You Lost 11% Chasing That IPO Open. The Allocators Made 70%.
10 years in hedge funds showed me how this game works. Here’s who wins, who loses, and where the real edge hides.
Cerebras IPO’d yesterday. If you got the allocation, you made 70%. If you bought the open, you lost 11%. If you chased the high, you lost 20%. Today you’re down another couple percent.
That’s not a bug. That’s how IPOs work.
The company hires Goldman or JP Morgan. The broker calls their best clients and offers allocation at a discount. Those clients flip at the open into a wave of retail FOMO. Yesterday there were 5 times as many buyers as sellers at the open. All retail. All feeding the machine that makes the allocation profitable in the first place.
The hype has to exist. Without it, there’s nobody to sell to. The broker’s job is to manufacture that demand. If you bought off the open yesterday, you were the demand.
Three stats worth knowing:
One in four IPOs breaks below the allocation price on day one. So even the insiders are selling immediately. A University of Florida study by Jay Ritter found that IPOs return 34% over three years. Sounds fine until you realize matched established firms in the same sector returned 61%. You literally doubled your money by not buying the IPO.
But there is an edge. Just not at the open.
Stocks that hit new all-time highs within 90 days of IPO produce about a 4% average gain over the next 20 days. Regular stocks hitting all-time highs produce 1.4%. That’s a measurable gap. A system built around this, buying mid-to-large-cap IPOs at their first new all-time high with a 20% profit target and 10% trailing stop, returned 17.8% annually over 23 years with a 17% max drawdown. Win rate of 41%, which is normal for any breakout system.
The system faded after 2022. I don’t think the edge is dead. I think there just haven’t been enough IPOs. And intellectually it makes sense that IPO seasons cluster in bull markets. Nobody IPOs into a bear market. That regime filter might be the missing piece, and it’s what I’m testing now.
I’m starting with Cerebras. SpaceX when it comes. Every qualifying IPO that fits the rules. Stats Edge Pro members will see these in the beta channel as I build and test in real time. Some will graduate to the live alerts. Some won’t. You see the whole process, including the ones that fail. That’s what The Drawdown Memo is for.
The free 25-Year Backtest PDF at https://www.statsedgetrading.com/the-25-year-backtest covers the walk-forward methodology I’m applying to this IPO system. Same framework, new asset class.
For real-time alerts across swing, day trading, and investing systems, plus the beta channel where this IPO system will live, that’s Stats Edge Pro at $149/month with a 30-day money-back guarantee.
— Michael Nauss, CMT, CAIA, CDMS