Benjamin Graham

Benjamin Graham, the father of value investing and author of The Intelligent Investor (first published in 1949, with later editions), was highly skeptical of Initial Public Offerings (IPOs), which he often referred to as “new issues” or “new offerings.” He viewed them as generally unsuitable for the intelligent (defensive or enterprising) investor, primarily because they tend to be speculative rather than true investments offering a margin of safety.

Key Points from Graham on IPOs

In The Intelligent Investor, Graham provided direct guidance on new issues. His core recommendation: All investors should be wary of new issues, subjecting them to careful examination and unusually severe tests before purchase.50

He outlined two main reasons for this caution:

1 Special salesmanship: IPOs come with aggressive promotion and hype from underwriters and salespeople, requiring a high degree of “sales resistance” from investors.

2 Timing and market conditions: Most new issues are brought to market under “favorable” conditions for the seller (i.e., during bull markets when enthusiasm is high and valuations are stretched), which makes them less favorable for the buyer. Companies and insiders often choose to go public when they can command premium prices.37

Graham famously quipped that “IPO” does not stand only for “Initial Public Offering.” More accurately, it could also mean:

• It’s Probably Overpriced

• Imaginary Profits Only

• Insiders’ Private Opportunity

• Idiotic, Preposterous, and Outrageous

He noted that the biggest gains from IPOs (like early access to winners) are typically captured by insiders, underwriters, and large institutions at the pre-public offering price. Retail investors usually buy after the initial pop, often at inflated levels.49

He also observed a market signal: One fairly dependable sign of the approaching end of a bull market is when new common stocks of small and nondescript companies are offered at prices higher than those of many established medium-sized companies with long histories.42

Graham emphasized that investors cannot reliably expect better-than-average results from buying “hot” new issues for quick profits—the opposite is more likely true in the long run. This aligns with his broader philosophy: Buy securities only when they offer value based on underlying fundamentals (earnings, assets, etc.), not hype or momentum.

Additional Context and Nuance

• Graham acknowledged that some IPOs might eventually become excellent buys years later, once the initial enthusiasm fades and the stock falls out of favor (when “nobody wants them”). However, this requires patience and disciplined analysis, not chasing the debut.7

• He distinguished true investment (thorough analysis promising safety of principal and adequate return) from speculation. Most IPOs, in his view, fell into the latter category due to limited history, promotional bias, and high valuations.

• Modern interpretations of his work (including commentary in updated editions of The Intelligent Investor) reinforce this: For every rare winner like Microsoft (in its early days), there are thousands of losers, and survivorship bias makes the winners seem more common than they are.0

Graham’s advice remains influential today among value investors. He urged focusing instead on established companies with long records of profitable operations, strong financials, and prices offering a margin of safety—rather than unproven new listings.

If you’re reading The Intelligent Investor, these views appear especially in discussions of new issues (e.g., around Chapter 6 in some editions) and case studies. His overall message: Resist the excitement of IPOs and demand rigorous evidence of value.