Reading The Intelligent Investor I came across the following fact which was mind-blowing to me:

Finance professors Jay Ritter and William Schwert have shown that if you had spread a total of only $1,000 across every IPO in January 1960, at its offering price, sold out at the end of that month, then invested anew in each successive month's crop of IPOs, your portfolio would have been worth more than $533 decillion by year-end 2001.

On Chapter 6 commentary.

Now, (I think) I know a thing or two here:

  • The price on the IPO tends to be higher. This means that if you wait a month or two, you can buy the same stock for less money.
  • Picking a random company in an IPO has a high probability of failure, since when we look to the past we look at it with a survivorship bias, only at the IPOs that were succesful, and not the thousands that failed.

And indeed, the author comments on these two points. However, I cannot get my head around these points:

  • What is the point of worrying with survivorship bias if we are buying every offer of IPO?
  • $533 decillion is... 10 to the 21st power the current planet's economy. It is just too much money.

What is happening here? Did this specific time interval had an extraordinary feature? Or is it reasonable to try this now, even if I get only 0.0000000000000000000001% of that value? (Which would make me currently have more than twice of Bezos' net worth)?

  • 4
    Clearly their calculation is flawed, as at some point the amount to invest in a single IPO would have been larger than the size of the offering. Nov 11, 2020 at 19:25
  • @GS that definitely makes sense, I hadn't really thought of it. My guess is that they extrapolated with the return supposing an inifinite IPO. But even so, reaching a month's total offer of IPO worth in a portfolio is also something very impressive. Nov 13, 2020 at 11:15

1 Answer 1


The main thing this is showing is that the offering price of IPOs is typically underpriced, they generally close significantly higher than their offering price on their first day of trading. This continues to be true, see data from 2008-2019.

The "$533 decillion" number just shows the power of compounding. This is a 16.1% monthly rate, compounded over 42 years. Note that to get this rate, you would need to have your broker get you access to the IPO at the offering price; if you buy as soon as soon as the stock trades on the open market, it's too late. IPOs normally open higher than the offering price, accounting for the gain above. If you can get access to the offering, it's often a good idea to do so. The amount of shares of the IPO you would be allocated will be the limiting factor.

There's a couple of reasons which have been given for the general underpricing. One is to increase hype in the stock and the company. If the stock goes down on the first day, some people may see it as a "dud", even though this meant more cash was raised for the company. Another is that the broker prefers a slightly lower price. This makes it easier for the broker to sell, and lets them reward favored clients.

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