Houston, we have a problem?

.

  By Guest Blogger Doug Rowat

.

So far, so good for SpaceX investors who, from a risk perspective, have overlooked, well, pretty much everything.

Lack of profitability? Meh. Extreme valuations? Meh. Aggressive company targets? Meh.

So, will the latecomers to the SpaceX party now suffer the hangover?

Impossible to say, of course, as momentum’s a funny thing, but the long-term history of IPOs certainly suggests that IPOs, in aggregate, are highly problematic investments.

First, if you’re selling anything, even if it’s an old snowblower, you naturally bring it to market when demand’s favourable. You wouldn’t sell a snowblower in the summer. IPOs are no different: they occur when investor interest’s strongest. The frothier the demand the better. However, such timing often results in poor entry points, with most investors, in the long run, getting clipped for buying into a hot market, often one that’s peaking.

The University of Florida examined all the significant US-based IPOs from 1980 to 2023, a total of more than 8,300. (Of note, The University of Florida study’s dynamic and therefore continues to be updated. The 1980 to 2023 period is actually current, as three-year buy-and-hold returns (see table below) are calculated up to present day.)

As might be expected, first-day IPO returns are impressive with an average gain of 14.2% (with a nearly 20% first-day gain for tech companies specifically). However, this assumes that you were lucky enough to get an allocation prior to initial trading. IPO allocations, especially for noteworthy IPOs like SpaceX, are nearly impossible to come by for retail investors.

So, this leaves most retail investors relegated to buying an IPO after trading has begun. And when the University of Florida examined long-run returns measured from the first CLOSING market price, the IPO returns became much less impressive. The overall three-year gains were still positive (stocks, after all, tend to move higher longer term), but relative to applicable benchmarks (the market-adjusted column), the IPOs significantly underperformed:

US-based IPOs from 1980 to 2023: longer-run returns

Source: Jay R. Ritter, University of Florida; Turner Investments. The market-adjusted returns are the average buy-and-hold IPO return minus the average compounded benchmark return. Returns measured from the first closing price (i.e., excludes first-day returns). IPOs from Internet-bubble period excluded

It’s also worth noting that unprofitable new issuers underperform even more significantly.

And this buying-at-the-peak risk applies to new ETF launches as well, particularly specialized ETFs. Investors certainly experienced this when cannabis ETFs hit the market in 2017, timed to capitalize on the massive hype surrounding legalized marijuana. The good times were short-lived, of course, and early cannabis ETF investors are still massively underwater.

And when specialized ETFs come to market they’re usually backed by slick and seductive marketing campaigns. Take, for instance, the below sports gambling and entertainment ETF that hit my radar in 2021. How could this not have been a winner? It had sexy slogans. It had sexy graphics. And, of course, it had sexy growth charts (a 73% CAGR? What could go wrong?). But alas, the ETF was terminated and delisted less than a year later due to a lack of investor interest.

Like the graphics on the slides, the ETF turned out to be nothing more than a roll of the dice.

Nice slides, but it wasn’t meant to be for HSPN

Source: Harvest

So, beware of the shiny new thing. IPOs and new, specialized ETFs are untested securities, full of promises and only launching when investors are chomping at the bit. You’re better off instead to buy a broad-based benchmark via an established, more diversified ETF.

It’s not as sexy, but what’s sexy? Momentarily bragging to your friends that you bought into a hot new listing, or having a much fatter wallet in the long run?

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2026/06/20/houston-we-have-a-problem/