Yesterday was the IPO of SpaceX. It's IPO price was $135, and over the first day of trading the share price stabilized at around $160. If you multiply the total number of existing shares in SpaceX with that share price, the company SpaceX is worth a bit over $2 trillion. That makes is roughly 10 times as valuable as the company I own shares in. But if you look at SpaceX revenues, profits, and dividends, there is no logical relation to the share price. SpaceX has no profits or dividends. It makes roughly 10 times *less* revenue than the company I own shares in. In other words, the company I own shares in has a share price to revenue ratio of slightly over 1, while SpaceX has a share price to revenue ratio of slightly over 100. SpaceX is what is politely called a growth stock. The numbers only make sense if you assume that the revenue and profits of the company will grow at a rather fantastic rate.

Are the people buying SpaceX shares all fools? No, many are very rational people. For example there are people who undersigned the IPO, got shares for $135 from SpaceX, and then directly sold them on the first day for $160. $15 pure profit per share in just a day, nothing foolish about that. IPOs these days are carefully orchestrated. SpaceX only sold 5% of its shares, to keep the supply of these shares lower than the demand, more or less guaranteeing the share price would "pop" up on the first day of trading, creating a positive narrative.

But what about the other 95% of SpaceX stock, not currently traded? Elon Musk owns around 45% of SpaceX (in a special class of shares with higher voting power, giving him around 80% of votes and thus total control). Elon probably doesn't want to sell those shares, and is actually contractually prevented from selling them for a year. That still leaves 50% of shares in the hands of other SpaceX founders, early venture capital investors, and SpaceX employees. They too are still under a contractual lockout, preventing them from selling their shares, but not for long. SpaceX has a staggered lockout, in several tranches from day 70 to day 180 after the IPO. In other words, other than Elon Musk, over the next half a year, all SpaceX shareholders become free to sell their shares.

Thus the supply of SpaceX shares is going to increase a lot between now and the end of this year. That makes the trajectory of the SpaceX share price somewhat predictable. So predictable that is has a name, the "IPO pop and drop". It is very basic economics, supply and demand. Supply of SpaceX shares is increasing over the next 6 months, demand probably by not that much, thus a drop in share price is rather likely. In fact, some people are planning to make a lot of money short-selling SpaceX shares.

Now this certainly isn't financial advice. But if you were a strong believer in growth stocks, a believer that everything Elon Musk touches will turn to gold, and you do think that one day SpaceX will reach revenue and profits that are more reasonably aligned with its market capitalization, you might still want to wait for several months before buying SpaceX stock. There are a lot of stocks that are worth more today than they were on their first day of trading, but there are very few for who the first day of trading would have been the best day to buy them. And that is much more true for growth stocks than for value stocks.

Many of the people buying SpaceX stock now don't plan to wait until the company makes a profit and they get their money back via dividends. Instead they believe in the greater fool theory of investing: It doesn't matter whether the share price of a company is justified by that company's revenue and profit; you can make a profit from an overvalued share as long as there is somebody out there who is a "greater fool" than you, and who values that company even higher than you paid for it. That is purely speculative. But it is the explanation for the valuations of cryptocurrencies, NFTs, and many growth stocks, especially in AI. You are not betting on a company reaching certain goals, you are betting on the mood of the market. That isn't investing, it is gambling. There are certainly people that made money that way. And there are people who still own a bored ape NFT, who bought Bitcoin for $100,000, or bought Pets.com shares at the IPO. In a market dominated by professional traders, how likely do you think a regular retail investor is to outsmart the bankers? If you want to get rich quick, you are probably better off betting on the outcome of soccer world cup. If you want to save money for your retirement, you should stick to boring value stocks.