The IPO (Initial Public Offering) market in 2026 is booming. There have been 238 IPOs on the US stock market so far this year as of September 6, with global issuance rising 43% year over year in the first quarter to $256.8 billion. SpaceX went public in June 2026, becoming the biggest IPO in history at a $1.77 trillion valuation, raising roughly $75 billion. But beneath the champagne toasts and opening bell ceremonies lies a psychological trap that turns rational investors into cheerleaders for mediocrity. Here's how the scam works, and it's perfectly legal. A company goes public. You buy shares, maybe at $50 each. Within months, the stock tanks to $20. Traditional economic theory says you should cut your losses, reassess, maybe move your money to better-performing alternatives in the same sector. But that's not what happens. Instead, you double down. You defend the company on social media. You dismiss critics. You tell yourself, and anyone who will listen, that the market just doesn't understand the vision yet. This phenomenon has a name in behavioral economics: the sunk cost fallacy. Investors hold onto declining stocks hoping they will rebound to the original purchase price, rather than cutting losses and reallocating resources more effectively. The psychological weight assigned to incurring losses exceeds those attached to positive gains, creating asymmetric value in decision-making processes. Research shows investors feel the pain of a loss more than twice as strongly as they feel the enjoyment of making a profit. Once money is involved, people naturally defend their decisions, filtering information to support existing beliefs while dismissing signals that contradict them. The IPO structure amplifies this trap perfectly. During the typical 180-day lockup period, early investors and insiders cannot sell their shares. When that lockup expires, additional supply floods the market, often triggering price drops. But by then, retail investors who bought at the IPO price or during the initial pop have become emotionally attached. They've already invested substantial time researching the company, money buying the shares, and social capital defending their thesis to friends and family. Admitting the investment was a mistake feels like admitting personal failure. Confirmation bias kicks in hard. Investors seek out information that confirms they were right, ignore anything suggesting otherwise, and dismiss those who disagree with them. In 2026, this bias is easily reinforced by social media and financial influencers. Following only people who validate your investment thesis is one of the most effective ways to destroy a portfolio, yet it's exactly what losing investors do. The Reddit forum WallStreetBets exemplifies this dynamic, where communities rally around stocks like GameStop and AMC Entertainment with near-religious fervor, dismissing fundamental analysis as irrelevant. For companies, this creates a perverse incentive. Going public doesn't just raise capital; it creates an army of unpaid promoters who have a financial stake in defending the company's reputation, even when performance is abysmal. Every shareholder becomes a potential PR agent. Bad quarterly results? The investors will explain them away. Product failures? Just temporary setbacks. Exodus of key executives? Necessary pruning. The more the stock falls, the more desperately shareholders need to believe in the turnaround, because acknowledging reality means accepting painful losses. Recent data shows this isn't theoretical. Of the 25 firms that listed on the mainboard in India since September 2024, 15 are now trading below their issue price, with 10 of them down by 10% or more. Companies like Western Carriers, Deepak Builders & Engineers India, and Baazar Style Retail have all lost over 20% of their value since going public. Yet browse investor forums and you'll find shareholders insisting these are buying opportunities, that the market is irrational, that vindication is just around the corner. One unnamed IPO performer saw its shares drop nearly 75% from its $23.50 IPO price as of August 2026, yet dedicated holders remain convinced of recovery. The phenomenon extends beyond retail investors. In April 2026, BP shareholders delivered a protest vote at the annual meeting, with Chairman Albert Manifold receiving just under 82% support for his election, a significant rebuke when board members typically secure approval rates near 100%. Yet Norway's $2.2 trillion sovereign wealth fund was among investors that supported Manifold's election, demonstrating how institutional investors also defend positions despite poor performance to avoid crystallizing losses. Is it a scam? Not in the legal sense. But it's a structural feature of public markets that benefits issuers at the expense of later-stage investors. Companies and early investors get liquidity. Retail investors get bags to hold and cognitive biases that make them reluctant to admit mistakes. The market calls this price discovery. Behavioral economists call it predictable irrationality.
📈 business
IPOs Turn Investors Into PR Agents for Trash
Going public creates a bizarre incentive structure where shareholders become unpaid defenders of failing companies. When your money is on the line, suddenly every critic is wrong and every red flag is just misunderstood genius. It's not quite a scam, but it's not exactly honest capitalism either.
Fact checked - 13 claims 7 Sept 2026 · 13 with sources
My Take
The ugly truth is that IPOs are designed to transfer risk from insiders to the public while creating psychological conditions that make those new bagholders defend the company's honor. It's genius, really. You don't need to spend money on PR when you've got thousands of shareholders doing it for free because their self-worth is now tied to the stock price. What makes this particularly insidious in 2026 is the echo chamber effect of social media. Investors can now find entire communities dedicated to defending their losing positions. The old investing maxim was to be fearful when others are greedy and greedy when others are fearful. The new reality is that investors are tribal when others are tribal, defending their picks like sports teams regardless of fundamentals. Traditional financial media calls this democratization of markets. I call it weaponized behavioral psychology. The solution isn't to ban IPOs or even to regulate them more heavily. The solution is radical honesty about what you own and why. If you cannot articulate three reasons why your investment thesis might be wrong, you don't have a thesis, you have a religion. And when your stock is down 50%, the market isn't wrong about your company. You were wrong about the market. Sell the losers, buy the winners, and stop acting like a company's volunteer PR department just because you overpaid for the shares.
What Happens Next
The IPO pipeline remains strong heading into fall 2026, with AI infrastructure companies like Anthropic reportedly planning an October listing that could raise more than SpaceX's record $75 billion. OpenAI's CFO has played down imminent IPO plans but hasn't ruled out a Q4 2026 listing either. Smart ring maker Oura filed for IPO just days ago, revealing high growth amid Americans' obsession with tracking sleep and health metrics. These new offerings will create fresh cohorts of investors experiencing the same psychological traps. Expect more of the same pattern: initial enthusiasm, possible first-day pops, then reality setting in as lockup periods expire and early investors dump shares onto retail holders. The companies with actual fundamentals will survive and thrive. The overhyped names will create a new generation of bagholders who spend the next several years insisting that everyone else just doesn't understand the vision. Index providers are loosening constraints to speed up inclusion of new IPOs under pressure from management teams, which will force passive funds to buy shares regardless of performance, providing temporary support for struggling debuts. Investors should watch the coming lockup expirations carefully, particularly for the mega-IPOs of 2026. When SpaceX's lockup expires around December 2026, we'll see whether the 50% post-IPO gains hold or whether early investors take profits and leave retail holders with the losses. The test of any IPO isn't the first day or first month, it's what happens when insiders can finally sell. That's when you discover whether you bought into a genuine business or just someone else's exit strategy.
What History Tells Us
The sunk cost fallacy in investing isn't new. Examples litter stock market history back to the South Sea Bubble of 1720, when British investors pumped money into a company with no viable business model, each round of funding creating more desperate defenders of the previous rounds. The dot-com bubble of the late 1990s saw investors defend collapsing internet companies long after it was obvious they had no path to profitability. Pets.com, Webvan, eToys all had shareholders insisting the market was wrong until the bitter end. The GameStop saga of 2021 represents the modern incarnation of this phenomenon. Retail investors on Reddit's WallStreetBets forum coordinated to drive the stock from under $20 to nearly $500, then defended their positions through dramatic declines with the rallying cry that they just liked the stock. When Keith Patrick Gill, better known as Roaring Kitty, testified before Congress in February 2021, he maintained his investment was based on fundamentals despite the obvious speculative mania. The psychological mechanisms haven't changed in 300 years, only the speed of communication and the ease of finding others to validate your failing thesis.
Market Impact
The 2026 IPO boom is creating significant market distortions. The S&P 500 has rallied to new all-time highs in 2026 despite concerns about sticky inflation and geopolitical conflicts, but beneath the headline numbers, newly public companies face enormous volatility. Historically, a slight majority of IPOs deliver negative returns in their first year of trading, according to analysis of 30 years of IPO data from April 1995 to April 2025. The median one-year return for IPOs is lower than the average due to massive outliers skewing results upward. Recent IPO performance has been disappointing across the board. Defense contractor Lyntris priced below range in August 2026 and ended its first week down 10%. New stocks pulled back in late August 2026, dragged down by AI infrastructure companies amid bond market volatility. Financial platforms like Robinhood and Charles Schwab benefit from elevated IPO activity through increased trading volumes and new account openings, regardless of whether individual offerings perform well. This creates a perverse incentive structure where brokers profit from volatility and churn while their clients hold deteriorating positions. The psychological toll manifests in market mechanics. When investors refuse to sell losing positions, it reduces liquidity and increases volatility. Price discovery becomes distorted as shareholders with underwater positions refuse to transact at market prices, waiting for hoped-for rebounds that may never come. This dynamic is particularly pronounced in companies dominated by retail investors rather than institutional holders who face more accountability for poor performance.