Never chase an IPO out of the gate.

More often than not, smaller investors scramble to buy on the first day. Demand outweighs supply.  And your average investor, hoping to strike it rich is often left holding the bag.

“When they do go public, much of the appreciation has already happened in the private markets," says Nicole Tanenbaum, chief investment strategist at Chequers Financial Management, as quoted by CNBC. “That means that earlier investors, who got in at a lower price, stand to see greater gains. The upside for the public investor is much more diminished.”

Levi Strauss (LEVI) may have come out of the gate strong with a 35% move above its IPO price, for example.  But it may be too rich at current levels.  And there’s no guarantee the company can continue to deliver strong earnings growth.

Another IPO to be cautious of is Uber.

When Uber debuts on the NYSE, it could be one of the biggest listings with a $120 billion valuation.  If that were to happen, it’d be the biggest offering since Alibaba went public in 2014.

While $120 billion may seem excessive, analysts are betting on significant opportunities in ridesharing.  Plus, the company is rapidly growing and expanding with Uber Eats, Uber Freight, and Uber Elevate.  It’s even investing in self-driving cars and drone deliveries.

However, there are some red flags.

For example, Uber lost $891 million in the second quarter of 2018 following a loss of $4.5 billion in 2017.  However, it does see revenue of $10 billion to $11 billion, up from $7.78 billion from 2017.  That represents growth of 29% to 41%.

With a potential $120 billion valuation, Uber would be significantly overvalued in our opinion.

Instead, the best way to trade an IPO is with the First Trust IPO Index Fund.

The FPX tracks hot IPOs in their first 1,000 days of trading.  By buying it, not only can you avoid paying gobs of money for IPOs that may or may not work out, but you’re also being exposed to multiple hot IPOs at the same time at lesser cost.

Even with some of the most obnoxious IPO failures, the ETF managed to run from a 2009 low of around $11 to a recent high of $75.  It’s a safer alternative than risking your hard-earned money to another potential flop.  With the FPX, it doesn’t matter if the stock is hot or a dud, the excitement surrounding IPOs continues to send the FPX to new highs.