Research on IPOs identifies two major conclusions. First, IPO stocks generally skyrocket on their first day of trading, which suggests that they are underpriced at initial offering. Second, on average, the long‐run performance of IPO stocks is not particularly attractive. Dr. Jay Ritter at the University of Florida, an authority on IPOs, finds that the average three‐year returns of IPO stocks lags that of similar non‐IPO stocks by a significant margin. He attributes this result to fads and irrational optimism on the part of investors. Thus, if you are lucky enough to obtain an initial allocation of an IPO you are likely to do well, but you probably shouldn’t make it a habit to purchase recent IPO stocks in the secondary market.