The article points to the June IPO of Space Exploration Technologies (SpaceX) and SK Hynix's U.S. debut in July as examples of the challenges of IPO investing. Citing Warren Buffett's view that an IPO is a negotiated transaction in which the seller chooses the timing, it notes that companies typically go public during bull markets, and every past bull market has given way to a bear market. In the first year, sentiment often shifts from hype to fundamentals; if sales growth does not support valuations, the stock may underperform, and when lockup periods of often 180 days expire, insiders often sell and add pressure on prices. IPO stocks also typically need a seasoning period before joining indexes such as the S&P 500, so the author concludes that risks tend to outweigh rewards when investing in mega-IPO stocks in their first year.
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