Should You Buy Into IPOs (SpaceX, Anthropic, or Open AI)

0:02On this episode of the Personal Finance Podcast, should you invest in IPOs like SpaceX, Anthropic, and OpenAI? Let's talk about it.

0:20What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And today on the Personal Finance Podcast, we're going to be talking about should you be investing in IPOs? If you guys have any questions, make sure you join the Master Money newsletter by going to MasterMoney.co slash newsletter. And don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever your favorite podcast player is. And if you want to hop out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player.

0:56Now, in this episode, we're going to be talking about IPOs. First, I'm going to explain what IPOs are for those who are new to IPOs, but then we're also going to be talking through some of the recent IPOs that are going to be going live that have all the hype around them. And I'm going to explain, should you actually consider investing in IPOs or what is some of the thought process that you should have when you are thinking about some of these investments? and how is it going to impact your index funds and ETF. So we're going to be talking about all of this on this episode. And this is going to be one of our shorter Friday episodes that we do every so often.

1:30So I hope you guys enjoy this format. If you do, let me know down in the comments below. I would love to hear your feedback. So the first thing I want to talk through is what is an IPO? So if you don't know what an IPO is or if you've never heard of that term, it stands for Initial Public Offering. Now, this is the day where a private company decides, hey, I'm going to make my company public and I'm going to sell X amount of shares to the public for a number of different reasons. Now, an IPO is a sale. And in every single sale, there is a seller and there is a buyer. And so many times you may be asking yourself, well, who is the seller in many of these situations?

2:08A lot of times the seller is going to be either the individual who started the company, the founder and her shares or his shares. they will be selling those shares to the public and or this could be a lot of venture capital investors. So if you've ever heard people talk about venture capital and they are venture capital investors, this is the best possible situation for them. A lot of times they want to sell their shares on the public market so that they can actually reap a profit and get their money back. Many times for a lot of venture capital investors, they have to wait 10, 15 years and they've locked up their money inside some of these different companies.

2:40And so when you see a lot of these venture capital companies, they want to go public so they can actually finally make the profit. So one of the things I want you to understand is even before you look at an IPO, even if you're not going to invest in the IPO, one of the best things that you can do is you can read the filing and there's a section called the S1. And I want you to look at a section called use of proceeds, because in that section, it's going to tell the story of where your money is going to go. What are they going to do with your money once it comes into the company and how are they going to use this.

3:09Sometimes people are using this for real growth and expansion because the nature of a lot of these big companies is when they go public, they want to be able to expand their operations. And so they want to raise some capital. So they go public on the market and you can own a piece of that company by going public. It's the easiest way for them to raise capital quickly when they need to raise a lot of capital. Now I'm saying easiest, it's really not that easy. There's a lot of work they have to do to even become an IPO, but there's just a lot of things that they can do that helps them really get this expansion going so they can get the ball rolling.

3:39But if it's there to cash out insiders, people that got into the IPO earlier, that's going to raise a red flag for me personally. I do not want to see this as something where it cashes out insiders. Now, there's a lot of people who have invested in companies like SpaceX or Anthropic or OpenAI early on. There's a lot of really wealthy people who have their dollars invested in these companies. How? Well, there's a number of different ways. There's funds that can help them invest in these companies. There's even things like Fundrise, for example, that allows you to invest in some of these different companies where even regular investors like you and I can do some of this stuff.

4:13There's venture capital investors. There's all these different things where people have gotten in during different series or raised rounds where they are trying to expand the company. Now, this moment feels a little bit different because what we're talking about right now and where all the hype is coming from is from SpaceX, Anthropic, and OpenAI. Now, I want you to understand something right now. These companies could be companies that shape our future. They do have very, very large moats already, and they could be shaping the way that AI operates. But this is still something that we want to make sure that we are cautious with, even when it feels like this could be a slam dunk or a home run to some of you.

4:51You still need to do your analysis and understand what you are getting into with IPOs. Because in reality, IPOs are speculative. They are very risky. They are something that is not a core holding right away. If you put the majority of your net worth in one of these core holdings, it does increase the risk meter pretty dramatically in my book specifically. And so we want to make sure that we are thinking through this. Now, here's the part that gets buried for a lot of people, and it's the retail access that most people don't tell you about. So when you want to invest in SpaceX, if you saw some of the stuff that came out early on, a lot of people were saying, OK, well, if you're going to invest at Fidelity, they want you to have$100 ,000 minimum before you even invest with SpaceX.

5:31Where Robinhood came out and said, oh, you can have no minimum. And all these other brokerages started to kind of follow suit. And eventually, a lot of brokerages came down on that number because I think they felt the pressure from some of the brokerages that said there are zero minimums. But as a regular investor, you almost never get the actual IPO price. In fact, for many folks out there, the actual IPO price is going to go to those big institutions that are going to be buying chunks and chunks of shares. And so if you buy on the open market, all of a sudden you're getting the trading price.

5:59It's the shift in price that is not exactly what you thought you would be. So you're probably getting the first day pop and then you're getting into that IPO. Now, many companies are setting aside a certain percentage of shares. SpaceX is a little bit of a different one. Musk reportedly, and by the time this comes out, because this is going to come out on the day that it IPOs, but Musk is reportedly, you know, setting aside about 30 % of shares. And so this could be slightly different where you may get a slightly better deal, but the hype is so high and so many people want to get into this IPO that it really is something that you want to be cautious about.

6:30Now, there are two mechanics that I want you to understand up front. And then I'm going to tell you the questions to ask yourself to see if you feel as though something like this type of IPO is actually going to fit into your investment philosophy or your investment principles. Because I don't want you to allow emotions to come into play and get you all flustered to want to jump in there and join because everybody's talking about the office. Everybody's talking about it on all the latest stock market news. No, you need to make sure that you're staying disciplined as we go through this. Now, the first thing I want you to understand is something called the float.

7:02So the number of shares that are actually available to trade on day one is often very small. Now, small supply partnered with massive demand is not a good combination for the investor on day one, because if there's tons of demand going on, but there's a small supply, the prices of these things are going to run up. If you guys just saw, for example, the hype of, you know, something that gets released brand new that a bunch of people want to buy, like, for example, AP and Swatch just did a collaboration. If you guys didn't see that recent move, AP, which is a really expensive watch brand, did a collaboration with Swatch, which is an inexpensive watch brand, and they made a watch together.

7:38Now, Swatch sold these watches at a price that was like$400 or$500. I can't remember the exact price of exactly where it landed. And people went crazy for this. there was lines out the door for people to buy these items. This is because there was a smaller supply, even though there was actually more supply than most people realized, but that's a different story for a different day. People thought there was a smaller supply and demand was high. So people were buying these watches at$400 or$500 and then going back and selling them on the open market for$4 ,000. Then all of a sudden people realized, oh, there's more supply than we once anticipated.

8:07And now the prices are coming back down to the retail price and people are losing a lot of money based on doing that. IPOs kind of work the same way, where if there are shares out there and you feel as though this is a limited amount of shares and I got to get in right away and then all of a sudden you realize, oh shoot, maybe I bought this too high. You just want to make sure that you are careful with that. But second is the lockup. So typically institutional investors have a lockup period, meaning a certain period of time that they have to hold these investments. Usually it's around 90 to 180 days is how long they have to have before they can sell.

8:40This prevents them from just buying it day one and then dumping it like we see in the crypto markets all the time. You see celebrities buy into crypto, then they dump it really quickly. This prevents that kind of stuff from happening, which is absolutely ridiculous. And so it's one of those things where as you can already see, this is a very speculative and emotion-based investment. An IPO is driven on hype at the beginning. And so you want to make sure that you're just cautious about this. I know, now listen, if you want to own it with the speculation portion of your portfolio, that is something that you could consider based on whatever your situation is, but you just want to be cautious as you start to think about this.

9:13Now, here's some other uncomfortable data as I wanna talk about the base rate because as a group, IPOs tend to underperform the broader market over the course of three to five years. You can look at some of the most popular IPOs and see how did they perform. Now, there's outliers out there. Obviously, if you own Amazon or if you own Tesla or if you own some of these companies that IPO'd and became very, very big, that is a different story. And so you're not just drawing on a neutral deck here every single time, you're drawing on something that you don't really know what is going to happen. And so you really need to look at the founder.

9:42You need to look at the company and what they're doing. You need to dive deeper into your convictions to see if this is something you actually want to buy. Now, one big thing I want to note is Warren Buffett. Because Warren Buffett, when he talks about IPOs, and I'm going to read a couple of quotes that he has here, he said that over the course of his 54 years, he does not think Berkshire has ever bought a single new issue over the course of 54 years. Because he says, why would the single best place for your money be the one thing where all the selling incentives are lined up? The commissions are higher and the enthusiasm is peaking.

10:14In fact, he compares IPOs to a lottery. He said people win the lottery every single day. That does not make buying a ticket a strategy, which I think you want to take that home. And then an IPO is basically a negotiated sale where the seller picks the timing. Companies go public when the seller decides the market is ready to pay up, not when the stock is cheap. And so think about what this means for you. Think about how this could impact you long term so you don't just make a move based on emotion. Now, here's the thing that nobody's talking about is if you own an index fund or you own an ETF, most likely at some point in time, if these companies get big enough, you're naturally going to own one of these companies because typically the index rewards those larger companies and they get to become or enter into the index.

11:00Now, when will they be in your index if you did want to invest in them based on an index fund or ETF instead of buying the IPO as an individual investment and increasing that risk? Well, the NASDAQ has a new rule that just came out. So if you own something like QQQ or QQQM, I would say QQQM is the option that I invest in personally. The reason why is the fees are lower. That's a little hack for some of you out there if you haven't seen that. But NASDAQ's new fast entry rule, which is effective May 1st, 2026, lets a top 40 company join the NASDAQ 100 about 15 trading days after listing. So the NASDAQ is going to have something like SpaceX.

11:37If it does pop or if it does really well, it will be in the NASDAQ much sooner than something like the S &P 500. So you may say to yourself, well, when would the S &P 500 take this on? Well, they tried to get the S &P 500 to change their rules, but they said no. So So on June 4th, it refused to waive its rules just because the company is huge. So to get in the S &P 500, you must trade publicly for at least 12 months and be profitable. You must have positive earnings and you must have positive cumulative earnings over the trailing four quarters. So it is much more difficult to get into the S &P 500.

12:11SpaceX lost nearly$5 billion in 2025. So it cannot enter the S &P 500 until at least mid-2027, maybe later. So OpenAI and Anthropic are also losing billions. So those would probably get added later on as well. OpenAI and the Anthropic are supposed to come down the line later in the year, like November, maybe even later. So that is the rumors there on where that's happening. So what's the framework here before we wrap this episode up? And what questions should you be asking yourself when it comes to should I invest in IPOs or should I not invest in IPOs? Well, number one is why does this company need your cash now?

12:46If it's to increase infrastructure, if it's to expand. Those are decent reasons to at least have a consideration of this. But if it's to pay back institutional investors or the investors that got in early or the angel investors, whoever invested with them, then that's going to be a very different story. And cashing out for me is a red flag. So if the founder is cashing out, that's going to be a red flag for me, typically. Number two is, can you actually value this company? Do you know how to value this company? And do you understand this company? Because compare the price to sales against other mature companies out there.

13:17and if it is going public on a wild premium story, on a wild story that's hyping it up, maybe you want to reconsider. So you just want to think through your rules on that. Number three is do you understand the lockup and do you understand the float? Know when insiders can sell before you even buy because sometimes when you look at a chart, you will see IPO charts and go look at some past IPO charts where they will go up over the course of 90 or 180 days and then once that lockup period ends, all of a sudden you see it shift back down again and so we want to make sure that we are thinking through that and know when that happens because shares could become cheaper during that period.

13:50They also could become way more expensive if the company is hyped and doing very, very well. So you want to look deeper into that as you start to think about this. And then lastly is what does the base rate say? Because if most IPOs underperform, your reason better be very specific on why you think this is a really good company to own. And so just ask yourself some of these rules, ask yourself some of these understanding. And if you are going to start investing in IPOs, create a framework and create rules and stick to those rules. Do not go outside of your parameters. You want to become a disciplined investor when you're thinking about this stuff.

14:22Now, those are some of the things that I want you to note about IPOs. And listen, if you want a full system on how to step-by-step build your own financial plan, I would love to invite you to join Master Money Academy. Master Money Academy is the place that I am helping hundreds of people right now work on their financial goals. And guess what? We have all of our courses in there and I do live coaching calls with me specifically every single week inside Master Money Academy. Plus, we have masterclasses where we go through stuff just like this. People have been asking me about these IPOs for months already in Master Money Academy, and that's the place where you can get access to me and ask those questions early and often.

14:58So, Master Money Academy, I have a seven-day free trial down below if you want to check it out. I really hope each and every single one of you do because that is the best place to get a hold of me. And again, I do these coaching calls for an hour every single week. I'll be able to coach you live. You can ask me questions live or you can even leave them in the chat ahead of time and we can answer them there. I truly appreciate each and every single one of you being here. If you guys have questions that you want answered on the show, feel free to shoot them in and leave a comment down below and we may be able to answer your question on the show.

15:27Thank you so much for being here and we will see you on the next episode. Ryan Reynolds here from Mint Mobile with a message for everyone paying big wireless way too much. Please, for the love of everything good in this world, stop. With Mint, you can get premium wireless for just$15 a month. Of course, if you enjoy overpaying, no judgments, but that's weird. Okay, one judgment. Anyway, give it a try at mintmobile.com slash switch.