I have always found that an initial public offering is a remarkably polite affair. It is the moment when the early invited guests, having enjoyed the finest champagne and the choicest cuts of the roast, quietly hand their empty glasses to the latecomers at the door and make a dignified exit through the garden gate at the earliest opportunity. When you hear the trumpets sounding for names like SpaceX, OpenAI, or Anthropic, you should understand that you aren’t being invited to a ground-floor opportunity. You are being invited to provide the liquidity that allows a venture capitalist to buy his third vacation home.
The Weight of Cold Iron
SpaceX is a different breed of cat than the software houses we usually see preening for the public markets. It has the distinct smell of kerosene and the heavy weight of cold iron. There are actual rockets moving through actual space, which is a refreshing change from the usual digital vapor. However, as a value investor, I look at the valuation and see a price tag that assumes we have already colonized the red planet and are successfully charging rent to the Martians. It is a magnificent achievement of engineering, but a magnificent company can be a miserable investment if you pay 10/30/50+ times what the underlying business is worth. Physics is hard, but the mathematics of a balance sheet can be even more unforgiving when gravity finally takes hold of a stock price.
Machines That Mimic Thought
Then we have the so-called thinking machines. OpenAI and Anthropic are currently the stars of a very particular kind of fever. These companies are selling the future, and the future is an expensive commodity to manufacture. They are burning through cash like a steam engine in a hurry, shoveling mountains of data into a furnace in the hopes of producing a line of code or a decent poem. The trouble for the retail investor is that the moat around these businesses is made of shifting sand. In the digital world, today’s revolutionary breakthrough is tomorrow’s free open-source software. When the novelty of the trick wears off, you are left looking for a profit margin that may never materialize.
"If history has taught me anything from the dot-com wreckage, it’s that the first one through the door usually gets hit by the swinging hinge."
The Virtue of the Waiting Room
Buying on the day of a hot IPO is like trying to purchase a house while the curtains are on fire and a hundred other people are shouting bids at the front door. It is a spectacle, not a strategy. My preference has always been to let the fire go out. Every IPO comes with a lock-up period which is that span of months where the insiders, the true believers who got in for pennies, are forbidden from selling. When that period expires, the market finds out exactly how much faith those insiders have in the long-term prospects of the company. Usually, by the time eighteen months have passed, the influencers have moved on to the next shiny whistle, and the stock price has settled down into something resembling reality.
I would suggest waiting for the first few quarterly earnings reports. Let them show they know how to make a dollar instead of just spending ten. If the business is truly going to change the world, it will still be there in two years. You might miss the thrill of the gamble, but you will save yourself the headache of the hangover. Until there is a clear path to profit, you aren’t investing; you’re just betting on the weather and hoping the clouds stay gold.