IPOs generate a level of excitement that few other stock market events can match. But that excitement is exactly what leads even experienced investors into avoidable mistakes.
Here are the most common ones — and how to sidestep each of them.
Mistake 1: Buying on Day One Just to Get In
The moment an IPO starts trading, headlines light up with words like "soars" and "skyrockets." It's tempting to jump in immediately so you don't "miss out."
The problem: the price you see on day one is often far above the actual offering price that institutional investors received the night before. Buying at the open usually means paying near the top of the initial excitement, not the beginning of an opportunity.
SpaceX is a real-world example worth studying. The company priced its IPO at $135 per share in June 2026, but shares opened for public trading around $150 and surged as high as $176.52 on day one alone — eventually climbing to a closing high of $201.80 within days, driven by intense hype around the largest IPO in history. If you pull up SpaceX's stock chart from its first day of trading to today, you'll see that dramatic spike followed by a steady decline, with shares falling back below the $150 opening price and even briefly dipping under the original $135 IPO price within weeks. That pattern — a hype-driven spike followed by a comedown — plays out in some form across many IPOs, which is exactly why buying on day one is so risky.
A better approach: Let the first few days or weeks of trading pass. Prices often cool off once the initial hype fades, giving you a calmer, more rational entry point.
Mistake 2: Confusing a Great Product With a Great Stock
Loving a company's product doesn't automatically mean its stock is a good investment. Some of the most popular consumer brands have gone public and struggled as stocks, even while the underlying business continued operating just fine.
Peloton is a clear example. Its bikes and app had a devoted following, and the brand felt unstoppable during the pandemic. But the stock told a very different story — it fell more than 90% from its highs as growth slowed and losses mounted. Loving the product told you nothing about whether the company could turn that popularity into sustainable profit.
Uber is another good example. Millions of people use the app every week without a second thought, and the brand is about as recognizable as it gets. But Uber priced its 2019 IPO at $45 per share and actually opened below that price on day one — and the stock spent nearly two years trading under its IPO price as investors grappled with the company's heavy losses and the real path to profitability. A product you use constantly and love doesn't tell you anything about whether the company behind it is actually making money.
A stock's price reflects more than brand popularity — it reflects growth expectations, profitability, competition, and how much investors are already paying for future success.
A better approach: Separate your enthusiasm for a brand from your evaluation of it as an investment. Look at the actual financials before deciding.
Mistake 3: Ignoring the Lock-Up Expiration Date
Early insiders — founders, employees, and early investors — are usually restricted from selling their shares for a set period after the IPO, typically 90 to 180 days. When that lock-up expires, a wave of new selling can hit the stock, sometimes causing a noticeable price drop.
Investors who buy without knowing this date can be caught off guard when the stock suddenly weakens, even if nothing has changed about the underlying business.
This date isn't hidden — it's disclosed directly in the company's S-1 filing. You don't need to guess or search for outside commentary to find it; the filing itself will state the length of the lock-up period.
A better approach: Always check the lock-up expiration date in the S-1 before buying an IPO stock, and mark it on your calendar.
Mistake 4: Skipping the S-1 Filing Entirely
The S-1 (or F-1 for foreign companies) is the document a company files with the SEC before going public. It contains the business model, financial history, risk factors, and how the company plans to use the money it raises.
Many investors skip this entirely, relying instead on news coverage or social media buzz. That means missing details that could meaningfully change the decision to invest — like heavy debt, thin profit margins, or a large amount of insider selling built into the deal.
A better approach: At minimum, read the risk factors and use-of-proceeds sections before investing. As you'll see in the next two mistakes, this single document actually answers most of the questions that trip up new IPO investors.
Mistake 5: Not Checking Who Is Actually Selling Shares
Not all IPO shares work the same way. Some are newly issued shares, where the money raised goes into the company to fund growth. Others are existing shares being sold by founders, executives, or early investors, where the money goes directly into their pockets instead.
If most of an IPO consists of insiders selling their existing shares, the company itself isn't raising much money to grow — the people who built the business are simply cashing out.
Handily, this is in the exact same document you're already checking for the lock-up date. The S-1's offering structure and selling shareholders sections spell out precisely how many shares are new versus how many are existing insiders cashing out.
A better approach: Check the S-1 to see the split between new shares and insider-sold shares. A heavy insider selloff isn't automatically a dealbreaker, but it's an important piece of context.
Mistake 6: Treating a Big First-Day Pop as a Sign of Quality
A stock jumping 50% or more on its first day of trading can feel like validation — like the market is confirming the company is a winner.
In reality, a large first-day pop often means the underwriters priced the deal too conservatively, leaving money on the table rather than accurately signaling the company's long-term prospects. Look back at SpaceX from Mistake 1: that day-one pop felt like proof of a great investment, but it mostly reflected how underpriced the deal was relative to demand, not a verdict on the company's long-term prospects. A stock can pop 20%, 50%, even 100% on day one and still spend the following weeks giving most of it back.
A better approach: Don't read too much into the size of the first-day move. Focus on the business fundamentals in the S-1 instead of the opening-day headlines.
Mistake 7: Investing More Than You'd Risk on an Unproven Company
Newly public companies don't yet have a long track record of public reporting. There are no years of quarterly filings to study, no established pattern of meeting or missing expectations — just the S-1 and whatever limited data exists so far.
Putting a large portion of your portfolio into a single, newly public company adds concentrated risk on top of the uncertainty that comes with limited public history. Someone who puts $10,000 into one newly public company is betting everything on a business with maybe one or two quarters of public data, versus spreading that same $10,000 across several established companies with years of proven performance behind them.
A better approach: Start with a smaller position size for IPOs than you might for an established company with years of public filings, and grow your position over time if the fundamentals hold up.
The Bottom Line
If you remember nothing else from this article, remember this: nearly every IPO mistake comes back to skipping the S-1 and letting hype make the decision for you.
- Tempted by a first-day pop? Resist buying at the open — prices often cool off once the initial excitement fades.
- Love the product? That's not the same as loving the stock — check the actual financials before deciding.
- Not sure where to start? Read the S-1's risk factors, use-of-proceeds, lock-up date, and selling shareholders sections first.
None of these mistakes are complicated to avoid — nearly all of them come back to one habit: actually reading the S-1 before you invest. The investors who do best with IPOs aren't the ones who move fastest; they're the ones who read the filing and ask the right questions first.
Ready to evaluate an IPO before you invest a dollar? AlfinaAI's IPO analysis reports pull directly from the S-1 filing so you can see the fundamentals clearly — create a free account today.