7 deadly sins of IPO investing (and how Warren Buffett avoids them all)
Every time a big IPO hits the Indian markets, it’s like a house on fire. WhatsApp groups ping with hot tips, Instagram reels hype grey market premiums, and your neighbour swears he’ll double his money by lunchtime.
The FOMO is real, and very simple to fall for. However, would Warren Buffett, the 94-year-old investing guru, fall for it? Not a chance. He’d sip his Coke, smile, and say, “The stock market is a no-called-strike game. You don’t have to swing at everything. You can wait for your pitch” His wisdom is a lifeline for Indian investors caught in IPO fever every now and then.
These seven Buffett-inspired secrets will help you navigate the madness with discipline, not desperation
1. Buy a Business, Not a Dream
It wasn’t long ago, when a friend of mine was buried in his phone, applying for an IPO because “It’s the IN THING”. Sounds familiar?
We have all met someone like this or we have been one to do it. But Buffett would shake his head. “Never invest in a business you cannot understand,” he warns.
An IPO isn’t a lottery ticket. It’s like buying a share in your local general store. Would you bet your savings without knowing if it’s profitable or not? For Indian investors, this means researching the company’s story and history.
Take this small test: Can you explain its business in two sentences? Would you trust it for a decade? Because this isn’t just about investing, it’s a life lesson. Whether picking a college major or a side gig, go for what you get, not what’s trending. Skip the hype and build your choices on solid ground.
2. Watch Out for the Insider Trap
Ever played cards with someone who knows every trick? That’s an IPO. This is one of the biggest reasons Buffett avoids IPOs.
It’s because the promoters and early investors, hold all the aces. “If you’re in a poker game and can’t figure out who the patsy is, it’s you,” Buffett said famously.
You see, they have lived with the company for years, while what you get is a glossy brochure some MBA graduate made in the dark hours of the night. If it’s such a goldmine, why are they selling now? It would not hurt to dig into the Draft Red Herring Prospectus (DRHP). Are promoters dumping big shares? This skepticism is a life skill, whether it’s a shady internship offer or a “quick cash” scheme, always ask who’s really winning.
Stay sharp and don’t let FOMO make you take wrong decisions.
3. Wait for a Proven Winner
Buffett loves companies like Apple, with decades of profits and trust. IPOs? They look full of promise but are untested.
“Time is the friend of the wonderful business, the enemy of the mediocre,” Buffett says. Patience is a virtue of winners. Don’t throw money at a shiny EV or fintech IPO just because it’s the talk of the town.
Remember the Paytm’s post-IPO rollercoaster? Hype fades fast. Wait for proof of earnings and governance. This mindset shapes life too: Pick a career or course with staying power, not just buzz. Be the one who waits for quality, not the one chasing every new trend.
4. Stick to What You Know Best
Imagine you are at a party, and someone’s raving about a new tech IPO. Sounds cool, but can you explain its business? If not, Buffett would pass. He always said “Risk comes from not knowing what you’re doing”. His “circle of competence” rule keeps him focused on businesses he understands, like consumer brands. This means sticking to IPOs in sectors you get or businesses you understand. Don’t chase AI or green tech just because it’s hot. This clarity is a life hack: Whether choosing a job or a hobby, play to your strengths.
Ask yourself: Do I really know this, or am I just following the crowd?
5. Look for a Rock-Solid Edge
Buffett only bets on companies with a “moat”. Something that keeps rivals at bay, like a unique brand or tech.
“In business, I look for economic castles protected by unbreachable moats,” he says.
Many IPOs, especially in trendy sectors, lack this shield and get crushed by competition. For Indian investors, ask: Does this company have a special spark? Is it a fashion with a loyal fanbase or just another online store? This critical thinking applies to life as well. Choose skills, jobs, or relationships with lasting value. Don’t jump on every bandwagon; seek what’s built to endure, whether it’s a company or your own career path.
6. Don’t Fall for Overpriced Hype
IPOs, in most cases, are priced to make sellers rich, not you.
Bankers whip up excitement to inflate prices, leaving little room for gains.
“Price is what you pay. Value is what you get,” Buffett reminds us. Like he always said, buy great businesses at fair prices. Ignore the listing-day fantasies. Would you pay this much for the whole company if it were a local shop? Probably not.
Valuing an IPO is tough, so wait for a better deal. Remember, you are in this for the long haul.
7. Play the Long Game with a Watchlist
Buffett’s superpower is waiting. He doesn’t chase IPOs; he watches and strikes when the time’s right. Instead of applying for every IPO, build a Post-IPO Watchlist. Track companies you understand after they go public. Let the hype die, check a few quarters of earnings, and buy only if the business still rocks. Remember, patience is everything.
In Buffett’s words, “The stock market is a device for transferring money from the impatient to the patient”.
Make Buffett’s Wisdom Your Superpower
India’s IPO craze is like a T20 match, fast and furious, and no one is sure which way the tables will turn. But Buffett’s secrets teach you to play a Test match: think long-term, question everything, and wait for value. These lessons aren’t just for IPOs—they’re a guide for smarter careers, finances, and relationships. Here is how one can start small and follow the Oracle of Omaha for a possibly better life. Start a watchlist, read a DRHP, or share this with your friends or colleagues. Which Buffett secret will you try? Mind you, they are all tested and backed by the man worth $130 Billion.
Disclaimer:
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Suhel Khan has been a passionate follower of the markets for over a decade. During this period, He was an integral part of a leading Equity Research organisation based in Mumbai as the Head of Sales & Marketing. Presently, he is spending most of his time dissecting the investments and strategies of the Super Investors of India.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.