Should You Invest in New IPOs?
A Data-Driven Approach to Buying Newly IPOs Like SpaceX
Dear Investor,
Zee here. In this last article for 2025, I want to talk about new Initial Public Offering (IPO).
The upcoming SpaceX IPO at a projected $1.5 trillion valuation has reignited one of investing’s most persistent questions: Should you invest in newly public companies?
The Fear Of Missing Out (FOMO) is undeniable. Get in early on the next Amazon, Google, or Tesla. Participate in groundbreaking stories. Be part of something transformative from day one.
But the reality of IPO investing often tells a very different story, one that costs unprepared investors significant money.
As a former entrepreneur who went through the full IPO process, in this article, I will walk you through a framework for evaluating whether IPOs deserve a place in your portfolio, using SpaceX as our primary case study.
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The Seductive Appeal of IPO Investing
Before we dive into analysis, let’s acknowledge why IPOs are so tempting. The psychology is powerful and worth understanding because it affects even experienced investors.
The Early Investor Fantasy: We’ve all heard stories of early investors in companies like Amazon or Microsoft turning modest investments into generational wealth. IPOs seem to offer that same opportunity, a chance to get in before institutional money drives prices higher.
Fear of Missing Out: When a hot IPO dominates headlines and everyone around you is talking about it, staying on the sidelines feels painful. What if this really is the next big thing? What if everyone else gets rich while you watch?
The Narrative Pull: Companies like SpaceX come with compelling stories. Revolutionizing space travel! Global internet from satellites! Making humanity multiplanetary! These narratives are emotionally engaging in ways that “steady 8% annual returns” can never be.
Media Amplification: Financial media thrives on IPO excitement. Countdown coverage, opening day drama, and breathless reporting about first-day pops all create urgency and excitement that overwhelms careful analysis.
Understanding the IPO Machine: Who Really Benefits?
To evaluate whether you should invest in IPOs, you first need to understand how the IPO process actually works and whose interests it serves.
The Players and Their Incentives
Company Insiders and Early Investors: These are founders, employees, and venture capital firms who have held shares for years, often bought at pennies on the dollar. Their primary goal at IPO is to maximize the price at which they can eventually sell. A higher IPO valuation means they can liquidate holdings at better prices once lockup periods expire.
Investment Banks: Banks like Goldman Sachs, Morgan Stanley, and JPMorgan earn fees based on the total amount raised. They’re incentivized to price the IPO as high as possible while still ensuring it trades well on opening day. Their clients are the company and large institutional investors, not retail investors.
Institutional Investors: Hedge funds, mutual funds, and pension funds get privileged access to IPO allocations at the discounted offering price. They often receive shares below where the stock will open for trading, giving them an immediate profit opportunity. Many flip these shares on opening day.
Retail Investors: That’s you. By the time you can buy shares, they’re typically trading well above the IPO price. You’re buying from the institutions that got allocated shares, often at a markup. You have no special information, no relationship with the company, and you’re entering after much of the initial gain has been captured.
The Pricing Game
IPO pricing is an art designed to create a specific outcome. Banks want the stock to “pop” on opening day, rising 10-30% above the IPO price. This creates headlines celebrating the successful offering and makes their institutional clients happy with quick profits.
But think about what this means. If a stock opens at $50 and immediately jumps to $65, the company raised money at $50 when the market clearly valued it at $65. They left $15 per share on the table. Who captured that difference? The institutional investors who got IPO allocations, not the company and definitely not retail investors buying at $65.
This is the fundamental tension in IPO investing. The process is designed to benefit insiders and institutions, with retail investors serving as the greater fool who buys at elevated prices driven by excitement and FOMO.
The SpaceX Case Study: A Great Business at Any Price?
Let’s examine SpaceX specifically to illustrate these principles in action.
Why SpaceX Is Genuinely Impressive
I want to be clear: SpaceX is a remarkable company. Their achievements aren’t hype, they’re real and transformative.
Proven Technology and Execution: SpaceX pioneered reusable rocket technology, slashing launch costs by up to 90% compared to traditional providers. They’ve successfully completed hundreds of missions, dominated the commercial launch market, and revolutionized an industry that hadn’t changed meaningfully in decades.
Strong Competitive Position: SpaceX holds a commanding market share in commercial launches. Their vertical integration, controlling everything from design to manufacturing to launch operations, creates high barriers to entry. Competitors trying to catch up face years of development and billions in investment.
Multiple Revenue Streams: The business isn’t dependent on a single product. Launch services generate steady income today. Starlink, the satellite internet service, already has over 4.6 million subscribers and is building recurring revenue. Future opportunities in space manufacturing, orbital data centers, and beyond-Earth logistics could be enormous.
Visionary Leadership: Elon Musk’s track record with Tesla demonstrates his ability to execute on ambitious visions. Love him or hate him, he’s proven capable of building transformative companies.
The total addressable market for the space economy is projected to reach $1-2 trillion by 2040. SpaceX is positioned to capture a significant share of that growth.
So yes, this is a world-class business. The question is: Does that make it a good investment at $1.5 trillion?
The Valuation Problem
Here’s where things get complicated. At a $1.5 trillion valuation, we’re not paying for SpaceX as it exists today. We’re paying for a best-case scenario future that assumes nearly perfect execution across multiple unproven fronts over many years.
Starship Must Succeed: The $1.5 trillion valuation largely depends on Starship, the massive fully-reusable rocket, achieving operational status and dramatically reducing costs further. But Starship is still in testing. Multiple prototypes have exploded. It hasn’t completed a full orbital mission with payload deployment and recovery. The timeline for full operational capability remains uncertain.
If Starship experiences significant delays or technical failures, entire revenue projections disappear. Markets that depend on ultra-low launch costs (space manufacturing, orbital data centers, large-scale satellite deployments) remain theoretical rather than actual.
Starlink Faces Growing Competition: Amazon’s Project Kuiper is coming online with billions in backing. Traditional telecom companies are fighting back with improved terrestrial coverage and alternative satellite approaches. Regulatory challenges in various countries could limit Starlink’s expansion. Price competition could erode margins.
The Execution Risk Multiplier: Unlike established companies with proven business models, SpaceX’s valuation depends on executing across multiple frontier technologies simultaneously. Each has significant risk. The compound probability of success across all of them is lower than any single one.
Regulatory and Political Risk: Space operations face complex international regulations. Export controls, spectrum allocation, orbital debris rules, and national security considerations all create uncertainty. Political winds shift. Relationships with government agencies can change.
What Could Go Wrong?
Let’s be specific about scenarios that could significantly impact valuation:
A catastrophic launch failure, especially one killing astronauts or destroying critical payload, could ground operations for extended periods and damage government relationships permanently. We’ve seen this before with the Space Shuttle program.
Starship delays or technical challenges requiring fundamental redesigns could push commercialization timelines out by years. Each year of delay means revenue projections shift and discount rates reduce present values significantly.
Starlink could face competition that fragments the market, preventing the dominant position the valuation assumes. Profitability could prove elusive if customer acquisition costs remain high and churn rates increase.
International regulatory challenges could limit global expansion. Countries protecting domestic interests or concerned about security could restrict operations in major markets.
General market corrections could simply reprice high-growth speculative companies across the board, taking SpaceX down with broader tech valuations regardless of specific company performance.
None of these scenarios mean SpaceX will fail. They simply illustrate that the $1.5 trillion valuation has limited room for anything other than best-case outcomes.
The Historical Pattern: Even Great Companies Crash After IPOs
Now let’s examine whether buying newly public companies, even great ones, at IPO prices or shortly after has historically been a good strategy.
Case Study #1: Meta Platforms (Facebook) – The Social Media Juggernaut
Facebook went public in May 2012 at $38 per share with enormous fanfare. The company already had over 900 million users, dominated social networking, and had a proven advertising business model generating real revenue and profits.
Everything about the business was impressive. The network effects were undeniable. User growth was explosive. Engagement metrics were off the charts. This was clearly going to be one of the defining companies of the internet age.
Yet within months, shares crashed 61% from their post-IPO high, falling to just $17.55 by September 2012. The concerns that drove the decline seem almost quaint in retrospect: mobile advertising questions, slowing user growth in developed markets, and doubts about whether Facebook could maintain engagement.
What This Meant for Investors:
Buyers at the $38 IPO price: Down 54% at the low, but eventual returns over 3,000%
Buyers at the opening day peak around $45: Down 61% at the low, required strong conviction to hold
Buyers who waited for the $17.55 low: Returns exceeding 3,560%
The lesson? Even an obviously great business with a proven model and dominant position crashed dramatically after going public. Patient investors who waited for fear and doubt to create an opportunity turned good returns into life-changing ones.
Case Study #2: Visa – The Payments Infrastructure Play
Visa went public in March 2008 at $44 per share with perhaps the most bulletproof business model imaginable. They operated as a toll collector on the inevitable transition from cash to digital payments. Every swipe, tap, or online payment generated a small fee. The network effects were massive, the moat was impregnable, and the long-term trend was undeniable.
The timing, however, was catastrophic. Visa’s IPO came just months before Lehman Brothers collapsed and the global financial system nearly imploded. As banks failed and consumer spending cratered, Visa shares fell 53% below their post-IPO peak, dropping to around $34 by November 2008.
The concerns were understandable. Credit markets were frozen. Consumers were defaulted on debt. Banks were going bankrupt. Who knew if the financial system would even survive in its current form?
But Visa’s business model remained fundamentally intact. They didn’t lend money, they just processed transactions. As long as people bought things, Visa collected fees. The crisis created fear, not fundamental business impairment.
What This Meant for Investors:
Buyers at the $44 IPO price: Down 23% at the low, but eventual returns over 2,000%
Buyers who panicked and sold at the low: Locked in losses and missed the recovery
Buyers who accumulated during the crisis: Returns exceeding 2,300%
The lesson? Even the most resilient business models with unquestionable long-term prospects crashed when macro conditions deteriorated. Patience and courage during maximum fear created extraordinary returns.
Case Study #3: Palantir – The Data Analytics Powerhouse
More recently, Palantir went public through a direct listing in September 2020 at $10 per share. The data analytics company had deep relationships with government intelligence agencies, cutting-edge technology, and was expanding into high-value commercial markets.
The company had a mystique. Founded by Peter Thiel with CIA backing, working on classified projects, using AI and big data before they were buzzwords. The narrative was compelling: Palantir helped find Osama bin Laden, they’re the secret weapon of intelligence agencies, they’re expanding to help Fortune 500 companies make sense of their data.
Despite this compelling story and real competitive advantages, Palantir shares eventually crashed 85% from their post-IPO high of around $39 to bottom near $6 in late 2022. The concerns: persistent lack of profitability, difficulty acquiring commercial customers, high stock-based compensation, and overall excessive valuation relative to revenue.
What This Meant for Investors:
Buyers at the $10 direct listing price: Down 40% at the low, but up significantly now
Buyers who chased momentum to $39: Down 85% at the low, required diamond hands
Buyers who accumulated between $6-10: Returns exceeding 2,900%
The lesson? Even recent IPOs with cutting-edge technology and strong competitive positions follow the same pattern. Initial excitement gives way to harsh reality as profitability timelines extend and growth questions emerge.
The Consistent Pattern
Notice the commonality across these three case studies:
All three were genuinely great businesses with real competitive advantages, not hype or frauds
All three eventually rewarded long-term investors who bought and held, vindicating the core investment thesis
All three crashed 50-85% from their post-IPO peaks despite their quality, creating much better entry points
Patience was rewarded far more than speed – waiting for fear and doubt created superior returns
The declines didn’t indicate business failure – they simply reflected initial overpricing
This pattern repeats with remarkable consistency across IPO history. Great businesses often make terrible initial investments when purchased at peak excitement valuations.
Why IPOs Consistently Decline: Understanding the Mechanism
Understanding why this pattern occurs so reliably helps remove emotion from IPO investing decisions. It’s not bad luck or market irrationality – it’s predictable market mechanics.
The Hype Cycle
IPO launches come with carefully orchestrated marketing campaigns. Media coverage intensifies. Roadshows present the most optimistic view of growth prospects. Analysts from underwriting banks issue bullish reports (they’re hardly going to trash a deal they just brought public). CNBC counts down to the opening bell.
This coordinated enthusiasm creates maximum attention and excitement right at the IPO moment. Momentum traders pile in for opening day pops. Retail investors fear missing the next Amazon. Social media amplifies the narrative.
Prices surge not because of rational valuation analysis, but because of concentrated buying pressure driven by psychology and positioning.
The Reality Check
Then comes the hard part: operating as a public company. Quarterly earnings bring scrutiny. Revenue growth rates face tough comparisons. Profit margins get dissected. Competitive threats emerge. Execution challenges become visible.
The future that seemed inevitable during the IPO roadshow reveals itself as uncertain and complex. That revolutionary technology faces unexpected technical hurdles. That massive market opportunity gets fragmented by competition. Those visionary timelines slip as reality proves messier than PowerPoint presentations suggested.
None of this means the business is failing. It simply means the market was pricing in perfection, and perfection doesn’t exist.
The Lockup Expiration
Most IPOs include lockup periods of 90-180 days during which insiders and early investors cannot sell their shares. This artificial constraint on supply helps support prices during the critical post-IPO period.
But lockup expirations are scheduled and predictable. When they hit, millions or billions of dollars in shares can suddenly trade. Insiders who have waited years to monetize their holdings finally get their chance. The supply-demand dynamics shift dramatically.
Even if most insiders don’t sell, the market knows they could. That uncertainty and potential overhang weighs on sentiment and valuation.
Market Price Negotiation Dynamics
Here’s how stock prices actually move, and why this creates volatility around IPOs. Every stock trade represents a negotiation between buyers and sellers meeting at a price where both agree to transact.
This negotiation shows up through the bid-ask spread. The bid is the highest price buyers will pay. The ask is the lowest price sellers will accept. When eager buyers keep hitting the ask, unable to find sellers at lower prices, the stock walks higher. When sellers overwhelm buyers, prices decline as desperate sellers accept lower bids.
After an IPO, initial enthusiasm brings aggressive buyers hitting any ask. Momentum traders pile in. Short-term flippers add volume. But this buying pressure is finite. Eventually, eager buyers exhaust themselves. Profit-taking accelerates. Lockups expire. Reality disappoints versus hype.
The same mechanisms that drove prices irrationally high now work in reverse. Prices don’t gradually decline – they gap down overnight as negative news hits. They plunge on disappointing guidance. The market is simply finding a new equilibrium that better reflects business fundamentals and removes the hype premium.
Understanding these dynamics helps you see that post-IPO crashes aren’t market failure or bad luck. They’re the predictable result of initial overpricing meeting reality.
The Framework: Should You Invest in IPOs?
Given everything we’ve discussed, here’s a practical framework for deciding whether and when to invest in newly public companies.
Rule #1: You Don’t Have to Participate
This is the most important rule and the hardest to follow. Warren Buffett uses a baseball metaphor: In baseball, batters must swing at strikes or get called out. But in investing, there are no called strikes. You can watch pitch after pitch go by indefinitely, waiting for the perfect opportunity.
The SpaceX IPO will dominate headlines. Your friends will talk about it. Financial media will create urgency. FOMO will tempt you. But none of that means you must buy. The market will always offer new opportunities.
Give yourself permission to pass. The vast majority of IPOs don’t deserve your capital at their offering price. Missing out on one that does work isn’t a tragedy – your portfolio has thousands of other opportunities.
Rule #2: Separate Business Quality from Investment Quality
This distinction is crucial and trips up most investors. SpaceX is a great business. That doesn’t automatically make it a great investment at any price.
A great business has:
Sustainable competitive advantages (moats)
Large addressable markets
Strong unit economics
Capable management
Clear path to profitability and cash flow
A great investment has all of the above PLUS:
Reasonable valuation relative to fundamentals
Margin of safety against things going wrong
Risk-reward profile tilted heavily in your favor
SpaceX might qualify as a great business. Whether it’s a great investment depends entirely on the price you pay relative to realistic future cash flows.
Rule #3: Wait for the Crash
Our case studies demonstrated a consistent pattern: great companies typically fall 50-85% from post-IPO peaks before becoming compelling investments. Use this as your baseline expectation.
For a company like SpaceX projected to IPO at $1.5 trillion, define your entry point ahead of time. A reasonable framework might be:
Wait for shares to fall at least 50% from the post-IPO peak price
AND trade below the actual IPO price itself
Why both criteria? Falling 50% from the peak signals that initial euphoria has completely evaporated. Trading below the IPO price adds another margin of safety, indicating even institutional investors with IPO allocations are underwater.
At these levels, you’re buying after maximum pain. The sellers who remain are exhausted. Anyone who wanted out has gotten out. The stock reflects deep pessimism rather than irrational optimism. This is when great businesses become great investments.
Rule #4: Understand What You’re Buying
Never invest in an IPO based purely on narrative or excitement. Do the fundamental work:
Business Model: How does the company actually make money? Is it proven or theoretical? What are the unit economics? Is there a clear path to profitability?
Competitive Position: What protects this business from competition? Are the moats durable? How easily can competitors replicate the model?
Market Opportunity: Is the addressable market real and accessible, or speculative and distant? What adoption rate is required to justify the valuation?
Management Track Record: Has the leadership team built successful businesses before? How have they handled adversity? What are their incentives?
Financial Reality: What do the actual numbers show versus the growth story? What assumptions underpin the valuation?
If you can’t answer these questions clearly, you don’t understand the business well enough to invest. Pass and wait for an opportunity you do understand.
Rule #5: Size Appropriately
Even when an IPO meets your criteria after a significant decline, never make it a core portfolio position immediately. These remain speculative, higher-risk investments than established companies with long public market track records.
Consider a staged approach:
Initial position of 1-2% of portfolio
Add incrementally if the thesis plays out and you gain confidence
Accept that even well-researched bets can fail
This position sizing protects you from catastrophic losses while still allowing meaningful upside if you’re right.
Rule #6: Accept You’ll Miss Some Winners
Some IPOs will work immediately. Some will surge and never look back. Amazon IPO’d at a split-adjusted $1.50 and never traded that low again. Google IPO’d at $85 and basically went straight up.
You will miss these. That’s the cost of a disciplined approach. Accept it.
What you avoid by waiting are the far more numerous IPOs that crash and never recover, the companies that seemed revolutionary but couldn’t execute, the businesses with fundamental flaws hidden beneath exciting narratives.
You might miss 1-2 Amazon/Google type situations per decade. But you’ll avoid hundreds of disasters. The math overwhelmingly favors patience.
Alternative Approaches to IPO Investing
If you’re determined to participate in IPO investing despite the challenges, here are approaches that tilt odds more in your favor:
Strategy #1: Wait 6-12 Months
Instead of buying on IPO day or even in the first few weeks, wait for at least two quarters of public company results. This allows:
Initial hype to dissipate
Reality to emerge through actual quarterly performance
Lockup periods to expire and insider selling to normalize
The market to establish a more rational trading range
By this point, prices have usually declined from peaks and you’re making decisions based on demonstrated public company performance rather than IPO marketing materials.
Strategy #2: Wait for a Catalyst Decline
Rather than buying on weakness that could continue declining, wait for a specific negative catalyst that you believe is temporary or overblown. Examples:
A missed quarter that doesn’t change the long-term thesis
A lawsuit or regulatory action with limited actual impact
Macro selloffs unrelated to company fundamentals
Competitive announcements that create fear but limited actual threat
These catalysts create sharp, sentiment-driven declines that often represent better entry points than slowly grinding lower prices.
Strategy #3: Invest in Established Competitors
Instead of taking IPO risk, consider investing in established public companies in the same space that might benefit from the same trends. For the space economy:
Aerospace and defense contractors with space exposure
Satellite communication companies
Companies supplying equipment to the space industry
You sacrifice some upside potential, but gain:
Proven public company track records
Established valuations you can analyze
Lower risk from business model uncertainty
Often dividend income while you wait
Strategy #4: Follow Insider Buying
After lockup periods expire, watch what insiders do. If executives and board members are buying shares with their own money at post-IPO prices, it signals confidence that current valuations are attractive. Insider buying is one of the strongest signals in investing.
Conversely, if insiders are only selling (beyond necessary tax/diversification sales), that’s a red flag. Why would people who know the business best be exiting?
Applying This to SpaceX Specifically
Let’s bring this back to the question at hand: Should you invest in SpaceX when it goes public?
If SpaceX IPOs at $1.5 Trillion
Based on our framework, the answer is: Almost certainly not, at least not initially.
At that valuation, SpaceX is being priced for near-perfection across multiple uncertain dimensions. The margin of safety is minimal to non-existent. You’re paying for best-case scenario futures that may or may not materialize.
Instead, add SpaceX to your watchlist. Follow their progress closely:
Track Starship development and testing
Monitor Starlink subscriber growth and unit economics
Watch competitive developments from rivals
Observe regulatory and political winds
Study quarterly results once they report as a public company
Then wait. Wait for the inevitable disappointment, setback, or macro correction that brings the price back to earth.
What Would Make SpaceX Attractive?
Several scenarios could create an interesting entry point:
A Significant Price Decline: If shares fall to $750-900 billion (50% off peak and below IPO price), the risk-reward becomes more attractive. At those levels, market expectations have reset and some margin of safety exists.
Starship Success with Delayed Timeline: If Starship proves technically viable but commercialization takes longer than projected, prices could decline while the long-term thesis remains intact. This creates opportunity.
Macro-Driven Selloff: A broader market correction could take SpaceX down alongside other growth stocks regardless of company-specific performance. These macro-driven selloffs often create the best entry points in quality businesses.
Competitive Concerns Prove Overblown: If Starlink faces competition that temporarily depresses sentiment but ultimately doesn’t materially impact the business, the market may create opportunity through overreaction.
The key is waiting for the market to offer you favorable odds rather than accepting the odds the IPO market dictates.
The Bottom Line: Patience Pays
Let’s bring this all together with a clear answer to our central question: Should you invest in newly public companies?
The evidence overwhelmingly suggests: Not immediately after they go public, and only rarely at IPO prices.
The IPO process is designed to benefit insiders and institutional investors, not retail participants buying in the secondary market. The hype cycle, lockup dynamics, and transition from private to public company scrutiny create predictable patterns where even great businesses decline significantly after going public.
Our case studies of Meta, Visa, and Palantir demonstrated that waiting for crashes of 50-85% turned good investments into great ones. Patient investors who bought during periods of maximum fear and doubt achieved returns multiple times higher than those who bought at IPO prices or during initial enthusiasm.
SpaceX represents a genuinely impressive business with real competitive advantages and exposure to massive long-term trends. But at a $1.5 trillion IPO valuation, it’s being priced for perfection across multiple uncertain dimensions. The margin of safety is minimal.
Apply the framework:
You don’t have to participate in the IPO
Great business doesn’t equal great investment at any price
Wait for a significant decline (50%+ from peak, below IPO price)
Understand the business fundamentally before investing
Size positions appropriately even after declines
Accept you’ll miss some winners to avoid many more losers
As Warren Buffett reminds us, in investing there are no called strikes. You can wait indefinitely for your perfect pitch. SpaceX will still be there after the hype fades. If history is any guide, it will likely be available at a much better price.
The hardest part of investing is often doing nothing. But sometimes, doing nothing is the highest-returning strategy available.
Disclaimer: All information here is for educational purposes only. This is not financial advice. Please do your own research and speak with a licensed advisor before making any investment decisions. Past performance is not indicative of future returns.