One of the most talked-about investment stories this summer was the highly anticipated IPO of SpaceX, which drew significant investor and media attention as the company transitioned from private ownership to the public markets. IPOs can offer investors access to innovative and fast-growing businesses, but the excitement surrounding a market debut does not always translate into strong long-term investment results.
Research from University of Florida finance professor Jay Ritter (widely regarded as the leading authority on IPO performance) discovered that while IPOs have historically gained an average of 18.9% on their first day of trading, their average return during the first year falls to just 5.6%, and they have underperformed the broader U.S. stock market by roughly 20% over their first three years. Much of the early “IPO pop” is often driven by limited share availability and investor excitement rather than long-term fundamentals.
Truist’s analysis of 30 notable technology IPOs tells a similar story. Although the average first-year return was 14%, fewer than half of the companies produced positive returns, and the median return was -9%. More strikingly, every company experienced a decline of at least 20% from its peak during the first year, with an average maximum drawdown of 55%. Even Palantir, one of the strongest performers, gaining 153% in its first year, endured a 53% drawdown along the way.
Source: Truist. First 12-month returns versus maximum drawdowns for 30 notable technology IPOs. While some companies generated exceptional gains, every company experienced a significant decline during its first year, highlighting the volatility of individual stocks.
For us at Silver Oak, the lesson is clear: long-term wealth isn’t built by chasing the latest IPO. It’s built through diversification, discipline, and patience. The history of IPOs is a reminder that excitement and investment success aren’t always the same thing. The next big IPO will undoubtedly make headlines. When it does, we’ll remain focused on the principles that have consistently served long-term investors well.
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