Secondary market IPOs structurally underperform
The hosts argued that buying newly public companies on the secondary market is historically one of the worst investment strategies due to a consistent pattern of underperformance.
The argument
They cited a 1995 paper by Jay Ritter showing IPOs returned only 5% annually compared to 12% for similar established firms, alongside a Dimensional Fund Advisors study showing a 2% annual lag. This underperformance is driven by the fact that IPO portfolios structurally behave like 'junk' - small growth, low profitability, and high investment stocks.
The thesis, stress-tested
✓ What validates it
- ✓Continued underperformance of the Renaissance IPO ETF relative to the broader market index over a multi-year horizon
▸ Risks discussed
- ▸A rare exception occurred during the 1992-2000 dot-com bubble when small tech IPOs temporarily outperformed
- ▸Early private investors or employees without lockups may still benefit from the initial listing pop
Hear it yourself
"So this is IPO's, but also seasoned equity offerings. Companies issuing stock from 1970 to 1990 tended to be poor investments. So in this paper, they find that investment in IPO's receive average returns of only 5% per year, while similar listed firms return 12% over the same period."
00:00 / 00:20
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE