Lesson 1: The best returns often belong to someone else

For decades, initial public offerings have occupied a peculiar place in financial markets. On average, US IPOs have delivered a first-day return of roughly 18%–19% since 1980, according to the long-running data compiled by Jay Ritter of the University of Florida. During the dot-com frenzy of 1999–2000, the average first day pop exceeded 60%. This ‘money left on the table’ accrues almost exclusively to those fortunate enough to receive an IPO allocation at the offer price – typically institutional clients of the underwriting syndicate – and not to investors who buy in the aftermarket.

Tempting as it may seem to chase IPO allocations, the average pop is largely unattainable in practice: allocations in blockbuster deals are heavily rationed, while weak deals are readily available – the classic ‘winner’s curse’ first formalised by financial economist Kevin Rock – so a strategy of indiscriminately subscribing to IPOs earns far less than the headline average suggests.

Lesson 2: IPOs have historically struggled to maintain their early momentum

In a landmark study published in 1991, Ritter found that newly listed companies significantly underperformed comparable firms during the three years following their listing. Subsequent research by Ritter and Tim Loughran extended the finding and showed that companies issuing equity, whether through IPOs or secondary offerings, underperformed non-issuers by around five percentage points annually over the following five years.

Much of the underperformance is concentrated among smaller, unprofitable companies. Larger IPOs with substantial revenues have historically performed roughly in line with the market. The effect is strongly linked to market timing: companies – or rather their owners and investment bankers – are skilled at selling shares when investor enthusiasm, and thus valuations, are close to their peak. Waves of issuance have frequently coincided with periods of elevated valuations and market optimism. 

This year’s record supply deserves a nuanced reading in this respect: at an estimated USD 160 billion, gross IPO proceeds in 2026 exceed all previous peaks in nominal terms, yet scaled by the market capitalisation of the S&P 500 Index, this year ranks only in the second quintile of the past three decades. And unlike previous booms, the number of listings remains close to its long-term trend – activity is concentrated in a handful of very large deals rather than reflecting the broad-based exuberance that has historically made equity issuance waves such a reliable warning signal.

Lesson 3: When insiders are allowed to sell their shares, stock prices often fall because more shares suddenly hit the market

Research on lock-up agreements shows a statistically significant and permanent price decline  when insider selling restrictions expire and early investors are free to sell. In theory, this should not happen because investors know the date in advance. In practice, however, the sudden increase in available shares does seem to create meaningful selling pressure. With this year's blockbuster IPO, the number of freely tradable shares is set to rise significantly over the coming quarters, making the lock-up schedule an important factor to watch.

So should investors simply avoid IPOs altogether? 

No, every great public company was, at some point, an IPO. Research by Hendrik Bessembinder shows that just 4% of listed stocks have accounted for the entire net wealth creation of the US equity market since 1926 – the remaining 96% collectively merely matched Treasury bills. 

The distribution of long-term equity returns is so extremely skewed that missing a handful of exceptional companies condemns a portfolio to mediocrity. Some of tomorrow’s members of that 4% are going public today. The practical conclusion is therefore not abstinence, but discipline: you must participate in the great franchises of the future, but you do not have to outbid your neighbour on day one, at whatever price, to secure an allocation.  History suggests that enthusiasm often fades after a listing, insider shares come to market, and better entry opportunities frequently emerge in the months that follow.

This raises an obvious question: if the public market investor is structurally late to the party, why not simply join the party earlier and participate while these companies are still private?  History offers a first, perhaps surprising, answer: much of the absolute value creation in companies such as Microsoft and Amazon occurred only after they became public. Today, however, companies tend to stay private for longer, meaning the growth captured before the IPO is increasing as well. Alphabet and Meta, for example, listed at valuations far larger than those of earlier technology leaders, so the multiple available to the public investor has massively compressed across IPO generations.

Even so, private markets are not an easy answer. Venture capital returns are heavily concentrated in a small number of companies in the earliest funding rounds, where both access and capacity is limited and failure risk is the highest. By the time private investments become more widely available, valuations are often much richer while the economics have deteriorated markedly. 

The conclusion is simple: Remain disciplined in both public and private markets

For most investors, the conclusion is therefore not to choose between private and public markets, but to remain disciplined in both. Private markets can offer attractive opportunities, particularly through experienced managers with access to the most promising companies at earlier stages of their development. At the same time, investors should not assume that a pre-IPO label automatically translates into superior returns. The evidence suggests that access, manager selection, and valuation remain just as important in private markets as in public ones. Ultimately,  owning the great franchises of the future remains the objective, but there is no need to secure a pre-IPO or IPO allocation at any price. For many investors, public markets continue to offer an efficient and attractive way to participate in long term corporate value creation, often after the initial IPO volatility has subsided and with the benefit of greater transparency, liquidity, and diversification.