Do IPOs Have a Place in Your Portfolio? | The Informed Investor 12

Episode 12: IPOs are hot again in 2025. Should you try to get in on the action?

Initial public offerings (IPOs), particularly those involving well-known companies, often draw considerable attention from investors.

Historically, while the most common path to enter public markets was through an IPO, entryways such special purpose acquisition companies (SPACs) and direct listings are drawing fresh attention too.

Yet, the performance of IPOs tends to be disappointing after a first-day splash.

Indeed, as a group, IPOs largely have behaved like small growth, low profitability, high investment stocks, underperforming the broad US market in their first year.

This kind of checkered performance record for newly traded public companies raises a number of questions.

If investors have an opportunity to invest in IPOs before trading begins, should they jump? Second, do big-name IPOs offer a better investment opportunity than the majority of IPOs, which are typically small cap companies? And does the increasingly active IPO market tell us anything about the direction of the broader stock market?

One potential performance headwind for IPOs is the expiration of lockup agreements.

Generally, a large percentage of the IPO shares held by insiders are subject to lockup provisions that prevent such insiders from selling shares on the open market shortly after the IPO. When the lockup agreements expire, usually six to 12 months after the initial offering, these shares may be sold in the marketplace, creating a liquidation event that puts downward pressure on the stock price.

In Episode 12 of "The Informed Investor," Dimensional's Jake DeKinder, Head of Client Communications, Wes Crill, PhD, Senior Client Solutions Director, and Kevin Green, PhD, Head of Investment Solutions Analytics, explore what investors really need to know before they get involved in initial public offerings.

LINKS FROM TODAY'S EPISODE:

The Informed Investor on YouTube https://www.youtube.com/playlist?list=PLCyJr6FFig-h1mA7rVP7Mbk0irFw2wA90

Jake DeKinder on LinkedIn https://www.linkedin.com/in/jake-dekinder-cfa-4105b98/

Wes Crill on LinkedIn https://www.linkedin.com/in/wes-crill-77a49417/

Kevin Green on LinkedIn https://www.linkedin.com/in/kevin-green-505b15355/

Learn more at https://www.dimensional.com/