How To Not Lose Money Chasing After The Next Hot IPO

I’ve recently been talking and posting about Chime (CHYM) and Klarna (KLAR) and how it was easy for me to see that buying these would result in early losses. Maybe it was dumb luck, or maybe I’ve seen a thing or two.

And it is hard to put into words, but I can usually feel why these things aren’t going to work out. You know how it goes, the bell rings, the investment banker smiles, the CEO pumps his or her arms like PT Barnum, confetti falls to the floor, and Jim Cramer is shouting booyah. This my friends is the moment most investors stop asking questions and start repeating stories. So my short reminder to you all today is that if you want to survive a hot IPO season, anchor to three principles and let the market talk to you in numbers, not adjectives.

First thing to remember is that when markets overheat, people stop caring about price. You know it and I know it. When animal spirits return, every private company boardroom suddenly decides it is “time.” And not because the business finally transformed, but because the market is willing to pay up. Because everyone can look and see that stocks are up, that markets are bullish, and that the pendulum is fully set into “we’re so back” mode. That is how you get companies coming to the public market windows trading at 15–20x revenue while still losing money. So the real signal of froth is not volume, it is the collective shrug at valuation. When people supporting the stock speak in destiny and multiples (or fundamentals) no longer bother them, I assume I am being asked to fund the story, not the cash flow. In this case, I am the exit liquidity.

Next thing to know is that when the math is weak, the language gets fancy. It’s almost like an inverse scale where investment bankers and big dreaming CEOs alike think that if the numbers aren’t great, they can just make up new ones. If a business cannot show durable profits, it shows “adjusted” profits. You’ve seen them all: adjusted EBITDA, core contribution margin, community-adjusted anything - these are not insights, they are camouflage. The same with giant TAM slides. This cycle I’ve seen some egregious ones in the stablecoin space - the ones that imply that the TAM for the sector is literally every single transaction through every financial channel ever. But remember friends, TAM does not make money, margins and cash flow do. So I read filings for gross margin, free cash flow, return on invested capital (when possible). And if the deck leads with “transformative,” “category defining,” or “revolutionary,” I assume the numbers will be trying to gaslight me into believing that community adjusted profit is a real number.

The last quieter tell is the gap between the story and the spend. And this one takes a bit more intuition. If an S-1 brags about “referral-based growth,” then of course customer acquisition costs should be tiny. But if sales and marketing expenses are climbing while management claims referrals and network effects, the flywheel is not a moat, it is a marketing trick. This was the tell for me with Chime, who spoke constantly about referrals and yet boasted huge amounts of sales & marketing spend. In this case for example, paying someone or giving kickback cash to refer someone is technically a referral, but doesn’t match the spirit of the words. In today’s age you can do quite a bit with an LLM, so for me I like throwing these S-1s into one of them and asking it for a word cloud. I try to orient around different verticals like “how are they growing revenue” or “what is their strategy for growth” and then see what it pops out. If management’s words and actions feel “off”, that’s when I know to tread lightly.

And a bonus one is to look at who is selling shares. If the offering is dominated by insiders dumping (all while their stock based compensation is still running hot) then you need to be very, very cautious. You are going to be exit liquidity.

You shouldn’t do what I do in a lot of cases. Afterall, I tend to get a kick out of shorting some of these either outright or with options, but a good rule of thumb for you if you’re newer is to just wait until the lock-up expires. Wait until the rest of insiders (including the VCs that financed their money losing growth phase at much lower valuations) can dump their shares on the market. When the CNBC fairy dust fades and when more supply hits. I also try to read the income & more importantly cash-flow statement before the press release; it is the only page the marketing team cannot edit. I ignore TAM slides and look for profit pools. I track stock-based comp and count real dilution. I listen to verbs. If a CEO says “reimagine” and “empower” more than “earn” and “retain,” I know which side of the table I am on.

Before I buy anything new, I run a sanity check: what has to happen for me to win at this price? I run it backwards. If the IPO is priced at 8x revenue and a fair long-term multiple is 4x, revenue must double with margins at least stable just to break even when multiples compress. If the business needs 30–40% compound growth for three years to justify today’s price, I assume perfect execution and a friendly macro are already priced in. Then I ask where operating or free-cash-flow margins need to land, and by when, to make my return attractive after dilution. If the answers sound like hope, I wait. If it sounds like a lot has to go right for you to win at this price, then just avoid it.

To be fair though, not every IPO is a trap. Facebook priced at $38 on May of 2012 and stumbled out of the gate. It set a record for IPO trading volume, closed at $38.23 on day one, and then slid. Within weeks it was in the high $20s, and by August it traded near $20 as early lock-ups hit and mobile monetization looked uncertain. The fix was real operating progress, not better adjectives from Zuckerberg. And I went back and check and by Q4 2013, mobile ad revenue flipped from weakness to majority of ads, about 53% of ad revenue that quarter, which proved the model could scale on phones. By 2014 the business was deeply ad-driven, with roughly 92% of revenue from advertising and rising operating leverage, which set the stage for durable margins in the following years. The stock broke because the market doubted the engine. It rerated because the engine started printing cash and because Zuckerberg proved that he had a cash machine built off people’s eye balls. And for you, the stock didn’t get back to IPO price until the summer of 2013, so you didn’t need to FOMO buy the IPO pop.

I write this to keep myself and all of us honest. Every hot market starts with optimism and ends with rationalization. The trick is to remember that when stories sound louder than math, you’re the product & exit liquidity, not the investor. And trust me, I love a good narrative, but I only buy the numbers. So when the window opens and everyone claps, I let them celebrate and I read the filings. Usually the IPO buyers lose money and I don’t.

I’ve learned that patience never feels heroic in real time. It only looks that way in hindsight. The ones who wait look foolish at first, but end up with more dollars in their pockets later.

The best is ahead,

Victaurs

PS - If this helped you see things more clearly, take the 14-day trial below. Inside, I share real actionable picks, plus the frameworks and lessons I’ve built over 15 years. Every post behind the paywall is built to make you a sharper, richer investor. Below are the full deep dives on Chime (CHYM) and Klarna (KLAR).