Over the past week, the financial media (and media in general) has highlighted and hyped one of the largest Initial Public Offerings (IPOs) in recent memory – SpaceX. Many investors have had a fear of missing out, and they have questioned whether they should participate in such an IPO. Today’s weekly market commentary is not a recommendation or an analysis on SpaceX, rather, it examines the early historical behavior of IPOs. In examining the data, and reviewing the attached piece, the takeaway message is that IPOs are not a short cut to quick, large gains. Rather, they should be considered as part of a long-term, tailored strategy specific to the individual needs and goals of each investor.
The enclosed chart highlights some of the most recent and prominent IPOs. We recognize many names on the chart as current market leaders like Palantir, Uber, and even the behemoth Facebook (Meta). But importantly, the chart first shows the date each individual company went public. From there, the chart shows the Day 1 return of each company. Next, the chart shows the 1-year return after day 1 of each company. And then finally, the last column shows the 1-year maximum drawdown of each company.
Amazingly, as can be seen from the data, the average Day-1 return of those companies highlighted on the chart is 34% with the median return being 29%. But after that initial day of trading, we can then see that the average return after Day-1 of trading is -7% with that median being an astonishing -26%. And then finally the data shows that the average 1-year maximum drawdown is -61% with the median being -58%.
This data highlights the reality that prominent IPOs tend to display tremendous volatility during their early stages. Momentum, excitement, and investor enthusiasm will often help fuel early strength in trading, but that momentum has historically not held in the short-term.
The takeaway from the piece, as highlighted in the close, is that “the reawakening of the IPO market presents a test of discipline. Investors don’t need to avoid IPOs outright, but they should approach them with realistic expectations around return potential, limited operating histories, and sensitivity to market conditions. Allocations should be grounded in a clear understanding of valuation and structural dynamics – and considered within the context of a broader portfolio strategy. Rather than a shortcut to quick gains, IPOs are best viewed as one component of a measured, long-term investment process.” – NFM25573AO (06/26)
We would ask that you review the attached piece at your convenience and please let us know if you have any questions or if you would like to discuss it further. And as we always end this correspondence, please remember that regardless of current momentum and regardless of the key takeaways in this weekly perspective, we will continue to monitor and manage with a thoughtful approach based on your specific long-term objectives. Thank you for your continued confidence and look forward to speaking soon.
