Dear Uplevel,
I keep seeing headlines about SpaceX going public on June 12, and now I’m wondering if this is something I should be paying attention to.
It feels like every few months, there’s another “can’t miss” company people are talking about—SpaceX, OpenAI, Anthropic, and who knows what else will come next.
Should I try to invest in these IPOs when they come out? And if I don’t get in right away, am I missing out?
Sincerely,
Trying Not to Miss the Next Big Thing
Our Take
Dear Afraid of Missing the Next Big Thing,
You’re certainly not alone. Every market cycle seems to have a handful of companies that capture investors’ imaginations. Today it’s companies like SpaceX, OpenAI, and Anthropic. Twenty-five years ago it was internet companies. Before that it was biotech. The names change, but the excitement around owning the “next big thing” remains remarkably consistent.
What’s often surprising to investors is that IPOs, as a group, have not historically been great investments.
A Dimensional Fund Advisors study of more than 6,000 U.S. IPOs found that IPO stocks generally underperformed broad market indexes after becoming public. Researchers found that, as a group, IPOs tended to behave like small growth companies with low profitability and high investment spending—characteristics that have historically been associated with lower expected returns.
Part of the challenge is that by the time a company reaches its IPO, a great deal of optimism is already reflected in the price. In addition, many investors don’t receive shares at the IPO offering price. Institutional investors and large clients of underwriting firms often receive preferential access, while most investors can only buy after trading begins in the public market. Research has also shown that the most attractive IPO allocations often go to the clients who generate the most revenue for underwriting firms.
That doesn’t mean every IPO is a bad investment. Some newly public companies go on to become tremendous long-term successes. The challenge is that investors must get two things right: identifying the right company and paying the right price.
Those are much harder tasks than headlines make them appear.
The Good News: You May Already Have a Plan for This
One misconception we often hear is that investors must buy a company at its IPO or risk missing out entirely.
In reality, if a company becomes a meaningful part of the economy, it will eventually become part of the market.
Companies that successfully navigate life as a public company are typically added to market indexes over time. Investors who own broadly diversified index funds will generally gain exposure automatically without having to predict which companies will become the next winners.
In other words, you don’t need to know whether SpaceX, OpenAI, or Anthropic will be successful. You simply need a disciplined strategy that can participate if they are.
How Dimensional Approaches Newly Public Companies
This is where Dimensional’s approach differs from traditional indexing.
Traditional index funds often buy newly eligible stocks shortly after they’re added to an index, regardless of valuation or market conditions.
Dimensional takes a more patient approach.
Rather than automatically purchasing a company simply because it has gone public or entered an index, Dimensional portfolio managers evaluate whether that company fits the characteristics the portfolio is seeking. Factors such as valuation, profitability, investment characteristics, liquidity, and portfolio implementation considerations all play a role in the decision.
This patient trading approach can help avoid some of the pricing pressures and excitement that frequently surround newly public companies.
In other words, a company doesn’t enter the portfolio simply because it’s popular. It needs to earn its place.
What If I Don’t Want These Companies in My Portfolio?
This is another question we’re hearing more frequently.
Some investors are excited about artificial intelligence and commercial space exploration. Others have concerns about valuation, corporate governance, environmental impact, labor practices, data privacy, or simply don’t want concentrated exposure to a handful of highly publicized companies.
The good news is that investors have options.
Because Dimensional evaluates securities based on portfolio objectives rather than headlines, newly public companies are not automatically added to portfolios the moment they become available.
Additionally, investors who wish to place greater emphasis on sustainability considerations can utilize portfolios that incorporate environmental and social criteria. Depending on the strategy, certain companies may face additional hurdles before being included.
Most importantly, owning a diversified portfolio means no single company determines your financial future. Whether a newly public company becomes the next great success story—or the next cautionary tale—your investment plan doesn’t depend on getting that one decision right.
The Bottom Line
The excitement around upcoming IPOs is understandable. Companies like SpaceX, OpenAI, and Anthropic are shaping the future and generating enormous public interest.
But history suggests that chasing IPOs simply because they’re exciting is rarely a reliable investment strategy.
For most investors, the better question isn’t:
“How do I get access to the next IPO?”
It’s:
“Do I already have a disciplined investment strategy that allows me to benefit if these companies become successful?”
More often than not, the answer is yes.
Onward and Uplevel,
Anika & Amanda
Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR, and virtually throughout the U.S.
