap position and follow all the same rules you’d apply to any other stock investment: determine a fair value with a risk buffer, establish a stop loss and use disciplined selling tools.
What you give up with this approach is the possibility of being in on a stock that runs straight up from day one with no pullback. That does happen, and when it does, you’ll miss it. What you get in exchange is a dramatically lower chance of being in on a stock that craters in its first year while the people who sold to you cash their checks.
So how does this apply to the current IPO names?
SpaceX recently filed its S-1 with the SEC ahead of a June listing under ticker SPCX. Revenue for 2025 was $18.7 billion, up 33% from the year before. Earnings tell a different story. The company swung from a $791 million profit in 2024 to a $4.94 billion loss in 2025. Q1 2026 alone showed a $4.28 billion loss, almost matching the full prior year in a single quarter. Most of the losses come from the xAI segment, which SpaceX absorbed in a February 2026 merger. The legacy Starlink business is profitable on its own. At the targeted $1.75 trillion valuation, the company trades at roughly 94 times revenue — not earnings. Musk retains 85% of the voting power and hand selected the board, so public shareholders will have very little say. Retail investors are reportedly being allocated about 30% of the offering — roughly three times the standard — and the data shows retail-heavy IPOs tend to perform worse over time, not better.
OpenAI has not filed publicly but is reportedly preparing for a debut at up to $1 trillion. A less than encouraging data point: OpenAI’s Q1 2026 adjusted operating margin was reportedly negative 122%, meaning the company loses about $1.22 for every $1 of revenue it generates. The company’s own CFO has publicly questioned whether OpenAI is ready to be public.
Anthropic is reportedly considering an October 2026 IPO at a valuation around $900 billion. Revenue is reported in the $44-47 billion annualized range. The company is also reportedly projecting its first operating profit in Q2 2026, with gross margins almost doubling in a year.
Of the three, Anthropic appears to have the strongest financial story on paper, though all of this is reporting on private numbers that won’t be subject to public disclosure standards until — and unless — the company actually files. SpaceX’s losses are real and large but cushioned by a profitable legacy business. OpenAI’s losses are the most extreme and the least cushioned.
I’m not making a value judgment on these companies. The point is that even the strongest of them is going to face the same structural dynamic as every other IPO. Hype-priced offer. First-day pop. 90 to 180-day lockup. Then insiders get to sell. Then quarterly reports start to show whether the pre-IPO numbers hold up under public scrutiny. Then the price finds whatever level reflects the underlying business after all the selling pressure clears.
That’s the moment to take an actual look. Not day one.
The Deeper Point
The part of the IPO mythology that’s hardest to shake is the story we tell ourselves: “If I miss the IPO, I miss the gains.” The data tells the opposite story. Almost every great long-term winner gave investors year after year of opportunities to buy in. Almost every great long-term loser took investors’ money in the first six to twelve months and never gave it back.
The IPO happens once. The market opens again tomorrow, and the day after that, for decades. You don’t need to catch every wave. In reality, you won’t. That’s ok. You need to avoid getting caught in the riptide.
The hype is highest when the data is lowest. By the time the data exists, the hype has cooled. That’s when you want to be looking.
If you’re thinking about positioning around the 2026 IPO wave, the most valuable thing you can do may be nothing. For 90 days. Then 90 more. Then review the first two quarterly results. Then look at the price. Then decide.
The market will still be there.
Cheers,
Andrew
If you're trying to think through how to actually approach the 2026 IPO wave — or any major investing decision you're sitting on — that's exactly what the Davem Investor Audit is for. It's a 90-minute one-on-one session where we look at your portfolio, your goals, and the specific decisions in front of you. Whether that's the IPO question, position sizing, when to sell, or what to do with a concentrated holding, we work through it together.
Learn more about The Davem Investor Audit here.
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The content provided are personal opinions and presented for educational purposes only, as of the date published or indicated. Davem Advisors LLC is not a bank, licensed securities dealer, broker or investment advisor. Displayed returns are unaudited. Nothing stated constitutes a recommendation or advice as to whether any investment is suitable for a particular investor. You alone are solely responsible for determining whether any investment, strategy or service is appropriate for your objectives. Past performance is no guarantee of future results. Inherent in any investment is the risk of loss.