When a company goes public through an Initial Public Offering (IPO), it often garners significant media attention and investor excitement. However, chasing newly listed IPO shares at a high price is a risky strategy that demands a closer look at the underlying logic.

One of the main reasons is the phenomenon of IPO underpricing. Underwriters frequently set the initial offering price of new shares lower than where they anticipate the stock might trade. This strategy helps ensure sufficient demand for the new shares and minimizes the risk of unsold inventory. As a result, large institutional investors typically receive preferential allocations at the IPO price. Retail investors, who seek to buy in the open market after the listing, generally end up purchasing at much higher prices.

After listing, the limited supply of tradable shares can lead to a frenzied buying interest, causing price surges in the early days. However, as the lock-up period expires and more shares become available for trading, increased supply often leads to price corrections. This dynamic frequently results in post-IPO underperformance, where early enthusiasm fades and the stock price retreats from its initial highs.

Market manipulation is another concern, especially with small-cap IPOs. There have been instances of artificial inflation in newly listed stocks, where manipulators drive up prices temporarily to sell at a profit, leaving late entrants facing steep losses once the price drops. These misleading moves can be difficult to spot amid the excitement and hype of a new listing.

For these reasons, investors should exercise caution and avoid chasing newly listed IPO shares at elevated prices. A disciplined approach involves waiting for the initial volatility to subside and carefully evaluating the fundamentals of the company before making an investment decision. Patience and diligence are often more rewarding than being swept up in the early excitement of a new listing.