Before I get into why investing in IPOs is a bad idea, let me tell you a story that is relevant to the topic.

In the early 2000s, I was driving to a local strip mall to go to my favorite home improvement store to pick up some things for my latest project. At the time I was in my early 30s and had been way into my transition from the cool, fly guy to an iteration of my father. As I drove through the strip mall at 7:30-ish in the morning, I noticed a long line of teenage kids winding down the sidewalk. My first thought was what kid in their right, pubescent mind would be up this early on a weekend? My second thought was what store, besides Walmart and Home Depot, is open this early?

I was curious. I circled the parking lot a few times, looking like a stalker. I couldn’t stop wondering what was going on. The only time young kids did this in my generation (Gen Xer) was to go to the department store to go buy tickets for a concert. Finally, I saw some kids walking from the parking lot. They were headed towards the droves of kids patiently waiting in line. “Excuse me,” I asked. “What’s going on with the line,” I inquired. “The new Jordans are coming out,” the kids casually answered in unison. And, thus, I had my answer.

And every year after that, I noticed the lines. No matter what state I was in, the lines were all the same. And when my son came of age, he soon joined his peers in the lines. My son would come home with boxes of sneakers. My curiosity would get the best of me. I’d ask to see these amazing sneakers that had kids waiting hours in line to spend $200+ to acquire. He would smoothly open the stiff chipboard package to reveal its contents. I was unimpressed. They looked like the same shoes we wore in the 80s and 90s. The same hard soled shoes with no updates, just a new, and inflated, price. “So, are you wearing them to the game this weekend,” I asked. “No,” he replied. “I’m selling these.”

What I would later find out is that some kids, and adults, would wait in line for hours at a chance, not a guarantee, to get these shoes. The ones fortunate enough to get a pair at the Manufacturer’s Suggested Retail Price (MSRP) would flip the shoes for double that price; thus, turning a profit. The purchasers of these shoes would wear them until the soles, and the value, were worn out on them.

This is the similarity between the sneaker phenomenon and IPOs.

An Initial Public Offering (IPO) is when shares of a company’s equity, or stock, is made available in the secondary market (NASDAQ, NYSE, etc.) for the first time. The problem with IPOs is similar to the sneaker scenario. The IPO price, think MSRP of the sneakers, is a really good guess. The IPO price may or may not align with the real value of the company. Typically, the value is inflated, and the only people that win in an IPO situation are the initial investors (owners and original investors). Those that invest in the secondary market when the stock goes public will more than likely lose money in the short- or long-term and will either have to take losses on the IPO or hold the stock for years to make their money back. Once an IPO trades for about a year or so, valuations can be properly computed, and industry analysts can provide better guidance on the stock (overweight, underweight, buy, hold, sell, target price, etc.).

IPOs can be even more dangerous when they have a lot of media buzz around them. The bigger the anticipation for a company’s IPO, the higher the price will increase by the time it hits the secondary market for public consumption.

To illustrate my point, here are some of the biggest IPOs that came out between 2020 and 2021 and their current trading price as of around August 15th, 2021.

IPO Date	Symbol	Name	52-Week High	Current Price	% Change
2021-04-14	COIN	Coinbase	$429.54	$256.83	40.21%
2020-07-02	LMND	Lemonade	$188.30	$71.87	61.83%
2020-08-05	BIGC	Big Commerce	$162.50	$58.78	63.83%
2021-07-29	HOOD	Robinhood Markets, Inc.	$85.00	$47.19	44.48%
2021-03-31	PSFE	Paysafe Ltd.	$19.56	$8.51	56.49%
2020-09-16	SNOW	Snowflake	$429.00	$282.17	34.23%
2020-12-09	DASH	DoorDash, Inc.	$256.09	$187.67	26.72%
2020-12-10	ABNB	Airbnb	$219.94	$148.57	32.45%
2020-09-23	GDRX	GoodRx Holdings	$64.22	$33.47	47.88%
2020-11-27	QS	QuantumScape	$132.73	$19.30	85.46%
2020-12-09	AI	C3 AI, Inc.	$183.90	$44.79	75.64%
2020-09-29	PLTR	Palantir	$45.00	$24.50	45.56%
2020-07-30	LCID	Lucid Group, Inc.	$64.86	$22.83	64.80%
2021-05-05	HNST	The Honest Company	$23.88	$9.75	59.17%
				Avg Change	52.77%