Don't Bet The Farmhouse on an IPO

November 10, 2025

A few of our Vermont clients have inquired recently about Beta Technologies’ recent Initial Public Offering, or IPO (for those not in the know, Beta is a local aerospace firm). In a state not exactly known for its economic dynamism, listing on the New York Stock Exchange is bound to make headlines. Understandably, the question on everyone’s mind is whether they should make this investment.

The short answer is this: asking whether an individual stock is worth buying isn’t quite the right question. This type of analysis is better suited for active management types with Bloomberg terminals in their home gyms. Owning individual positions concentrates risk, can leave you exposed to volatility, and takes a lot of time and effort (aka ‘cost’) to manage. By contrast, your portfolio with One Day In July is based upon years of academic research that you can diversify risk by owning a broad swath of the market through inexpensive, tax-efficient index funds.

All the same, IPOs are compelling because they offer the possibility that you might be getting in on the ground floor of a potentially successful investment opportunity. Who doesn’t dream of being able to say, ‘I bought ABC Corp for $0.02 and an old horseshoe, and now it’s worth a fortune.’ In reality, these investments are exceptionally rare – only a small fraction of investors are fortunate enough to pick the true winners. In 1999, the year NVIDIA went public, investors had 541 IPOs to choose from.¹ Given that the average retail investor participates in just one to three IPOs per year, your statistical chance of selecting NVIDIA would have been approximately 0.55% - roughly the same probability as flipping a coin and getting heads nine times in a row. Simply put, you must be extremely lucky to make this kind of bet with your investments.

Moreover, comparing the once in a lifetime returns of a unicorn investment to the steady, diversified gains of a broadly indexed portfolio is fundamentally flawed, since these approaches represent entirely different investment philosophies. Chris McKeown, an advisor on our team, often says ‘there are no magic beans in investing’ (other than the magic of time and compound interest, I might add). Index investing might lack pizzazz, but it’s proven time and time again to outperform the alternatives on a risk adjusted basis.² Consider Warren Buffett’s famous 2007 bet that an S&P Index Fund - like the kind you have in your ODIJ portfolio - would outperform 5 ‘sophisticated’ hedge funds over a 10-year period. (It wasn’t even close – the Index fund yielded 7.1% vs a paltry 2.2% for the hedge fund, accounting for fees).³

When investing in any security, there is always a non-zero risk of losing your entire investment. While a single stock that performs well can offer above-average returns as compensation for this extra risk – known as the risk premium – you must also be prepared for the possibility that the investment could ultimately become worthless.

Lastly, it’s important to understand the broader market trends governing IPOS. Accurately pricing a security at IPO is extremely difficult. It is only through the millions of ‘votes’ of people buying and selling the stock that the price accurately reflects investor sentiment. According to a 2021 Nasdaq study on the distribution of post-IPO returns, nearly two-thirds of companies underperformed the index by 10% or greater within three years. This seems to indicate that for most companies, the initial IPO enthusiasm wanes or earnings are not met, and investors reprice their holdings to reflect the actual, slower growth of the company.⁴

If you really want to invest in an individual company, go for it, but do it for reasons other than making money. Do it for fun, or because you’re rooting for the company to succeed, or because you like the name. It will sting a little less if it doesn’t work out.

On The Bookshelf: I recently finished Say Nothing: A True Story of Murder and Memory in Northern Ireland. Ostensibly about the 1972 abduction and murder of a mother of ten by the IRA, Say Nothing can be read as a history of The Troubles, the 1960-1998 conflict between Protestant unionists and Catholic nationalists in Northern Ireland. I read this to understand what happens when the trust that binds a society together is stretched to its limits, and the difficult task of mending that fabric once it begins to unravel. It’s not an uplifting read, but its analysis of societal break down – when citizens lose sight of the collective good – felt eerily prescient at times.

- Seth Gillim

1. Vrana, Debora. "In Both Price and Volume, IPOs End 1999 With a Bang." Los Angeles Times, 26 Dec. 1999
2. William F Sharpe argued as far back as 1991 that the average actively managed dollar will equal the average passively managed dollar, because both must, in aggregate, equal the market before fees. After fees, the return on the average actively managed dollar will be less. Sharpe, William F. "The Arithmetic of Active Management." Financial Analysts Journal, vol. 47, no. 1, Jan./Feb. 1991, pp. 7-9.
3. Scott, LaToya. "Warren Buffett's $1M Bet: Why It Matters." Yahoo Finance, 3 Feb. 2025.
4. Jankiewicz, Robert. "What Happens to IPOs Over the Long Run?" Nasdaq, 15 Apr. 2021