Published on July 31, 2025 | Last updated on August 02, 2025
When it comes to investing, few names carry the weight and wisdom of Warren Buffett. His simple yet powerful investing principles are followed by investors across the globe. Most of his investing principles revolve around patience, value, and discipline.
While Warren Buffett has stayed away from most IPOs, he is not totally against them; instead, he offers a measured and cautious approach towards them.
As someone with 18 years of experience in India’s broking industry, I have often seen investors get carried away by the hype created by IPOs. So, in this article, we will take inspiration from Warren Buffett and discuss the 7 Warren Buffett Rules for IPO Investing and explore how you, as an investor, can apply this timeless wisdom to navigate the IPO space more confidently.
1. “Be Fearful When Others Are Greedy”
IPOs are often accompanied by a lot of social media buzz and media excitement, which can cloud your judgment. Buffett’s advice here is clear: don’t get carried away by the hype created. Most IPOs are priced aggressively to benefit the promoters and early investors. As an investor, take a step back and ask ” Am I investing based on facts or FOMO (Fear of Missing Out)?
Tip for IPO Investor
If you are not sure, wait for a few days after listing. Let the price stabilize, and you will get a clear picture of the company’s real value.
2. “Never Invest in a Business You Can’t Understand”
Buffett avoids investing in businesses he does not fully understand, even if they are trendy. In the IPO space, you will come across tech startups or biotech firms with complex business models. If the business model, revenue stream, or product offerings confuse you, better to stay away from such IPOs.
Tip for IPO Investors:
All companies going public have to submit their DRHP (Draft Red Herring Prospectus) as part of the IPO process. Read the DRHP carefully, if the business model still seems vague or overly complicated better to stay away from the IPO.
3. “Price Is What You Pay. Value Is What You Get”
This is an interesting one and is at the core of IPO investing. IPOs are usually priced at a premium, meaning you are often paying more for the IPO than the intrinsic value of the company. Buffett prefers buying undervalued companies, not the hyped ones.
Tip for IPO Investors:
Compare the price-to-earnings (P/E) or price-to-sales (P/S) ratio of the company coming with the IPO with its listed peers (companies from the same sector). If the company is expensive without a clear growth justification, reconsider your decision to invest in the IPO.
4. “The Stock Market Is There to Serve You, Not Instruct You”
The quote reminds us that the market is a tool, not a guide. Don’t just get carried away by the subscription number, grey market premiums (GMP), or anchor investor participation. Use these numbers as indicators, but they shouldn’t dictate your decision.
Tip for IPO Investors:
Use GMP and the other numbers as supporting data, don’t merely base your investment decision on these numbers. Always focus on the fundamentals of the company.
5. “Our Favorite Holding Period Is Forever”
Warren Buffett believes in long-term investing. Many investors invest in IPO for a quick listing gain, but true wealth is built by holding good businesses for years.
Tip for IPO Investors:
If the company has strong fundamentals, strong leadership, steady earnings, and industry potential, consider staying invested for the long term instead of selling immediately for quick gains.
6. “Risk Comes From Not Knowing What You’re Doing”
As per Warren Buffett, when it comes to investing, taking risks without proper knowledge or understanding can be dangerous. Companies coming with IPOs by nature have limited track records, which makes them inherently risky. The only way you can reduce the risk is by doing your homework before investing.
Tip for IPO Investors:
Don’t base your IPO investment decision on social media buzz and media excitement. Analyse the company’s balance sheet, promoter history, litigation issues, and industry outlook. All this information is available in the DRHP filed by the company.
7. “Opportunities Come Infrequently. When It Rains Gold, Put Out the Bucket, Not the Thimble”
Buffett is extremely selective when it comes to his investments, but when he sees value, he goes BIG. Most IPO offers are average, but occasionally a gem comes along. Think of IPOs like TCS, Infosys, or IRCTC. Those who invested in these IPOs and stayed invested have been rewarded handsomely.
Tip for IPO Investors:
Instead of investing in every IPO, create a checklist. When a promising IPO shows up backed by solid fundamentals, fair pricing, and growth potential, invest with confidence.
Buffett’s Own IPO Investments (Yes, There Were a Few!)
Although Warren Buffett has been risk-averse when it comes to investing in IPOs, there have been a few in which he has invested. In 2011, Berkshire Hathaway invested in B2B payments firm StoneCo during its IPO. In 2020, he invested in the IPO of Snowflake Inc., a cloud-based data platform.
Here’s what these two companies have in common.
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Simple, scalable business models
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Experienced leadership
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Clear future cash flow visibility
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Priced reasonably for long-term growth
So yes, Warren Buffett does participate in IPOs, but selectively and only when the companies meet his strict criteria for investment.
So, Should You Invest or Avoid IPOs?
Yes, you should invest in IPOs. The IPO market is exciting and offers an opportunity to invest in companies from diverse and new sectors. But as discussed above in “7 Warren Buffett Rules for IPO Investing,” discipline, patience, and due diligence are the key.
By applying Warren Buffett’s principles, you will not just avoid poor investments but also identify truly valuable opportunities.
So, the next when an IPO hits the headlines, pause and ask:
What would Warren Buffett do?
About the Author
Sandip Desai is a stock market professional with over 18 years of experience in the Indian broking and investment space. He holds NISM certifications in Equity Derivatives, Currency Derivatives, Commodity Derivatives, and Mutual Fund Distribution. Sandip is passionate about simplifying financial concepts and helping investors navigate IPOs and capital markets with confidence.
Disclaimer
This article is for educational and informational purposes only. It reflects the author’s personal views based on experience in the Indian stock market. Please consult a SEBI-registered investment advisor before making financial or investment decisions.