Good. Indexes are supposed to be slow-moving, precisely due to their entry requirement of sustained profitability that skews towards mature companies.
All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk.
SpaceX and OAI stock will be available through Robinhood, Questrade and all the other retail investor markets. Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say.
At this moment, there is so so much, publicly available information [1]
on the fact the SpaceX IPO is the biggest scandal in the long history of Wallstreet insiders fleecing the "Johns".
A scandal orchestrated and cheered on by the NASDAQ, as well as Goldman Sachs and JP Morgan the underwriters, that if you spend any money on it, you deserve to be parted with your money.
And if you have a 401k...you are forced to buy no questions asked.
This will become such a disaster for retail, that hopefully Goldman Sachs and JP Morgan and the NASDAQ too, will spend their next 10 years in court defending action group lawsuits.
Two of those YouTube links are to Patrick Boyle who is a very respectable and knowledgeable ex hedge fund manager who dives DEEP into the topic while remaining entertaining. It’s a hilariously outdated take to say that YouTube content guarantees a lack of value or authority.
Patrick B is also a finance professor and most of his presentations (generally) maintain a level of academic rigour.
he got into the youtube during covid because he was posting YT vids for his students, and they just kept sharing them with everyone; he just ran with it
also: he talks deliberately slowly for subtitle and non-english speaker purposes; use the settings to speed him to x1.25 or x1.5 speed
That is leveraged speculation on a future listing before real float, real index flows, or real public market ownership exist. With a 20% premium that is evidence that the hype machine is working, and the best evidence of engineered retail FOMO.
Companies are innovating things that significantly enhance human capabilities and people will still find a reason to drag them down.
I am not a fan of either these companies. At the same time, I strongly disagree with these doomer scenarios as they are dangerous for progress of humanity.
For your own safety do not read or be advised by Ed Zitron. By all means skip the SpaceX ipo if you like: makes sense. But Ed is neither perceptive nor correct historically.
Case in point: a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers: it adds liquidity to a major cliff every IPO company faces: liquidity seeking by insiders on a schedule.
Now it may be bad for axed buyers like pension funds but buy side liquidity coming in to a company is always good for existing shareholders. Reading Ed would make you think the opposite.
> a major cliff every IPO company faces: liquidity seeking by insiders on a schedule.
LOL, so the insiders can dump their shares. This is exactly What Zitron says. Maybe we should have Mark Karpeles' or SBF's opinion on this matter, too.
Also worth noting that other index providers are less principled.
> Nasdaq changed its rules recently so SpaceX can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days
At the target market caps people are talking about, I wouldn't blame anyone who shorts all three: even if you're optimistic about the value of the tech, monetising is hard, and competition reduces profits.
anthropic's products are much better, anthropic and google will win the AI race, we wont even be talking about OpenAI in a few years when they run out of $ or compute and get acquired. They will be remembered by their Wikipedia page(s).
More like its a competition to get the listing -- not dissimilar to Amazon shopping cities for its corporate base. Set up a competition and get the best deal would be my speculation on why it was done (as well as goose the demand).
Yes, it's the same principle that gets you financial advisors who push you into high-fee fund choices that earn them kickbacks. Completely understandable from the PoV of these parties' self-interest, yet entirely contrary to your own self-interest as a customer and investor.
You seem to be confusing "listing" - the stock exchange where a company chooses its stock to trade (i.e. NYSE, AmEx, Nasdaq) with "indexes" - a list of stocks that is often the basis for index funds.
The Nasdaq 100 is not the same as Nasdaq. A company can be in many indexes but only one listing. There may have been competition for the listing but there is not competition between indexes for inclusion.
>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk.
Carvana is the poster child for this. It's astonishing that a company with a history of shady practices, and that has yet to offer a convincing explanation for why it is not a scam, is part of the S&P 500.
No offense but your responses sound like AI or engagement farming. I think the "why are these rules good" is self-evident to anyone who read the comment.
HN rewards engagement in the form of upvotes. If you make a post or comment with the intention of getting upvotes, you're engagement farming. I hate to break it to you, but there are many people doing that on this website.
Why do you think all engagement farming would result in downvotes? You think HN posters are so keen at sniffing out bad actors that they would never reward them by accident?
It feels like you're being willfully dense about this. I can see why the other person accused you of being AI.
>It feels like you're being willfully dense about this. I can see why the other person accused you of being AI.
No, you fucking idiot. Not everybody who disagrees with you is AI.
"Engagement farming" is a term of art with a specific meaning, basically just the adult way of saying "ragebait". People engagement farming on IG or TikTok are typically doing so by posting deliberately controversial content designed to troll upset viewers into writing upset comments. It is inherent to the technique that it only works on platforms without downvotes.
You don't see anyone "engagement farming" on Reddit either, it's always specifically "karma farming" because farming karma requires positive engagement. Engagement farmers do not care if the engagement is positive or not, the required approaches are completely different.
You're conflating engagement farming and rage-baiting. Engagement can be both positive and negative. I can't find any online sources that agree with your definition.
Here's one that I think sums it up pretty well:
"Engagement farming refers to a range of deceptive practices on social media designed to artificially inflate engagement metrics such as likes, shares, comments, and followers."
"Engagement farming employs various tactics to exploit social media algorithms, with the intent to appear more popular than actual user interest would warrant. Examples include posting controversial content to provoke emotional responses, repurposing successful posts without originality, and using automated systems for mass liking or following." [1]
If you don't think this is happening on HN (especially to mass downvote posts) you're naive.
Maybe look at how people actually use it? Not sure why the Indian blogspam is worth looking at.
"Engagement" has a specific meaning. It's different from "like farming" or "karma farming". Some platforms specifically reward engagement, making it a reasonable thing to farm on those platforms.
> using automated systems for mass liking or following
Clearly the author was clueless, this has nothing whatsoever to do with engagement farming.
To me it's more about how real the financial strength of the company is versus being propped up on some shady accounting. Not sure if that was the case with Carvana or any of these new IPOs, but personally I have my nest egg in the S&P and don't want sharks abusing the index for their pump and dump exit strategy.
In any case, it's been only in the last years that we have had an explosion of a huge variety of funds with low fees, so some of these product strategies need to be retro fitted for a time they did not exist.
Your question is still not what you're asking. Passive funds do nothing but follow indexes, so what you're really asking is "have value indexes ever beaten the general sp500 index?".
And the answer is yes, e.g. both the S&P 500 Value Index and S&P 500 Pure Value Index have beaten the S&P 500 historically.
Small Cap indexes, have also *significantly* outperformed the S&P 500 from 1927 till today (a compounded 13.1% annual growth).
Value stocks represent companies whose price-to-book is particularly attractive compared to the underlying business, and since investing is tied by the sell/buy ratio, buying at a discount improves it. Needless to say, value stocks require more risk, and risk is directly related to potential growth.
Small caps, are both riskier and have a much larger room to grow, they have significantly outperformed the SP500 since 1927.
Neither value nor small caps have done well, in the last decade, as the financial markets have multiple times provided better returns to a small but heavy portion of the market that was neither risky nor at any point had particularly attractive price-to-book ratios.
No you’re just assuming what I am asking. You have proven my point so thank you. No examples and lots of buts and exceptions. We are probably talking around each other to some degree but that’s ok!
I gave you numbers and names of indexes that have historically beaten the S&P 500 index in the value category.
All of those have one or more ETFs that replicate that index.
There's an extensive amount of scientific literature talking about the outperformance of value and small caps to the broader market, starting from Nobel price winning Eugene Fama.
And the relative values of those stocks will shift requiring rebalancing. You might be able to do that with new dollars for a while but hopefully, eventually, the swings are much more than new dollars and then what? Pay capital gains tax on sales to rebalance? Convince yourself the new random allocation is fine?
I thought the point of index funds weighting by market cap is that they don't require rebalancing, because the weight of stocks in the index exactly tracks price movements. You just keep holding the exact same number of shares, and more valuable stocks automatically take up more of your portfolio.
If you pick stocks with the correct weight to track the index, you're effectively running an index fund. And so you don't have to rebalance to keep tracking the index.
You can add stocks whenever you put money in. Whether that's because you got your paycheck or a dividend or some other income is kind of irrelevant. And you can remove stocks when you take money out. But you probably shouldn't start selling one stock to buy another just because their prices moved, unless you have information that lets you time the market.
But then you wind up with a portfolio that isn't balanced and isn't tracking like an index fund. An index fund doesn't simply buy a flat amount of stock and hold it, they buy stock in proportion to the relative weight of the exchange. Which is always moving
Market cap weighting is special. If company A has 500 shares, company B 500 also, than a fund that has 5 shares of A and 5 of B is market cap weighted.
And what happens if company A issues more stock? Company B is delisted? Company C is now listed? Company A and C merge? Company A spins off it's most valuable side business into it's own independent listing company?
500 shares of company A is worth 100% of the market cap of company A.
500 shares of company B is also worth 100% of the market cap of company B.
So if you have 5 shares of each, you'll have 1% of the market cap of each, even if one of those companies finds the cure for cancer or turns out to be a money furnace.
What are you talking about? Those index fund are constantly rebalancing. This is why you buy an index fund, so you don’t have to constantly rebalance your portfolio.
I don’t think this is correct. Gains historically accrue to a small number of companies in a given time window. If you buy all the grocery stores, you’re exposed only to sector risk, if you pick one or two, you’re also exposed to the risk those companies don’t contain the “winners”.
I suspect the number of picks you would need is surprisingly small to reach high parity with the S&P.
If you don’t pick the right grocery company, you have a shot at picking the right telecommunications company. You pick fewer winners, but you’re also picking fewer losers.
The real reason to do this is because you want to avoid specific companies that are inside the index. You would only do this if you felt confident in your ability to avoid investing a lot of capital in losers. Even if you’re great at avoiding the telecommunications loser, you might be worse than average at avoiding the loser in other sectors.
I don't know about the typical HN contributor but I personally lack the cash to but all the stocks in the S&P. There are 503 stocks tracked in the S&P 500 index. It would cost about 2.8 million USD to buy 100 shares (one board lot) of each if you were naive enough to weight your purchases that way. If you were to weight the stocks differently (eg. total market capitalization of each company) the amount would be higher.
Or, I can pick up 100 shares of an index ETF for a few thousand and have someone else do all the work for me including rebalancing and doing all the other required calculations (lot tracking and cost basis calculations etc.).
Trading in lots of 100 hasn't been required since I dunno, the 90s?
Assuming you're in the US there are several competent brokers that sell fractional shares. Any broker will do lot tracking and cost basis calculatioms for you, they're required to.
Rebalancing might be a pain, yes. I'd bet the drift isn't too bad most of the time, but it's probably effort every time you add or remove money. You'd want to build a tool to tell you how to add and remove to get closer to the index. If you can get the index weights and your holdings in a machine readable format, it would seem pretty tractable, but it would take time to setup; there's a reason funds have expenses, but index fund expenses are small.
I'm 100% invested in funds because it's a lot less work, but if you felt strongly about excluding certain stocks, I think it's pretty doable for say S&P 500. Tracking a total market index, or an international index would be more challenging. Bond indexes are also challenging to track, even for bond funds.
Im pretty sure Enron was in there in the past as well - 7th largest by revenue... that would make Carvana seem like nothing.
To answer your question honestly though -- the inclusion is mechanical based on criteria not policing based on opinion. Carvana being a history of shady practices is your opinion... (I would agree with you)
My opinion, yes. But if someone said they had invented anit-gravity, then showed you a bowling ball "floating" but with a sheet covering any potential support, you'd be pretty suspicious. And if they refused to remove the sheet, and had previously been convicted of fraud, you'd probably be extremely suspicious. But it would still only be your opinion until the sheet was removed.
But what if your dad had a closely-related sheet company that you regularly transacted with but isn’t public because he was barred for life from giving public demonstrations but owned tons of shares in your demonstration and sold millions of dollars worth on a daily basis?
Herbalife has decades of profits from selling wannabe Herbalife distributors a dream of financial independence they'll never achieve though, which might be unethical but is a bit less likely to lose your pension fund money than a company accused of getting 73% of its earnings from a deal with a convicted fraudster...
Whenever someone says nowadays, they're highlighting recency bias. The goals of holding a broad market ETF are diversification leading to sleeping well over the long term (at least to me).
See my reply to @rtpg. The short answer is that it is believed they are selling high-risk loans to a company they control, making it look like the publicly traded Carvana is some kind of miracle in the car industry while offloading the risk to anonymous shell companies.
Time will tell if it’s a ponzi or not. I am not fully convinced but it will be interesting to see, the family dynamic is always a bit suspicious and especially how they were at the end of a rope post Covid.
"In January 2025, short-selling investment firm Hindenburg Research published a report titled "Carvana: A Father-Son Accounting Grift For The Ages," in which it disclosed a short position against the company. The report alleged that Carvana's financial turnaround was a "mirage" propped up by accounting manipulation and lax loan underwriting."
"A class-action securities fraud lawsuit is proceeding against Carvana, its founders, executives, and underwriters in the United States District Court for the District of Arizona."
(i have no opinion on the matter, just functioning as your google)
>...if they indeed are running a ponzi it would be surprising it could last so long.
There's a practice in the loan industry called "pretend and extend," which basically means endlessly extending credit to lendees who are behind to avoid acknowledging the loss. Remember, in Carvana's case the loan buyer only exists to take on debt, not be a going concern. I think much of the market actually realizes Carvana is a scam, they just see that it is a relatively sustainable one as long as the government doesn't step in. And they don't see that happening, particularly with the current administration.
They're an outlier in the industry in terms of profit per car. But they don't actually get revenue from selling cars, their revenue comes from selling car loans. So they're making the additional margin on the financing. They are also famous for not turning down loan applications. So putting the pieces together, it seems like they are selling high risk loans at a healthy profit. Which brings up the question of who is buying those loans. They don't disclose the buyers, but claim that those buyers are not controlled by Carvana or its parent. Given the history of fraud, it's hard to take those claims at face value. The suspicion is that they are selling the loans to family-controlled shell companies and leveraging the stock to finance the scheme.
If "many businesses" operate this way, then "many businesses" are committing fraud. You can't publicly claim to be selling loans to an unrelated company when in fact you control that company.
On a fundamental level, the S&P 500 index is meant to be a benchmark of the market. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know all use the S&P 500 as the benchmark of the US stock market.
If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
S&P500 is not a total market index. It tracks a specific kind of large firm, with certain filters.
Fast tracking means that the market likely wont have enough time to find the settled price (especially with the knowledge that passive funds are about to buy), and including a mispriced thing does not necessarily make the benchmark more accurate.
Those filters for S&P 500 inclusion criteria have changed many times. They are not sacred nor set in stone. The question is, do those filters, which were designed for GAAP profitable traditional companies & discriminate against fast growing cash-flow-reinvesting startups that prioritize growth over profit, unnecessarily exclude major players in the U.S. stock market? The S&P inclusion criteria reward companies that prioritize profit over growth.
SpaceX, Anthropic, and OpenAI are all giga-caps preparing to IPO, and none of them will be eligible for S&P inclusion because of the 12-month profitability requirement. At current valuations, all are part of the top 20 largest companies in the US. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.
And you are vastly overstating the effect of S&P500 fast track inclusion, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.
> Under current rules, these fast-growing companies would be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.
> And you are vastly overstating the effect of S&P500 fast tracking, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.
They might never reach 6 months of profitability, let alone 12 months.
> which is more than enough time for the market to find a price
The price markets find would still inevitably be influence by the knowledge that the demand would increase massively in a few months.
> inclusion criteria reward companies that prioritize profit over growth
Or stable and sustainable growth. Whatever else SpaceX, OpenAI, Anthropic valuations are price in extremely optimistic growth. But yeah, I do see a point that including adequately priced growth stocks could be a net benefit but of course accouting for the actual valuation would turn index funds into managed ones.
Thankfully its not an issue at all since there is Nasdaq 100.
Thank absolute Christ none of the companies you just listed will enter SP500 by default. The Risk/Reward is not functionally there to fast track companies and all of the examples you listed are too big to keep coasting on venture capital. Let them be public for 6+ months and let's see where they are at in the eyes of the public markers and then their inclusion can be re-evaluated.
What's the downside for the average pension holder with a 30 year horizon if they miss 6 months of Elon's newest scheme?
> If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
So what's the reason for fast entry specifically? If it's a significant portion of the market and will remain so, it doesn't need an accelerated entry. A benchmark should be conservative about new entrants so that it doesn't turn from a market benchmark to a trend/fad benchmark.
If time validates the valuations the entry will come in time, just like for previous entries.
> So what's the reason for fast entry specifically?
Inclusion in as many indexes as possible is basically the definition of "too big to fail." It's the ultimate de-risk to know that if you fuck up badly enough the government will just give you everyone's money.
Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds.
In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the next 5 years. These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.
"Because the index needs accuracy.", and I would argue that include price accuracy not just inclusion accuracy. The S&P is a benchmark that is designed to reflect a subset of the market, and giving only some companies early access to the benchmark changes the benchmark. So if you want a benchmark that's designed to include all the big stocks regardless of age, profitability, etc then go make a new benchmark. The only thing you need to do is convince others to use your benchmark.
"go make a new benchmark" completely ignores how this works in practice. Benchmarks are only useful because everyone uses the same one, you can't swap it out. The S&P 500 benchmark is used as a comparison for trillions of dollars of mutual funds, index funds, and institutional mandates. The further the S&P 500 strays from reflecting the actual market, the more useless it becomes.
Also the S&P criteria have been revised multiple times, it's not some sacred unchangeable document.
> The further the S&P 500 strays from reflecting the actual market, the more useless it becomes.
Here I once again agree with you in part, and disagree in part.
The S&P 500 should reflect the actual market. That is, the actual market of publicly-traded companies with legal requirements for transparent accounting and reasonable expectations of future positive cash flows.
As you wrote yourself (https://news.ycombinator.com/item?id=48408363), "These [mega-cap IPO] companies will likely never meet S&P profitability inclusion criteria for the next 5 years."
At this point in time, I don't think it's reasonable to expect future positive cash flows from SpaceX or Anthropic. There are indeed some reasons to suspect that there won't be future positive cash flows from them.
The purpose of the S&P 500 is to be the "best single gauge of U.S. large-cap equities". That's direct from their website. I never dispute this.
I dispute the fact they claim to be the best benchmark of large-cap U.S. equities, yet have rules that (currently) exclude large-cap equities like SpaceX, OpenAI, or Anthropic.
Sure, but then it comes down to your opinion vs the S&P board's opinion. I suspect (given that there's only been a few days of this getting into the public eye) that more people support the S&P's position vs their critics. But the trade flows will show if people get out of SPX (or SPY/VOO) in the coming days.
My issue is that so many people have forgotten the purpose of the S&P 500 index (i.e. it's a benchmark to reflect the large-cap U.S. equity market), and instead treat it as a list of approved companies they should blindly invest their 401ks into. These people do not want to invest their retirement funds into the upcoming IPOs of the overpriced & unprofitable (SpaceX, Anthropic, OpenAI), and then are arguing the benchmark index should not include these companies.
But at a fundamental level, the S&P500 index exists to track the market. It was created decades before passive investing even existed. These companies are all large enough to qualify as major members of the index. If S&P started arbitrarily excluding parts of the market they find uninvestable, then that's compromising the integrity of the index, and defeats the purpose of the index entirely.
Reading this thread, there is so much confusion happening.
> If S&P started arbitrarily excluding parts of the market they find uninvestable, then that's compromising the integrity of the index, and defeats the purpose of the index entirely.
But they haven't started arbitrarily excluding parts of the market they find investable: on the contrary you are demanding they start arbitrarily change a long established and pretty basic rule to arbitrarily include pre-profit companies. Criteria on non market cap factors including positive earnings and liquidity are defined explicitly on their website along with the subjective "best gauge", which is entirely compatible with the idea it's a better gauge of large market cap company performance if it only includes companies whose market cap is supported by having given the bare minimum indication their business model can be financially sustained, not the ventures whose potential is most hyped[1]
[1]which obviously applies to OpenAI and Anthropic to a greater extent than SpaceX which actually achieved positive earnings as a private company before it pivoted to a model which bankrolls other Elon ventures and ambitions and needed to IPO as a result.
That's a fair point that the inclusion criteria are applied consistently, not arbitrarily. But I fundamentally disagree with their inclusion criteria. It was designed for traditional companies with low growth and high GAAP profitability, not high-growth companies rapidly reinvesting into the core business.
Amazon is infamous for having positive cash-flow yet running near-zero GAAP earnings for nearly two decades, because they reinvested absolutely all profits into the business. They were famously unprofitable, by choice of Jeff Bezos, and he created one of the most successful businesses ever. Under your logic, Amazon didn't belong in the index for most of its most important growth years. Only when it became GAAP profitable, it was allowed to enter.
SpaceX is cash-flow positive in its core launch business. OpenAI and Anthropic have tens of billions in revenue. These companies have found product-market-fit, and clearly demonstrate working business models. But neither of these companies satisfy one specific accounting metric that the S&P 500 requires for inclusion, so they get shafted.
The market has already priced these companies at giga-cap levels, these are some of the largest companies ever created, and that is a clear signal of something. The benchmark index should include these companies in some form, rather than gate them behind an antiquated metric.
I don't think earnings is an antiquated metric for valuing companies though. Other metrics exist to estimate future earnings and attract a different class of investor looking for different risk/return profiles than people wanting to index companies big enough to generate steady returns with fairly high confidence they'll be doing a similar thing tomorrow. If people want to invest in a different type of company from the companies the index was designed to capture they're entitled to do so: if their expected returns are that good you don't need to browbeat indices into changing their entire ethos to get funds involved in their IPO.
Sure, some companies which vastly outspent competitors on growth became very successful profitable midcaps and joined the relevant indices when they did, but everyone else waited their turn (including the ones that never became profitable midcaps because the money tap was their moat)
Thanks for entirely missing the point. My argument is for benchmark purity, and to not exclude significant parts of the market from the benchmark to accommodate the whims of passive investors.
The benchmark has much more use than just a list of stocks passive investors should blindly follow.
> But at a fundamental level, the S&P500 index exists to track the market
No, it exists to track a subset of the market based on specific criteria and weights. It's not even based on the market cap of included companies directly.
'S&P Total Market Index' exists to track the market.
> qualify as major members of the index
Not based on the inclusion criteria.
AND even if that were changed they wouldn't be near the top anyway, despite the trillion dollar valuations initially they wouldn't even be in the top 20 by weight.
> and defeats the purpose of the index entirely.
The index has operated based on specific rules defining inclusion criteria for a while. Can we just conclude that it did not become the most popular index despite never being designed to track the full market or be based directly on total market caps.
After all it's the people advocating the inclusion of these companies are advocating an arbitrary modification to the rules just to get them in.
The "total market index" point has been addressed twice now. Nobody ever claimed the S&P 500 tracks all equities. Only you keep bringing it up.
On your claim that these companies "wouldn't be in the top 20 by weight": as I addressed to you other times in this thread, SpaceX float 1 year after IPO would be 50%, giving it an index weight of $800 billion. That places it easily in the top 20 large-cap U.S. companies. The article linked has a chart of forecast free float. Your claim is false.
On "arbitrary modification" of rules: every criterion in the index was itself added or revised at some point. The profitability requirement, the float threshold, the dual-class share exclusion then reinclusion. All these rules were modified. If all rule changes are "arbitrary," so are the existing rules. The only meaningful standard for evaluating a rule change is whether it better serves the index's stated purpose.
The stated purpose of the S&P500 is to be the "best single gauge of U.S. large-cap equities." A company with a $1.75T market cap that ranks in the top 5 by size in the US is, by definition, large-cap. Excluding such a large company is contrary to the stated purpose of the index.
There are indexes which explicitly try to capture the entire market- the Russell 3000 is most prominent, but the Wiltshire 5000 is another one, and Vanguard's Total Market Funds and ETF follow the CRSP US Total Market Index. I believe all of them plan to include SpaceX/OpenAI etc. within a few weeks of its listing, which is what I'd expect from their goal of tracking the total market. Other indexes follow just a few stocks- most famously, the Dow Jones Industrial Average (built during an era of when it had to be calculated by hand every night) looks at just 30 stocks in a weird way(1).
The S&P 500 isn't either of those. It has a list of criteria for inclusion, one of which is profitability. They are sticking with that criteria. If you don't like it, sell your VOO and buy VTI instead.
1: It is essentially impossible to build an index that tracks the DJIA because, since it was done on pencil and paper, it isn't actually market-cap weighted, but is share price weighted, with a correction factor for each stock to account for splits, one stock replacing another, etc. Because of that nature, the weights of the DJIA change minute by minute, so someone attempting to track it would be subject to enormous error.
So you are saying that S&P 500 should be merged with Russell 2000 or rather just become a fully market index to be more "accurate". You do know that's something that exists already, having different indexes makes perfect sense and consumers can pick the ones they want based on their risk profile and preferences.
> most civilization changing companies from the benchmark
It took Google 2 years to get into S&P 500. For Microslop it was 8 years (!). So what's new?
I am saying none of those things. S&P claims their S&P500 index is the "best single gauge of U.S. large-cap equities". That's taken directly from their website.
I dispute this claim, because the (current) rules for S&P500 inclusion exclude companies like SpaceX, Anthropic, and OpenAI. All of these companies are planning to IPO this year, and even if these companies maintain their present valuation for a year, none are eligible for S&P 500. Due to profitability requirements.
Yet these are all U.S. large-cap companies, among the top 20 largest in the U.S., and by S&P's description of the index, should be included. Not including these companies makes the index inaccurate.
> [Google and Microsoft took years go get into the index], so what's new?
Because SpaceX, Anthropic, and OpenAI are $1T+ companies. Google and Microsoft were much smaller relative to the size of the index when they joined.
Best single gauge, not summary. Systematically excluding companies that are large and buzzy yet not profitable is a matter of intentional design to improve the accuracy of the gauge, even if previous companies were not quite this large. Anthropic and OpenAI are great illustrations of why you might want such a design: the bull case for each is that they're going to dunk the other and become the US's primary provider of AI inference, and neither is yet profitable, so by including both of them in the index you're "double counting" investor expectations of how valuable a company producing profitable AI inference will be.
> If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now.
To be clear, S&P 500 relies on float, not total US Market Cap, and Space X will have a tiny float.
Even if it was included, SpaceX would not account for 1-2% of the S&P 500 (more like 0.1%), so even if we reason on the basis of a benchmark, it's not a meaningful difference.
No, because after lockups expire in 6 months, SpaceX float would increase to 40-50% and it's float-adjusted weight would be >1% of S&P. This is assuming share prices remain unchanged, when they could go either way.
SpaceX at its current valuation places it as one of the 5 largest companies by market cap in the US.
Maybe you know this already, but this reads like exactly the kind of reasoning that people looking back at irrational market euphorias point to as a sign things were about to go awry.
The purpose of a benchmark is to reflect the market. If the US economy is pumping out high-growth but overpriced & unprofitable companies via IPOs, at unreasonable valuations, the benchmark should reflect that.
On the contrary. There are many benchmarks, some small subset of which are intended to reflect the whole market.
There are indices for every little thematic and niche corner or strategy or idea, there are broad-as-possible indices, and there are indices with requirements like listed age and profitability.
I'm not debating any of that. This discussion is about the S&P500 as a benchmark, which has an expressly stated purpose of tracking large-cap US equities.
This discussion is about if S&P500 actually achieves this benchmark, when it has (antiquated) rules that exclude large-cap US companies of the likes of SpaceX, Anthropic, and OpenAI.
Benchmarks are governed (to some extent) by natural selection. If the S&P criteria prove obsolete, then it will be replaced by other indices that use your proposed criteria. Everything's going to be just fine.
What is the S&P 500 meant for then? It was created in 1957 as a benchmark of US equity performance. That's S&P Global's own stated purpose. If it's systematically excluding companies that represent significant chunks of total US market cap, the index isn't doing its job.
Investment funds are for making money. Nobody cares about 'accurately reflecting the state of the market' if that's objectionably high-risk. You invest in an investment fund to make money.
There is no way you can commit to holding big quantities of these methane bubble swamp gas companies and claim it isn't high risk. You'd have to be certain you could bail at the right moment, and that doing so would not obliterate the market through your giant market move… or commit to being a giant bubble of fraud that can never possibly blow up, forever.
These are not responsible ways to make vast sums of money, not because they're unethical but because they're gambles at very high stakes.
You are confused what the S&P 500 actually is. It is a benchmark, not a managed fund. Investment funds that track the S&P 500 do not have a say on which stocks to buy. They copy what the index allocates. Whether these companies allocated are risky or not, has no relevance to if the benchmark accurately represents the US equity market. If three of the top 10 largest companies in the U.S. are excluded from the index, which may be the situation this year, then the benchmark is wrong. The benchmark is failing to achieve its stated function.
Your risk argument applies to actively managed funds, not to an index whose entire purpose is to represent the U.S. large-cap market.
If they are methane swamp bubble giant frauds (there can be others: for instance, Enron, historically) then they don't count as companies for the purposes of the S&P 500. Methods for determining this might include the metrics the S&P 500 elected not to waive…
Nobody cares whether the benchmark is no longer accurate (or whether it was accurate in the first place). People are furious because their investment allocation is tied to this rule change. If you or anyone wants an orignalist SnP number that accurately (by whatever standard you want it to be) benchmarks the market, you are free to do so very easily.
> These companies will likely never meet S&P profitability inclusion criteria for the next 5 years.
They won't stay gigacaps for 5 years if they don't become profitable. At their size, they can't just keep burning money at that scale under the public's eyes. The funding will divert from VC to shareholder equity and that will quickly see they don't stay gigacaps.
So this is a self correcting problem. Either they'll start making money and hit profitability targets or their market cap will diminish.
If they're doomed, they're bad companies. This isn't complicated. You can run a fraud and double down real aggressively and as long as you're not called on your bullshit you look incredibly good, until you don't.
If they're doomed, they're bad companies. You can make the argument they're not doomed, but that's a separate argument.
> Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO.
I'm nodding vigorously on this part:
> These companies will likely never meet S&P profitability inclusion criteria for the next 5 years.
But here, you lose me…
> These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.
The point of investing in a total(ish) index of the public stock market is to invest in companies that have a reasonable expectation of net-positive future cash flows, justified in part by legally-mandated transparent reporting of their finances.
You can't just buy every publicly-traded stock though: for one thing, that would massively incentivize obvious scammers to do the bare minimum to get their stocks included, and drag the index down. Avoiding companies that are illiquid, non-transparent, or lacking in a clear track record is important. The SpaceX IPO bears more than a passing resemblance to a pump-and-dump scheme:
1. SpaceX's line of business* is tremendously unclear.
2. SpaceX doesn't actually need external capital to fund its operations.
3. SpaceX is floating only a tiny fraction of its putative market capitalization.
4. The main purpose of the IPO appears to be to allow insiders to cash out.
5. The way the lion's share of the IPO gets sold is if large index funds and pension-holding companies demand shares, and that only happens with the index-inclusion exceptions we're discussing here.
So, we agree that these "mega cap IPO" companies won't be profitable in the next 5 years. That's a huge period of time. How can public markets accurately value a company that isn't expected to be profitable for such a long period of time; there are so many things that could change their trajectory towards profitability, all the more so if we accept your premise that these companies are "civilization changing."
My conclusion is that it's perfectly fine, even beneficial, for indices like S&P 500 to avoid any special treatment for these companies. If SpaceX is clearly profitable 5 years from now, and has reached 50% free-float, that seems like a good time to start including it in the index.
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* Nearly all of its revenue comes from launching satellites and running a satellite-based communications network, but much of its putative valuation comes from a hastily glommed-in also-ran AI company, and its association with a person who is famous for running other businesses and for political connections.
It’s a benchmark of the market under certain rules, like having multiple quarters of earnings for the market to value them at.
These companies want special exceptions. If you are an exception why should you be included in a benchmark? At best they should have an asterisk against their name like Sammy Sosa or Mark McGuire if they are not following the same rules.
Your baseball cheating analogy makes no sense here. Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. S&P rules are supposed to make the index reflect the market. Totally different.
The profitability requirement is something made up by the S&P committee. If that rule ends up excluding trillions in market cap, the rule has defeated its own purpose. The 12 months of profitability requirement punishes high-growth companies that invest their FCF into growing the business vs taking profits.
It excludes companies like Amazon, which when ran by Bezos, was famously unprofitable and invested all free cash flow into growing the business and never turned a significant profit until >20 years after its founding.
> Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally.
> The profitability requirement is something made up by the S&P committee.
Those are both equally made up. In this case the rules are being changed for new entrants into the market such as SpaceX for the Nasdaq and other benchmarks that are allowing it for that none of the previous companies in said index were allowed to get in under.
And since it’s 15 days and I know most companies have lockout terms on the order of months for various levels of stock, I’m hesitant to believe this won’t modify the benchmarks beyond what has happened with previous inclusions.
`JumpCrisscross’s reply to one of my other comments on this thread in regards to the S&P being a committee based decision actually has had me pause to think, but your argument that the rules are arbitrary so it can’t be cheating like my baseball analogy fails to land.
Baseball rules exist to prevent cheating. The S&P rules exist so the index can accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions in real market cap, that means the rules are badly designed and broken by its own standard. You're trying to compare updating badly written S&P 500 rules to cheating, which makes no sense at all. They are completely different.
And calling out how the rules are being changed for new entrants into the market such as SpaceX on Nasdaq proves my point. Index providers are already quietly admitting their criteria are too rigid.
Even S&P adjusted their rules to allow SpaceX into the index, although only for the total market index.
"The S&P rules exist so the index can accurately reflect the market", the rules exist to reflect a subset of the market, and the committee chooses that subset. It's their subset so they get to set the rules, you don't have to use it if you don't want to. If you don't like that subset then create your own index. Then you just need to convince others to use it.
Per the S&P 500 website, the claimed subset of the market is "U.S. large-cap equities". S&P claims their index is "best single gauge of U.S. large-cap equities". But, it's clear that given the current iteration of the rules, none of the major upcoming IPOs of Spacex, Anthropic, or OpenAI are eligible for S&P500 inclusion, and they likely will not be for years.
Claiming to have the "best single gauge of U.S. large-cap equities", yet having rules that exclude three of the top 20 largest U.S large-cap equities which make up ~5% of the total market cap of the U.S. stock market, means your benchmark is inaccurate by my book.
"means your benchmark is inaccurate by my book.", and like The Dude says "Yeah? Well, you know, that's just like uh, your opinion, man."
Create your own benchmark, and you can say it is a subset of "U.S. large-cap equities" and "best single gauge of U.S. large-cap equities" and let the market decide who does a better job.
> The S&P rules exist so the index can accurately reflect the market.
I personally believe that accurately reflecting a market involves not allowing cheating. I personally believe that getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating.
If you want to disagree with me on these points then please do so, but understand why I am claiming that this behavior is cheating.
> getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating.
I disagree with you because you are vastly exaggerating the scope and effects of the proposed rule change. S&P was going to decrease their minimum index inclusion time from 12 months to 6 months. 6 months is far more than enough time for the market to decide a fair price of an equity. The rule change never ended up happening, hence this post.
There is zero "cheating", I don't understand why you keep harping on that.
> 6 months is far more than enough time for the market to decide a fair price of an equity.
I disagree.
> The rule change never ended up happening, hence this post.
There is zero "cheating", I don't understand why you keep harping on that.
The S&P ended up not making the change. Other benchmarks like the Nasdaq did, and they went way faster than 6 months. The Nasdaq specifically is going to allow these firms to be included after 15 days.
> accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions
Define what that means? The weights are based on the value of shares available publicly, not market cap. So even if included SpaceX wouldn't even be in the top 20 and have a lower weight than Johson & Johson.
A lot of what people are saying here seems to be based on a misconception of what S&P 500 is supposed to be. Maybe it became the most popular index because of those rigid rules?
The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI.
All three companies are in the top 10 largest companies in the US by market cap, based on their current valuations. If these companies maintain their valuations over the next year, they'd still be ineligible under current rules. Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.
A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.
It currently would exclude all 3 companies because they aren’t publicly traded.
Post IPO they wouldn’t immediately be included. Every benchmark I am aware of doesn’t immediately include companies because there is a decent amount of volatility shortly after, especially due to all the internal stockholders who have restrictions on how quickly they can sell their stock and routinely dump their stock en masse the second those restrictions are lifted.
All the hubbub about benchmarks like Nasdaq right now is because they are altering their rules for these companies in particular and including them much earlier and before what are standard restrictions for employees to sell their stock.
The fear is that massive pension funds whose rules have them rebalance into these benchmarks will be buying up these stocks before that dump and the public’s retirement funds will be made into bagholders.
> Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth.
> A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.
Ok, now I know not to take you seriously if you can recognize companies aren’t following GAAP but think it’s wrong to not treat them the same. I don’t even know if it’s true that they aren’t following GAAP, but everytime a company tries to argue why they aren’t following GAAP but instead their own magic formula that shows how successful they are, we get another Enron or Theranos.
> The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark,
Okay, but isn't that gauge measured over a specific timeframe? Since investors in this index have timeframes in years/decades not days, why would you expect the index to have a ranularity of days?
> That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI.
Sure, but it excludes lots of companies. This specific index is risk-averse and caters to risk-averse investors; regardless of whether the company is SpaceX, Anthropic or OpenAI, rick-averse investors are going to shy away from any share that hasn't been traded long enough for price-discovery to kick in.
S&P 500 weights are based the value of shares available on the public market not the market cap. Based on that SpaceX will be nowhere near the top 10.
Do you think their valuations wouldn't fall dramatically if they were willing to float a significant proportion of their shares on the market anytime soon.
Based on previous IPOs, SpaceX will grow to ~40% float by 12 months, thus if it keeps its current valuation unchanged, will remain near the top 10 spot.
If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
If you change a benchmark whenever you think it'll be 'wrong', then it becomes a measure of the heuristics you use to predict what'll impact the benchmark rather than a benchmark in its own right.
S&P claims their S&P 500 product is the "best single gauge of U.S. large-cap equities". For this benchmark to be accurate, at a fundamental level, this benchmark has to follow the market and reflect current market conditions.
The market decides what the large-cap U.S. equities are, not S&P. If S&P excludes some of the largest U.S. companies, which based on their current rules, will exclude all of Anthropic, SpaceX, and OpenAI; then they do a poor job reflecting the benchmark they claim to follow.
It's not S&P's fault that market conditions have changed.
this benchmark has to follow the market and reflect current market conditions
Sure, but right now they don't know how the market will react, so changing the index rules before there's any data would be a measure of their heuristics (e.g. what they believe the market will do), not a measure of what the market is actually doing.
The core issue is that S&P requires companies to be profitable for 12-months to get included in the index. Yet all of SpaceX, OpenAI, and Anthropic are highly unprofitable, because they are prioritizing investing all free-cash-flow into growth instead of returning money to shareholders. These companies likely will not be profitable for years, and without a rule change it's unlikely they will be included in the index anytime soon.
Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index.
Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index.
It's not outside the realms of possibility that the price of the shares post-launch could collapse if the market decides they're over-priced. Shares in companies have been known to settle on valuations far below the IPO price in the past. At that point they won't represent ~5% of the total. Changing the index rules immediately before finding out what's going to happen feels like putting the cart before the horse.
Even assuming a post-IPO valuation drop by 50%, SpaceX would still be a top-25 US company by market cap.
Your "wait and see" argument doesn't apply, because (SpaceX, Anthropic, OpenAI) are excluded from the index for profitability reasons, not valuation reasons. These companies are deliberately reinvesting free-cash-flow into growth rather than booking GAAP profits. That's not going to change 6 months after IPO, and likely not for 3-5 years.
At the current pace, three of the ten largest US companies will not be included in the S&P 500, for probably 5 years after IPO.
The question still remains: should a benchmark that claims to represent large-cap US equities exclude companies that are demonstrably large-cap, just because they allocate their capital towards growing the company instead of generating profits?
Matt Levine, who probably knows more about finance than anyone on this site, has said the same thing. He’s also talked about all the hate mail he gets. Large market etfs like VTI or VOO are supposed to track the market. It would be weird if they ignored trillion+ market cap companies. If the market decides to dump these companies then they’ll fall out of the index.
Index criteria have also changed many times over the years, and they are changing again to deal with later stage companies coming to the market with already huge valuations.
I completely agree. People have parroted the benefits of passive investing and blindly following the benchmark index for decades, yet the instant some overpriced turds (Anthropic, OpenAI, and SpaceX) are considered being adding to the benchmark, they backtrack and fight tooth and nail against including them.
All three companies are large enough by market cap ($1T+) to qualify for the S&P 500 benchmark, which claims to track the top 500 largest U.S. large-cap equities.
They have a point (not wanting to invest in overpriced equities), but if you don't like the companies that surface through passive investing then don't be a passive investor. It sounds like these people want active investing instead. If that's your position, just buy actively invested funds, not ruin the benchmark for everyone.
S&P is caught in a bind, because if they add these companies to the index, it would aggravate millions of passive investors.
While there's some truth in your point, I think you're being unfair in framing this story as passive investors betraying their own philosophy because they suddenly realize this passivity would cause some "overpriced turds" to be included in their portfolio.
Passive investors did not "backtrack", on the contrary their preference on this matter is that index rules should remain unchanged. Conversely, it seems fully consistent for a passive investor to criticize Nasdaq-100 for actively amending their rules to achieve a specific result.
So I find it rather unfair to conclude that "these people want active investing instead". As far as I know, these people are reacting to "active" decisions (such as Nasdaq-100's) and cheering actual passivity (such as S&P500's decision).
Now, one can argue that there are good and legitimate arguments for the inclusion rules to evolve, but by definition amending the rules is an active decision.
The reasoning here is backwards, because the rules in their current form exclude all three of the major upcoming IPOs of civilization changing companies (spacex, anthropic, openai). These companies are all large-caps, are currently in the top 20 largest companies in the US, but the S&P 500 index which claims to be a measure of the 500 largest companies in the US will systematically exclude these. Very likely for 3-5 years and more.
How can S&P justify excluding these three companies from an index of large-cap US companies, which when combined together, consist of 5% of the total market capitalization of entire stock market of the United States?
If the rules are not changed, then the S&P 500 will exclude a significant part of the US stock large-cap market, which defeats the entire purpose of it being a benchmark index.
If the S&P 500 was only used as a benchmark as it is originally intended, there will be no debate to adjust the rules to include these companies.
Yet because today there's trillions of dollars tied up to this benchmark, inclusion and exclusion becomes a financial issue.
S&P is under immense political pressure to not adjust their index because asset managers and the general populous don't actually want passive investing.
I was specifically not discussing whether S&P would be right to change the rules. As I said, there can be good and legitimate reasons for such change; I'm not disputing it.
The point of your previous comment was a critic against individual passive investors, accused of backtracking and betraying their own credo. This is what I was reacting to.
Not wanting to change the rules just because these three companies really really want in before prices settle and before they are profitable is the correct behaviour.
The unjustifiable thing is changing rules for them.
I don't care about being forced to own SpaceX if it's in the index, I do care about it being forced into the index before it's had a chance to settle, so that private investors can dump on me.
But that wasn't going to happen with the S&P 500, the proposal was to reduce inclusion time from 12 months to 6 months, and this did not pass. 6 months is more than enough time for price discovery to occur.
And even if it was added to the index immediately after IPO, index weighting in S&P is float weighted, SpaceX at IPO will have minimal float, and SpaceX would be ~0.125% of the index at IPO. Not much to matter.
That ".125% is not much to matter" argument also cuts the other way, against the Matt Levine argument that the S&P is excluding trillion dollar companies and should adjust the rules for them.
Should S&P really adjust the rules for such a small portion of the index?
Market pricing will be interesting. People have been complaining about TLSA being over priced for years and now it's 2%+ of the S&P. Are people selling VOO and VTI because of the TSLA allocation? Nope, in fact TSLA has made them all a lot of money.
People were falling over themselves to invest in these AI companies and SpaceX not that long ago. 75B worth of SpaceX now has to get sold to IPO investors to hit the desired valuation. People say a lot (especially on the internet), but when the rubber meets the road we'll see what people do with their money.
The other bind the S&P is caught in is if these AI stocks IPO and then moonshot before they get added. The question will then be is the S&P an antiquated index? How do multiple trillion dollar companies in the market not end up in the S&P 500 sooner? No one thinks of that case because everyone is so sure they are all going to zero.
It may be used as a benchmark, but that’s not actually the purpose of it. The purpose is to serve as a way for people to invest in a representative sample of the market. It can still be a representative sample with safeguards. If you want a benchmark without safeguards, you can calculate one without risking millions of people’s life savings.
You have your history backwards. The S&P 500 was created in 1957 as a benchmark. The first investable index fund tracking it (Vanguard's) wasn't created created until 1976. Vanguard created their fund to track the benchmark, not the other way around.
And if you need a second, different index to function as the true market benchmark because the S&P 500 no longer reflects the actual market, then you just agreed the S&P 500 is no longer an adequate benchmark. You just agreed with my point.
Because it's selective, the S&P by definition does not reflect the actual market. It reflects a subset of it.
If you're comfortable with this notion of what the S&P does, then you ought to be comfortable with S&P applying the same methodology they've always used. There are other indexes you can reference if this particular sampling of the market isn't to your personal liking.
The S&P's historical inclusion criteria were designed to filter out unstable, illiquid questionable companies to get a view of large-cap US equities. That logic worked when every major American company was public and profitable.
That's not true any more. Today we have multiple giga-caps (SpaceX, Anthropic, OpenAI) vying to IPO, all of which potentially in the top 20 largest companies in the US market, all ineligible for S&P 500 inclusion because of the 12-month profitability rule.
You claim S&P can "apply the same methodology they've always used" but this is just factually wrong. The inclusion criteria are not sacred rules set in stone and S&P has rewrote them multiple times. For example, they banned dual-class share structures in 2017 to stop SNAP from joining the index, but reversed it in 2023 because they excluded too many companies. The rules get rewritten when the market changes, and it's clear the current market environment has changed.
Meanwhile, Nasdaq changed their rules to handle this situation. And S&P changed the inclusion criteria for the S&P Total Market Index so SpaceX would be included.
So Space X, OpenAI, Anthropic? Those are perfect examples.
It's unlikely their valuations could survive the IPO if their float wasn't extremely low.
> top 20 largest companies in the US market
You do know that S&P weights are based on the free float and not the market cap. So based on that SpaceX etc. will not be in the top 20. The total value of shares of Johnson & Johnson available on the public market will be much higher than that of SpaceX/etc. based on their current valuations.
Then your issue is not the S&P methodology, which despite changes in detail remains, as you've said, aimed at filtering out undesirable companies from the index. Your issue is that you want us to believe your favorite tech stocks, which are both wildly unprofitable and have P:S ratios that defy rational investment, are somehow desirable immediate additions to the index. And your argument for why this should be is a lofty claim that "the market environment has changed."
You believe in brand power over numbers. Which is your prerogative. But it's not how the S&P is managed.
> the S&P 500 no longer reflects the actual market
Well it was never intended to reflect the full "actual market".
> no longer an adequate benchmark
According to your definition it never was. However there were and are plenty of other index benchmarks which serve different purpose. Its just that S&P 500 managed to become the most popular one, why did it happen if it was always inherently flawed?
Like they didn't even add Microslop for 8 years...
Indexes have rules for entry, so people using them supposedly agree with them. On the other hand, they were talking about opening exceptions for these companies, which was not part of the initial rules.
That's not even slightly what they said. They said that people can trade the stock directly if they want to, rather than have it essentially forced upon them by inclusion in an index
No, indexes are meant to track something. The Russel 2000 index has very different criteria for the S&P 500 index. The Dow Jones is yet another one.
The criteria for none of the above is “slow moving”, far from it. Those are all expected to be high growth vehicles for retirement. Safe stuff is bond blended.
Plenty of people at shit in the GFC being invested in “slow moving” S&P 500 companies like Lehman Brothers, WaMu, AIG, GM, etc.
“Was profitable for a while” != “safe” nor is it necessarily good to park money there. You need explosive growth companies that invest rather than profit (like Amazon) being in the S&P 500 are a critical part of its performance.
If retirements only tracked stable mature companies that would be utilities and other stuff that doesn’t actually get you to retirement.
>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk.
The purpose of an index is to provide a benchmark of the market, not to build funds that follow the index.
> The purpose of an index is to provide a benchmark of the market
Usually a subset of the market based on specific criteria. Total market indexes and funds exist, maybe there is a reason S&P 500 despite its "strict" inclusion criteria is more popular than them?
Good for the SP500 but I don’t think it’s true that indexes need to be slow moving. They can serve any purpose! Comparatively I think it makes sense Nasdaq100 would want to include it earlier. Not all indexes need to be slow moving or representative of a buy and hold type strategy. Maybe you only want to capture the highest volume in daily activity for example.
It’s important to note that index funds will eventually get in, so it’s not like 401k will never be holding these stocks. It would be silly to assume that the stock is going to tank that much on day 1, on the asumption that there are not enough investors to buy the big three IPOs that are coming out this year. There is plenty of money in the market, and everyone knows index funds will buy these stocks when the companies get in, so everyone will be able to dump them if needed in a year or so.
Btw I don’t really know how index funds work, but if they need to track the index as closely as possible, they will all have to buy those stocks on a certain day, no? There will be a crazy price hike when they do so. Or maybe they have terms that let them smoothen their trading around entry and exit?
To a first approximation, yes, the index funds all need to buy the stock on the same day.
An unexpected surge of buying like this should lead to a big price hike. But everyone knows it's happening, so you'd expect every hedge fund and proprietary firm in the world to buy the day before the index funds buy, and sell into the price hike. So in fact the price hike will be a day earlier than expected. But wait, anyone smart enough to see that should buy the previous day...
In this way the "smoothing" of the trading at entry and exit gets passed on to intermediaries: other market participants who are expert at this.
This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor. And huge index events like this are a particular bonanza for these traders. But it probably costs less than you think. Ultimately it's a highly competitive market: the slippage from this approaches the extent to which the prop traders have a higher cost of capital, plus a small risk premium. And remember that they don't have to find "extra" money to fund this trade. When they buy SpaceX they will sell 499 other stocks, doing the same trade there in reverse. Here's a study that approximates the effect at 0.86%[0]. By comparison, the banks underwriting the IPO typically take around 6% [1]. Though this will be smaller for a huge IPO like SpaceX, while the index arb trade will be bigger.
0.8% of drag is a lot when you can do basically the same thing by not strictly following the index.
There are funds from Dimensional and Avantis that are basically just index funds but with a bit more leeway to avoid these obvious pitfalls, and from what I saw they do perform approximately 0.5% better per year.
0.8% is substantial indeed, but if i understand correctly, it’s 0.8% on that one stock, so much less on the index itself.
Those funds that perform better probably take a higher management fee that might cancel out the gain. May be worth it to have a smoother return though.
As in, current indexes perform that much worse. Frontrunners around index rebalancing etc. SpaceX is the same idea, just way more obvious. People knows what the index funds are going to do, and so they exploit that.
The alternative funds are a little pricier, but not so much so as to negate the inherent performance advantage. Typical cost ratio is 0.1-0.5% depending on the niche (wide indexes are cheaper, more niche things like small cap value cost more)
>This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor.
This is so wrong I'm not sure you understand common sense economics and by economics I don't mean anything you can find in a text book. If I invest nothing, the other investors or traders can still make a profit without costing me anything.
Opportunity costs are never real costs. If I have $10, and the traders do weird things with the prices and I don't spend the $10 on anything, I still have $10. The traders failed to cost me.
You're also ignoring the underlying issue which is that the valuation of SpaceX on the open market is different than the valuation it could get from forcing index funds to buy in early. If the stock is worthless then short sellers will make money, but short selling only works if the short sellers don't get squeezed. If the passive funds buy two weeks in, then early traders know that they can sell to a greater fool at inflated prices. Any short seller who is trying to discover the true price will stay back and short directly after the indexes have bought. That's the perfect moment for them. They want the post IPO hype and bull market, only for the stock to collapse within a year.
There's a real desire out there to tell a narrative where SpaceX is a massively fraudulent piece of financial engineering, a pump and dump scam where the stock will "collapse within a year" and retail investors will be left holding the bag.
There's definitely some financial engineering at the margins, but as I see it the facts are:
- Musk is still going to own 40% of the company. If he's selling 4% of it, his incentives are aligned with keeping the rest of it high
- the index funds ultimately are fast tracking the big IPOs because their customers, in aggregate, want that. And the market structure really has changed since the days when the index inclusion rules were first written and companies went public smaller.
- People have been banging the same drum about short sellers with Tesla since at least 2017 - AFAIK it's still one of the most shorted stocks - and it's up 20x since then.
- Institutional investors with more sophisticated strategies than "buy the index" or "pump and dump lol sell to the index funds" will be participating in the IPO and in fact will be the main drivers of price. Everything I've seen suggests that if this is a "retail heavy" IPO, that means 20 or 30% of the shares ending up with retail instead of a more typical 10. These other institutions could be wrong, but they're not mechanical price takers.
I've shown above how one of the effects people make the most noise about - the index balancing arbitrage - is likely an effect of order of magnitude 1%. It's on the noisemakers to show how any of the other effects you mention can be massively more impactful.
Their float will be very small so yes, the value of their shares that anyone could buy at even the most optimistic valuations would be tiny compared to most public megacaps.
> Btw I don’t really know how index funds work, but if they need to track the index as closely as possible, they will all have to buy those stocks on a certain day, no?
S&P wouldn't include them until they became profitable and even if they did they wouldn't even be in the top 20.
The decision means companies like SpaceX would not be eligible for inclusion in the S&P 500 until at least one year after its listing and would also need to satisfy the index’s existing requirements for profitability and public float.
Sudden outbreak of common sense.
SpaceX is going "public" with only 4% of the stock being sold to outsiders. The S&P 500 requires a 50% public float. That may disqualify SpaceX for a long time.
Although GOOG and META are listed, despite control being held by insider shares of a different class. There was a time when the NYSE did not permit companies with more than one class of stock to be listed on that exchange. (Except F, FORD, which predates the NYSE). That was lost some time around 1990 or so.
Matt Levine wrote that flouting the rules could be fine if there were market alternatives (he said otherwise it would be a market failure). I am pretty sure there would be market alternatives appearing, at least in the ETF tracking space, and that would erode the brand.
It would be a bad show to have SP500 (cheating rules) underperfoming SP500(proven rules). It would also be a bad show with many financiers and even influencers calling out the corruption.
I for one would be advising newer investments in the proven rules ETF trackers. I also think there might be lawsuits from people who had contracts tied to the old rules. After all if you need to sell to transfer to another vehicle there might be tax consequences.
PS: It is a shame that multiple classes of, non floating, controlling stock do not cause penalties in terms of market cap weight. I will research the issue.
I know an ETF is not an index, but the relationship is tight enough for practical reasons.
GOOG and META are listed on the Nasdaq, as far as I know, hence the four letter ticker, so maybe NYSE still has a mono-class requirement. That's something worth knowing, I avoid investing in companies where my stock isn't the same as everyone else's.
This seems a sensible thing to do. If you change the rules on how things end up on your index, you force everyone using that index to reevaluate it. Your index is now perceived as more volatile (and probably is), and all the finance people need to reevaluate the risk of their index funds and decide if it is now 'growth', 'high growth' or whatever bucket it belongs in based on the new risk profile. And then all the portfolios need to be rebalanced. Which all takes time, more time than was being proposed. The sensible thing to do is to create a new index with the new rules.
> sensible thing to do is to create a new index with the new rules
It depends. Indices aren’t funds. They aren’t meant to balance investor interests. They’re meant to communicate some metric about the market.
The S&P tells you how big companies are doing in an index optimized to balance representation against trading cost. So in 2005, float was taken into account for weighting (versus just market cap). This made sense. Also, since the start, the S&P 500 has been a committee-based index. Not rule based. This has made it successful; if you want stable and unchanging, you never went for the S&P 500.
The S&P 500 may not be a fund itself, but Standard & Poor's is a business whose ability to sell services is correlated with the continued relevance of the S&P 500. It absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis.
It seems entirely reasonable to say: "if we make a certain decision, we correlate both our reputation and a nontrivial portion of the U.S. economy with the whims of one of the most volatile personalities in industry, and we should likely pay attention to this trial balloon that shows such anticipatory fear of the decision that we might lose our reputation as an index altogether."
> absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis
As a business, sure. As a committee, it’s still a deeply technical process. I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault.
> and a nontrivial portion of the U.S. economy
This vastly overstates the amount of assets tied to the S&P 500. It’s a lot. But it’s a strong minority of equity exposures.
I know folks who have been on these. They don’t have tenure. But they’re basically emeritus. If S&P wanted to do something that would cause chaos, it would be fucking with those folks because they made a decision that looks bad.
It’s a public benchmark fund that has much of its value based on its decisions being publicly stable and publicly consistent.
Who would want to invest in a benchmark fund with arcane(the literal term as opposed to mundane) rules that were privately decided? If your statement is accurate it sounds like moving out of such a fund would be prudent. I feel like it’s not accurate since they are sticking to their guns and not changing the rules to benefit oligarchs like Musk such as Nasdaq is doing.
> Who would want to invest in a benchmark fund with arcane(the literal term as opposed to mundane) rules that were privately decided?
There are lots of rules-based funds. S&P is transparently committee based. It’s why dual-class new entrants are banned, but Google and Berkshire are grandfathered in.
There is a genuine debate on rules versus committees in the index world. But S&P has stuck to its guns as a bastion of the latter. And it works. Everyone picking the S&P 500 over its competitors chooses that.
> Everyone picking the S&P 500 over its competitors chooses that.
I'm fairly confident most people deciding to allocate to s&p trackers have no idea about rules-based vs committee-based governance. They just pick the default. And that default can quickly change if the S&P starts making weird/unpopular decisions in a highly publicized situation.
> most people deciding to allocate to s&p trackers have no idea about rules-based vs committee-based governance. They just pick the default
A lot of retail goes into S&P lookalikes. And at the end of the day, they've consistently picked one over the other.
> that default can quickly change if the S&P starts making weird/unpopular decisions in a highly publicized situation
Unlikely. Nobody has dropped NASDAQ 100-tracking funds. If anything, these guys will see long-term net inflows due to this move. S&P probably would have if they’d changed rules—this was an econometric, not business, decision.
There's overlap between strong minority and nontrivial, so not sure how it can be vastly overstated. Do you have numbers you can add to this, or any explanation of equity exposure etc?
The market cap of the S&P 500 according to Google is ~$65T. Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. That's a big deal.
The rules around index inclusion exist for a reason. Too much control in one person's hands (which SpaceX has), too small a float (so you don't get price discovery), lack of a history of financial performance and minimal trading days just don't give investors confidence and, like it or not, investment decisions are made based on the index. If you want to argue against passive investment, well, good luck with that.
I think a lot of people have this weird idea that what we need is some theoretically unfettered market for "true" price discovery when it's actually regulations like this that create markets. It's like a libertarian brain worm.
I don't think anybody wants these mega-companies out of the index, specifically. They just don't see why rules that exist for a reason should be suspended when the net effect of that is that investors have less information and there is a lot of forced purchasing. If you have confidence in your IPO, let the market decide what it's worth without trying to fix the price because what they seem to want is for insider lock-ups to end about the time we'd otherwise be getting normal price discovery. Kinda weird.
Investor confidence needfs to be managed by creating a stable, regulated market.
> Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia.
This is a common misconception. The S&P 500 weights allocation by float-adjusted market cap, not by total market cap. In the case of SpaceX, they are planning to float ~4% of shares at IPO. Even if SpaceX was added to the index, its index weight would be based on that tiny float, and at a $1.75T valuation it would be treated as roughly a $70 billion company.
SpaceX weight would be ~0.125% of the index, not ~2.5% as you imply.
Before the changes, the Nasdaq-100 index was total market cap-weighted not float-weighted. Once a company crossed 10% floated shares, the company was added to the index at full weight.
Nasdaq's new system is a hybrid of float-weighted and cap-weighted. If a company has below 33.3% float, its weighting is 3x float. Above that, it's cap weighted. This allows a gradual fade-in of the company into the index.
It's a better system than the previous one, and in Nasdaq's own words, more conservative.
For the Nasdaq-100, SpaceX at 4% float gets 3 x 4% = 12% of its market cap counted, which is $210B not $1.75T. Still <1% of the index.
Also, the multiplier is 3x, not 5x. Nasdaq proposed 5x, but after feedback, this was reduced to 3x. The new thresholds are 3x and 33%, not 5x and 20%.
Price discovery isn’t “making up” a number it’s discovering a number that meets a specific criteria.
Critically it’s not simply averaging a bunch of made up numbers. I may think gold is worth 1,000$/kg but if nobody is willing to sell me gold at that price then my “made up” number has zero effect on the market price.
The 409a has a lot of words and numbers to justify a particular valuation. It's not made up from the ether based on nothing. You can disagree with their reasoning and come to a different number, but you need to show your work if you want anyone to give a shit about your made up number. How many satellites have you launched this year? What's the going rate for a kilogram to LEO? Who are the competitors and what do they charge? Things like that which aren't magic made up numbers.
That’s total addressable market. It’s claiming that AI products they could build could be that amount. It assumes they gain 100% of the market which techbros are basically claiming is most current human effort. It’s stupid, but not what’s actually driving the price.
They are making more revenue off satellites than nearly every current AI subscription today put together. The launch capacity and growth in space based applications are the real company, everything else is to line Musks pockets and have markets subsidize his dumber projects.
It’s a shell game. I believe in their Space based products, but I’m not touching those investments until the market levels out.
> The 409a has a lot of words and numbers to justify a particular valuation
That's tangential. The valuation is based on supply and demand, nothing else.
Amongst other things the supply part of the equation will be low because all these companies are only to make a very small proportion of their shares available on the public markets.
> The 409a has a lot of words and numbers to justify a particular valuation.
Wow, you should educate yourself on what 409A is and how it gets created before writing something like that, you'd find it in the dictionary under the definition for what my original comment was :)
Once you have an index, you can offer all sorts of products around it.
-You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc)
-A fund manager can use it as his benchmark and you get to see if he is good or not.
-If its a factor index you can now use it for risk management and return attribution.
The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.
> let's not pretend that inclusion in the index doesn't mean real money is at stake
Straw man. Nobody claims this. The point is (a) the state of decisionmaking was misrepresented for clicks and (b) the effects of a decision one way or the other way way overblown.
Hating on Musk sells subs. That's fair and, frankly, deserved. It doesn't mean we need to get misled chasing that high.
They have to be rebalanced every quarter regardless. And I'm not sure how many people would actually sell due to the inclusion of a single company. They're very loud about it, but no evidence that this is causing a significant amount of selling.
At a fundamental level, an index is supposed to reflect the market. If the current market is IPO-ing unprofitable companies at absurd multipliers, the index should reflect that. Because that is the market.
The longer major indexes exclude these companies, the further the index strays from representing the market, and the worse they do their core job of tracking it.
It's not the index's fault that market is pushing out overpriced and unprofitable companies.
Indices are supposed to reflect a part of the market. That's why you have all of S&P500, the Dow, NYSE Composite, and Nasdaq Composite (and several others) in the US — They each reflect different attributes of the market as a whole.
As it stands, it's clear that the users of S&P500 are not interested in the performance of the parts of the market made up of overpriced (and potentially highly volatile) IPOs.
The problem with your framing of "users of S&P500 are not interested overpriced IPOs" is that it conflates two fundamentally different things: what an index describes vs what investors prefer. The moment you start filtering out parts of the market based on investor appetite vs market reality, you stop building an index and instead start creating an actively managed product. That's active investing. It's no longer an index.
The S&P 500 is used as the benchmark of the market by practically everyone. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know. If the benchmark that everyone uses as a market proxy is systematically excluding a substantial part of the market, then the gap betweeen "the index" and "the market" has real consequences.
You can't have it both ways: Either the S&P 500 is a market proxy, in which excluding parts of the market is a problem; or it's a curated slice, in which everyone needs to stop it as the default benchmarket for the market.
An index is an index. It works fine as an index if it excludes one or two stocks. People seem to forget as well that this is a question of waiting a single year before it including the stock. It is literally just long enough to make sure the price settles, it's not some catastrophic thing.
It's more than that. None of SpaceX, OpenAI, nor Anthropic will meet the criteria, and they will make up a significant part of the US stock market. Each of these companies is heavily investing their cashflow into growing the company and are unlikely to be profitable many years.
The inclusion criteria prioritizes companies that extract their cashflow into profit, and excludes companies that invest their cashflow into growing the company. For example, when Jeff Bezos ran Amazon he described his company as "famously unprofitable, And that is a conscious strategy and an investment decision." Amazon only joined the index in 2005, nearly 8 years after IPO, even though it was a significant member of the stock market at the time.
"The inclusion criteria prioritizes companies that extract their cashflow into profit", in almost all cases, yes. But if you want to buy into these newer stocks there are various high growth indices you can buy, no one is stopping you. If you want to buy into only one or two of those stocks then you can. It's a free market for stocks and it's a free market for indices. There's no regulation that says the S&P has to include certain stocks.
The issue is a contradiction with what S&P 500 claims to do vs what they actually do.
S&P 500 claims to be the "best single gauge of U.S. large-cap equities". But if they exclude high-growth no-profit large-cap equities such as (Anthropic, OpenAI, SpaceX) from their index, then S&P is doing a poor job at what they claim to benchmark.
It's not not an insignificant oversight. The valuations of (Anthropic, OpenAI, SpaceX) total to ~5% of the total US stock market.
> S&P 500 claims to be the "best single gauge of U.S. large-cap equities"
Right...
> But if they exclude high-growth no-profit large-cap equities such as (Anthropic, OpenAI, SpaceX) from their index, then S&P is doing a poor job at what they claim to benchmark.
So it comes down to a difference of opinion between Standard and Poor's and tristanj. Go make the Tristanj500, include these companies, and make the same claim - "the actual best single gauge of U.S. large-cap equities". No one's stopping you.
It doesn't conflate anything. The inclusion rules weren't given to us by God, they were created by humans because they thought, rightfully, that people will be interested in that as a product ("prefer"). As the market changes, the product can be adjusted.
Lastly, there's no such a thing as a real "market proxy", except the whole market. If you scope any subset of it, you're making some inclusion and exclusion rules.
The S&P 500 is primarily a benchmark index, not a list of approved stocks to invest your 401k into. The GP is conflating the two. GP is claiming there's a subset of stocks that people don't want to invest in, and these should not be included in the S&P 500. Sure. But, per the S&P website, the S&P500 was created as a benchmark of U.S. large-cap equities. On their website, S&P advertises it as "the best single gauge of large-cap U.S. equities".
The S&P 500 index was created in 1957. It was created decades before the first index fund (by Vanguard), which copied the index in 1976.
The index is intended to follow the all of the largest large-cap U.S. equities, not pick and choose which ones to invest in. GP is arguing that many passive investors, who blindly follow the S&P500 index, don't want to invest in these upcoming unprofitable mega-caps. That's not how the index investing works, that's picking and choosing approved sectors of the market, which is active investing. If you want active investing, buy an active investing product, don't buy a fund that copies the benchmark index.
> The index is intended to follow the all of the largest large-cap U.S. equities, not pick and choose which ones to invest in.
This particular piece is incorrect. S&P has preexisting rules to pick and choose which large-cap equities to follow. They had a discussion about whether to drop those rules in order to become a more accurate benchmark, and they chose to stick with what they had been doing.
Regardless of what they say they were doing (or what they’re trying to do), the fact that they changed nothing means that what they had been doing is the same as what they are doing now, ie, picking and choosing stocks at the risk of diminishing their benchmark capabilities.
> what an index describes vs what investors prefer
What makes you think S&P 500 did not become the most popular index (instead of full market ones) because of the rigid entry criteria and and rules for weights.
Amongst other things the weighting is not even based on the market cap.
No, an index reflects a specifically defined subset of the market. The S&P 500 is very much not trying to include the entire stock market. There are more than 500 public companies...
I feel like a lot of people discussing here have no clue what they're talking about, they just have an opinion - which, combining both, most likely means it's an opinion they did not form themselves.
The rules for index inclusion absolutely make sense in many ways.
What a pleasant surprise. I was positive S&P would get strongarmed into the bamboozle like Nasdaq but it seems they have a bit more integrity. Good for them.
I think key difference here is that Nasdaq is also the market. Where as S&P is external. From this view them manipulating their own market which they profit in various ways actually is somewhat more questionable...
Incentives are entirely different. And really now I am starting to think that Nasdaq maybe should not have index it runs in the first place...
Yeah, this has taken me several readings to understand, I guess because I hadn't really dug into it or thought about it, and also a lot the articles talk about "stock exchanges competing for SpaceX's business".
This whole story is about Nasdaq (company) specifically dangling inclusion into the Nasdaq-100 (index) as a means to get SpaceX to list on the Nasdaq (market). They're uniquely able to do this by owning a market and also an index that people care about.
NYSE couldn’t really do this because its own indices don’t matter much. FTSE Russell could theoretically make FTSE 100 inclusion easier to help attract a company to list on the London Stock Exchange, but SpaceX choosing London as its primary market would be odd. S&P Dow Jones Indices has no equivalent incentive, because it doesn’t own a listing venue; its main asset is the credibility of the S&P 500.
In all, this entire story has been about Nasdaq specifically being willing to weaken their index rules in order to attract SpaceX to their market.
Trading of publicly listed stocks happen on stock exchanges, Nasdaq is one of these. They make money by charging fees for companies to publicly list stocks. But also charging fees from anyone who wants to directly trade there. Say stock brokers who allow smaller customers to trade via services these brokers offer.
So Nasdaq owns the company which facilitates this trading of stocks. But they also own the company which says what are 100 most important companies on that market.
Now they changed rules to get big new most likely popular stock on their market. This could at least maybe get some new brokers in. Or make them in general more desirable market to be connected to and thus get fees.
I am not just sure if there is even more fees in some part I don't know there...
Didn't Nasdaq change its rules specifically in order to get SpaceX to list on Nasdaq? Not really sure why other funds would follow them since SpaceX can't list on all of them.
Having lived through a couple big market busts over the past 30 years, it's interesting to see that almost all of them were caused by a loosening of standards.
e.g.
- DotCom boom was letting companies IPO even if they had no revenue
- Great Recession was due to loosening credit restrictions for mortgages e.g. giving people NINJA (no income, no job) loans
Nasdaq changed its rules recently so SpaceX can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days.
The market is more unpredictable than it’s been in a long, long time so I hesitate to make a firm prediction but to me the odds that SpaceX will be a successful IPO over a 3-6 month window are significantly lower now. S&P inclusion basically requires funds to hold a position by default, and per their own estimates $20tn of assets are indexed/benchmarked to the S&P.
Not OP but I will weigh in. The numbers for SpaceX were not looking great, they are burning cash faster than Starship crashing into the Indian ocean. The idea was that with a fast indexing, this would be mostly irrelevant as retirement funds would automatically buy into the IPO after 15 days thus bolstering the company before any sanity would prevail on the markets.
Now that they have to wait a year for that point, that cash burn is going to work against them fairly heavily. There is also something like $20 billion of debt they have to pay back in the next 12 months that might not be covered over so easily now.
That said, SpaceX and a lot of Elons companies have had figures that look terrible for ages, and yet they keep manage to pull rabbits out of the hat. So who knows. Maybe they sell a bunch of assets, they have more than enough to cover the gap.
The real issue is that existing shareholders will all be eyeing each other wanting to exit at the highest price it'll ever be. That's a lot of selling pressure.
I can't imagine many people seriously believe SpaceX is a business worth 1.75T.
Well, let’s not pretend like Starlink is the same as previous satellite internet providers. No previous providers were anywhere near as fast or low latency. The use cases for Starlink are a lot wider than previous solutions and it can even compete directly for customers who have cable existing service.
I still agree that the company is disastrously overvalued. Even if we consider Starlink to be just as valuable as a telecom like Verizon, that’s only a $190 billion dollar company.
Starling is an entirely different beast. However, it's addressable market is not unlimited. More people live in urban and suburban areas with fixed line internet than ever - the only real customer base is rural, and it still needs to compete with conventional mobile internet.
Starling is indeed very good, but it alone doesn't get spacex to 1.75T
> retirement funds would automatically buy into the IPO after 15 days
This is a misrepresentation of the rule change. The proposed S&P500 rule change was to decrease S&P inclusion time from 12 months to 6 months, not to 15 days.
Depends what you mean by successful. If you mean "the IPO goes ahead" then I don't think this makes a difference (unless Elon cracks the shits at this decision and pulls out, which I'm not sure is an option).
If "successful" equates to number-go-up, then my understanding is that Fast Index Entry would have resulted in, effectively, forced purchase of shares by various funds.
When Fast Index Entry (FIE) was a chance of being introduced, the odds of number go up were higher. Now that FIE has been ruled out, there's a lower chance of number go up because there's no "forced blind purchase" group.
Although it’s good they stood by their rules, elsewhere Reuters points out
> S&P Global said it would modify entry rules for its broader S&P Total Market Index and Dow Jones U.S. Total Stock Market Index, creating a pathway for SpaceX to join those less widely followed indexes.
Funny enough, I'd say that is exactly the place where tristanj's crusade actually makes sense, because those indexes are supposed to track the total market
I wasn't familiar with the Center for Research in Security Prices (CRSP). Apparently they were acquired by Morningstar in February 2026. I also found this press release from Vanguard announcing they will be updating fund names (including VTI) to reflect the acquisition
https://corporate.vanguard.com/content/corporatesite/us/en/c... but nothing on the fund composition or rule changes.
This does seem sensible and I’m glad most of my holdings are in s&p funds.
Just to play devils advocate though, what are the downsides of not having 3 of the biggest 10 in the world not in your fund, if you hold to track broad market performance? Wouldn’t that have a massive blind spot on AI related growth?
Whether or not I personally think ai is over hyped or not, the whole point of these ETFs is to make sure I don’t get a say in the matter, since I’m a terrible stock picker
The new stocks are still going in, they're just going in after a year (the normal rules), rather than 5 or 15 days. The outrage here wasn't that the stocks were going into the indexes at all, it's that they were going in before price discovery, several quarters of earnings, more float, and expiration of insider lock-up periods, which seemed especially sketchy because of the (correct or not) perception that these IPO valuations are inflated and unrealistic. It seemed like they were trying to dump the bag on the public.
It seems the general consensus on HN is that they are overvalued and for sure will collapse in value down the road, I could imagine some frustration down the road if these companies actually become, say, 4T by the time they get added to indices.
What examples have there been in the past of a company which did all its growth in the 1-year period following the IPO, then stopped right when they were added to the index?
> the whole point of these ETFs is to make sure I don’t get a say in the matter, since I’m a terrible stock picker
When you IPO, the company basically can set its own price. Then investors can buy it or not at that price. If you set the price so high it makes your company one of the biggest, it means automatically index funds will buy you at the price you set for yourself, no questions asked.
To prevent abuse from this, index funds that track "biggest stocks" have a waiting period, it was often 1 year. That way, by the time the index buys the stock, the price should be reflective of what the market think it's worth, not what the company decided it was worth when they IPOed.
These ETFs have always done this, because you want to hold the biggest company the market chooses as biggest, and not that the company decided.
I'm certain that no index wants to be known as a bubble index. The AI bubble is going to trash huge numbers of industries and wipe out enormous amounts of investor wealth when the music stops. That bubble bursting will make the 2008 financial crisis look like peanuts.
No, because AI is still unprofitable and could even be called a speculative venture given the crazy spending amounts. Let the speculators take the risk and reap the rewards. When profitability and all the other conditions are met, I’m happy for the greater market to buy in at the price the market determines. I think everything is functioning as designed.
All that wailing and gnashing about Spacex ipo 'forcing' index fund to invest and thus 'loot' poor people's retirements... when all you had to do was just...add a waiting clause.
It can still be a passive fund, not the end of the world.
Index trackers hire talented people surely they can add a waiting clause in their tracks too, just like S&P.
If your index isn't adding waiting clause, it's simply because they are greedy.
Those mega IPOs are the latest grift to unload overpriced shares before the whole AI tulip bubble explodes in everyone's face.
The insiders know it, which is precisely why those IPOs are happening right now. Employees and VCs don't want to be holding the bag. small-time investors will be.
Also, SpaceX is going to unlock more and more on their float at around the same time most indexes will have to buy it. It has been engineered to socialize the losses.
I'm happy SP didn't agree to fast track any of those, unlike VTI and Nasdaq100.
I spent the weekend to rebalance all my retirement accounts to make sure none of them are going to fast track those grifty IPOs. Unfortunately, I cannot do that for my taxable accounts as it would generate a tax-event.
Think it does also need to be said because there's a LOT of amateur investors here: If you're a person sitting there thinking you'll drop even just a few thousand dollars into SpaceX, OpenAI, etc when they list - you probably shouldn't. You'll very likely be losing it and you're the one about to make someone else rich.
They are happening now because the entire space narrative is dependent on SDI, sorry Golden Dome, as a massive heist of taxpayer money for the militarization of space (nobody believes in economic civilian space compute). Like SDI it’s bullshit but like SDI it works at robbing everyone blind.
Think of it like security backed bonds, if you bundle a lot of dud businesses into a single business that is doing ok then as an aggregate it looks fine. So bundling Twitter and xAi into SpaceX covers up that. This is why I suspect they will eventually merge Tesla into SpaceX as it is on the decline now.
The problem is that with the current cash on hand and large loans coming due, they only have a 6 month runway. Thus the IPO to get other peoples money to hopefully fund themselves until solvent.
All IPO's are essentially that, people invest in your business, the business uses their money to achieve more, and if it all works out then future profits can eventually be paid back to investors.
> people invest in your business, the business uses their money to achieve more
that was what normally would happen. However, in the last few decades of IPO, it's become common to have two classes of shares - one being the controlling shares that founders hold on to (with 10x the voting rights), and a 2nd class of ordinary (common!) shares with 1x vote per share.
This means the founders (and early investors perhaps) don't give up any controlling stake of a company at all when the IPO while only selling common shares. Doing this means they get to control the company's operations and financial moves, without shareholder oversight, but obtain all of the shareholder investment cash.
You could argue this can lead to better management, as the founders are more likely to care about the company than professional managers that typically would be hired to manage a public company. I say that is only an argument of luck of the draw, rather than a good argument against the above share and voting right splitting.
Look at facebook/meta - would that company be as invested in things like the metaverse, etc, if zuckerberg weren't in a controlling position?
"Get out of debt" is funny because his whole shtick is always being in debt. But yes, his creditors are probably asking to be paid out so he needs to milk SpaceX. Luckily, he can take the company public with a tiny float so that index inclusion drives the share price through the roof, allowing him to borrow against considerably greater assets.
> What is prompting SpaceX to IPO all of the sudden?
i've wondered the same thing. I honestly think it's going to hurt SpaceX rather than benefit so there must be a reason other than furthering the mission. SpaceX beholden to the market seriously constrains them in my opinion. For a group already tasked with an unbelievably difficult mission, having to please Wall St. seems like a PITA distraction.
That already happened with the merger of X with XAI and then the merger of Xai and SpaceX.
But the reason is because SpaceX is trying to tool up for orbital datacenters. They're building a bunch of solar cell manufacturing plants and Starship launch pads.
It’s literally just a satellite with GPUs on it. SpaceX already has about 100MW of satellites in orbit. They’re making an upgraded version of these satellites, V3, designed for launch on Starship. Making a bigger versions of those with larger radiators (because of the duty cycle) and putting them in sun-synch is all that is required, if it can be done cheaply enough. And Starship, if it works, should be cheap enough as its propellant cost would be less than the fuel cost of using airliners to do transpacific air freight.
Orbital datacenters is just an excuse of a reason to merge the two companies when there’s nothing else tying them together. They won’t actually happen.
SpaceX will run out of things to profitably launch with Starship once they launch Starlink V3 (a few hundred launches per year), and orbital datacenters provides effectively unlimited launch demand. Like Starlink was for Falcon 9, orbital datacenters are a way to fully leverage the insane launch cost advantage and launch capacity that Starship brings to the table.
I see your point. All this launch capacity is coming online but, once Starlink is built out, who is going to buy it? Surely Starlink maintenance isn't big enough [edit: maybe it is, it's hard to get my head around the number of sats]
The datacenters in space thing just doesn't make sense to me. Datacenters get their value from scale which is why they're so freaking massive here on earth. I just don't see any datacenter in space being big enough (unless built over multiple lifetimes) to use let alone profitable/desireable. What am i missing?
It didn't already happen. As you pointed out, people who funded the purchase of Twitter hold SpaceX shares, and this IPO is how they get their money back.
In the summary table of "proposed changes, current methodology, and result", the result column is "no change" for all rows. What rule tweak are you referring to?
Edit: Ah I see it now. Separate tables for S&P cap-based indices and their other indices.
it makes sense for a total market index as it's a "total market" index. Given the purpose of the SP500, it makes less sense but I still see the argument. Grift or not, morals or not, an index shouldn't care. An index shouldn't care any more than Excel should care about the morality of evaluating a formula. It just tracks what it is defined to track. Leave it to the individual index tracking funds to apply a philosophy to their investments.
Keeping newly-publicly listed companies off an index keeps outliers from screwing with the index. It's no secret that companies that have recently gone public tend to be considerably more volatile than companies that have been public for a while.
I see a lot of comments saying things to this effect: "S&P 500 is just a metric/benchmark, not a fund, so it should consider the whole market even if that includes a newly-listed but very large company." And yeah, the S&P 500 is an index, not a fund.
But you know what is a fund? SPY, VOO, IVV, FXAIX, and loads of others. Regardless of what institution(s) manage your retirement accounts, you are almost certainly benefitting from the S&P 500 filtering out post-IPO fuckery.
The irony of all this drama is probably 90% of 401ks (retirement accounts) are in a target date fund since that's the default for most/all. When you get your 401k it figures out when you're going to be 65 and then drops you in a fund that gives you the highest and safest return at the time you hit 65. Target date funds contain all kinds of other funds and are actively managed and drift towards bonds (historically safer). As you get closer to retirement you have less time to make up a downturn therefore the risk level gets automatically turned down.
So the whole argument of taking advantage of retirement accounts with these rule changes kind of falls apart. If you're close to retirement these funds want nothing to do with equities let alone high risk IPOs. If something happens, like a rule change to a tracked index, and all of a sudden the risk goes way up then the fund managers will make an adjustment to the portfolio that gets the risk back to where it was. Further, the SP500 deciding not to change rules doesn't do anything really anyway. If you're far from retirement your target date fund is going to get exposure to these IPOs because you can tolerate the risk and therefore maybe reap the reward.
If you're actively managing your 401k and have everything in say a total market fund or some other investment then you're well enough aware and educated to switch funds as you please. I don't think those people are going to be impacted either because they will/should just switch to a fund they like. If they are negatively impacted then they made the wrong decision.
If you have your own brokerage account and you're invested in a fund tracking an index you no longer like, well, then you need to sell and buy something you do like. I still don't see the reason for all the drama :shrug:
What i think is really happening is people are having a very emotional response to SpaceX because of Elon Musk and the idea of him becoming a trillionaire and Anthropic/OpenAI because of AI and the risk to labor.
I do wonder if some of it is big tech fatigue. A lot of people east of the Rockies are sick and tired of SV, and to them this just feels like the latest round of "big tech in places nobody asked it to go."
I am currently reading a book about the post war history of the Amsterdam stock exchange and it's quite funny reading about the booms and busts.
Although I am in my 40s I had already forgotten a lot- but yeah I was there in the 1990s. Repressed traumatic memories. Dutch consumers really soured on stocks when that house of cards collapsed.
I would say "it is happening again" but at least now we have bots who trade for us in milliseconds (although those didn't save anyone in 2008).
I feel like this drama is another example of the overall society change toward the culture of victimhood. Now it's passive investors outraged about being victimized by stock market index rule changes. The answer is, if you're so upset and impacted then cease being a passive investor. But then the standard reply is "well what about all the retirement accounts and people who just can't adjust?!". Those accounts are in target date funds actively managed for risk anyway so it doesn't matter. For the people who adjust their 401k's as they see fit, well, they should keep doing that.
I feel like SP500 made the right decision because the proposed changes don't really align with the purpose of the SP500 IMO but i'm not a financial expert. The HN drama on some issues is a sight to behold.
It’s popular to trash these IPOs now but I bet if spacex or the big AI companies don’t follow the same pattern as other IPOs and the stocks just keep climbing and making the shareholders a bunch of money, I can’t wait to see people saying stuff like “the market can stay irrational longer than you can stay solvent!” and giving explanations on why they knew this was going to happen all along and why the rule changes were actually a good thing!
This is the right decision. These indices are intended for stable, profitable companies with a proven long term business model. It’s not ment to be a casino.
The market has plenty of other options available for folks that just want to bet the house on red and hope for the best.
You broke the site guidelines in more than one way here, including crossing into personal attack. Please don't do that on HN.
There's nothing wrong with someone sharing a link to a podcast they found interesting. That's normal and fine on HN. What's not fine is attacking other people or criticizing them for ordinary conversation.
No, I'm saying they are hyping up some random podcast while saying sweet nothings. I really don't like empty hype. I want some actual content to posts that actually says something, not just links breathlessly encouraging me to go spend an hour listening.
Not sure where you get the breathless bit from. If you don't want to listen, then don't. If you want me to summarize everything for you and give you the bullet points that is also something that will take more time than I am willing to commit at the moment. You can listen to it, or not. No skin off my back. The irony with some of the commentary is along the lines of "don't listen to influencers" and the like. I provided a link to (what I feel to be) a very worthwhile listen that is the antithesis of the grab-a-headline news of late. I have no connection to this particular podcast and have listened to a handful of episodes over the years on subjects that interest me. This particular subject (Huge IPOs, what is or isn't tracked, what float is, etc) turns out to be a relatively deep domain and there are inherent tradeoffs between different approaches. That's all.
The middle one is the ad-hominem puffery. The rest isn't quite exactly 100% 'of the person's, but still doesn't give me any actual leads into what the content is: its just empty puffery.
No, I'm going to advocate for more than empty posts. I should have some concrete expectations, some reason to click in, beyond "I like this". That's not good enough.
The amount of misinformation around this topic was absolutely nuts over the past few days. Good rule of thumb: if a YouTuber or other influencer was pitching doom and relaying this rule change by S&P as a fait accompli, stop following them.
Contrarily, you can interpret the doom pitches as a necessary political backlash whose degree of panic and whose quantity prevented the change from ending up as a fait accompli.
Public decisionmakers do this sort of thing all the time. They "float an idea", "test the waters", "put up a trial balloon". They see what they can get away with. When the decisionmaker has a strong desire for the change, it may only get rolled back if powerful and widespread public dissent makes itself known, as it did in this case. When they don't really care about the issue, they might cancel it at the first sign that anyone has an issue. We can't know their degree of insistence just based on outcomes in these cases.
> the doom pitches as a necessary political backlash
It was totally misinformed, came well after the public-comment period had ended and had zero net effect other than maybe generating some commissions and management fees for rando managers.
There is bona fide hatred for these companies and their managers. Influencers twisted the facts to channel that for views.
If you’re buying into a tech-marketed fund like the NASDAQ 100 and it doesn’t include a large chunk of the tech market, you’re no longer passively investing in tech. You’re investing in an actively-managed fund.
Historically, companies like SpaceX would have gone public earlier and grown into the index. Recognizing that has changed with multiple $1+ trillion IPO contenders makes sense; as it turns out, I think both NASDAQ and S&P decided correctly.
Actually irrelevant to an index calculation. If your index manufacturer is taking this into account at any level, they're actively managing. S&P predates the modern active-versus-passive dichotomy, but it functions within it in practice, and despite being a leader of committee-based indexing philosophy, they've broadly found success by also being champions of passive management. And part of doing that is rejecting judgement over how the market is weighing this or that.
That would be true IF the stock was already being traded.
All we have at the moment is just Elon saying "I think this is worth $1.5T, convincing a small subset of people to buy shares, and then because of this change, market following funds will be forced to pile in before the market has had time to discover the actual true fair price, thus artificially propping up the price until Elon has had time to unload a load more shares. The rule changes serve only Elon, not regular investors.
Historically, the share price falls sharply after an IPO in the vast majority of cases. In this case, with the asking price masssively over earnings, significantly more than any other company, it should be expected that the price will fall significantly in the weeks after IPO.
Shortening the window before it gets included in the index is a cheap trick to force passive investors to pile in at the inflated prices, in an attempt to artificially boost demand and prop up the share price.
If the company genuinely was worth the valuation being asked for in the IPO, they would have no problems with just waiting a few months before it would be included under the existing rules.
If someone is trying to bend the rules of my passively managed index fund to their will, are they trying to actively manage my passively managed index ETF ?
Historically a $1T market cap with a PE of 20.0 would be achievable with a $50B/yr profit. That seems easily achievable eventually for SpaceX, as it has actual hardware and services and IP.
> Historically a $1T market cap with a PE of 20.0 would be achievable with a $50B/yr profit. That seems easily achievable eventually for SpaceX, as it has actual hardware and services and IP.
It seems crazy to me to make a comparison between a company being valued on it's current profit and then to say it's reasonable for another company to have the same market cap because it could eventually have the same profit.
Your sentence was the direct response to the question:
> Yeah, but is SpaceX actually worth $1T
The question and context of your response was about SpaceX's present value. Given the context, I think my response was absolutely a fair reading of your response.
It does have real hardware, but it’s not in wild growth areas. They’re making their most consistent money from Starlink, which is a solid product but has growth limited by competitors from conventional ISPs with far-superior fiber networks, and the space launch business is similarly not the kind of thing where you get Google/Facebook-level growth curves. That’s not a slight, it’s just different industries: advertising companies can grow rapidly because scaling customers is so much easier than launching cargo into orbit.
The wildcard there is AI, and that seems especially dangerous to project long-term revenue from their current performance: xAI is barely in the market except renting capacity to Anthropic, so you’re gambling that they’ll continue to pay $1¼B/month for what is largely a commodity offering. Even if you’re bullish on Anthropic, that doesn’t mean xAI gets part of their profits, and given the way they blindsided the local authorities there’s a substantially greater than zero chance that they’ll get a major setback if the neighbors win their lawsuits. That doesn’t mean they’re doomed, but anyone estimating their future performance has to factor in some real risks.
Yet, I, a relative peasant financially has been hit by 3 different brokers that I'm eligible to participate in the offering. I would hazard a guess they are not getting the uptake in institutional money they were hoping for.
> I would hazard a guess they are not getting the uptake in institutional money they were hoping for.
I would say exactly the opposite. They (really, Elon) want more retail uptake. This follows a similar strategy that Tesla used. Also, retail ownership is much less likely to be disruptive during shareholder meetings (proposals, objections, etc.).
Yes, they did. In the wake of Enron, Sarbanes-Oxley was passed, for which the 2nd order effect was that companies take years and years longer to IPO. 10-17 years on average since 2010 (it used to be lower). (There are other reasons, it's not purely due to SOX.
The existing investors don't have liquidity. I can't buy a house or pay my bills with shares I'm not allowed to sell. A better exit later is worthless if I starve to death before the exit.
Nitpick: It’s still a passive fund, just that the index constituents are decided actively by a committee rather than by a simple criterion. As you no doubt already know, S&P500 isn’t just taking U.S. companies publicly traded on an exchange, sorting them by market cap, and then truncating the list to the first 500.
Yeah, the rules have kind of made the passive investment active. I don't understand OPs point at all. I don't understand why we suddenly change the rules and rush things, and OP has provided 0 justification for that.
Because the rules are clearly going to result in lots of buying pressure from passive indexes on a large stock with little time for price discovery.
Come on, let's be adults here. Is there a prior example of this on a comparable scale?
It's already well known that passive indexes bleed ~0.5% performance solely to front running and exploitation from the market. This is that writ large.
> S&P wasn't fait accompli, but the NASDAQ 100 was
Sure. Nobody was properly making this distinction in social media, including on HN. Particularly with respect to the differences in scale and purpose between the NASDAQ 100 and S&P 500.
I would't be surprised if the freak-out reaction to SpaceX being on the nasdaq100 and even being considered for the s&p500 was a strong factor in S&P saying no; if so than the histrionics were worth it.
> would't be surprised if the freak-out reaction to SpaceX being on the nasdaq100 and even being considered for the s&p500 was a strong factor in S&P saying no
I would. I know some of the people. And NASDAQ 100-tracking funds have seen inflows, not outflows, as a result of the flip.
S&P management wanted the flip. The econometricians said no, because they're that sort of folk. The influencers get to entertain and drive some fraction of listeners to churn, which I guess keeps the ecosystem fed through commissions and management fees.
The fact that a fast track was even considered is controversial IMHO. People flipping out, especially if their retirement is tied up with those indices, is to be expected. No one wants to be a bag holder for billionaire insiders.
Every rule change is controversial. This one was less so than almost any prior one I can remember–the dual-class one in 2017 (later reversed) generated far more real press. This one was mostly an influencer thing.
sure it's not a given, but I certainly am not confident enough that it won't happen to bet my money in it, which I would automatically be doing if it was admitted to the SP500
Firstly, I think 0.15% might be significantly lowballing. Other commenters I've read trying to low ball it suggested 0.5%, which matches up with my calculations - this IPO is allegedly $1.5T on the total amount, and 25% is up for sale, making $375B. The S&P 500 market cap is $69T, which puts the IPO at 0.54%.
In addition, that's just the initial IPO free float value, and other shareholders will be free to shed their shares after IPO (and presumably, that's where the bulk of index investment funds will actually buy from), so the free float will be higher, pushing up that share even higher.
Sure, in terms of overall market fluctuations, 0.5% is significantly less than a typical day of market volatility, but on the other hand in terms of my current portfolio, as a dollar amount that's significantly more than my monthly expenditure when I'm not vacationing. I don't particularly want to be funding Elon's exit strategy when I already believe it to be a scam. Thanks to S&P's decision, about 25% of my investments are safe, but approximately 60% of my funds are linked to FTSE World indicies, which is changing the rules.
As I stated in another post, this is just a cheap stunt to force passive investors to prop up the price before it has a chance to settle. The majority of IPOs settle on a price below the IPO price in the months afterwards, and never before have we seen an IPO with such a high P/E ratio. This is literally unprecedented, and the sensible thing to do would be to stick to the old rules to allow the market time to discover the true value before inclusion in the indices. At the moment, the valuation is just a number in Elon's head rather than a fair market valuation. Forcing index-following funds to purchase it at the artificially high price is reckless at best and profiteering at worst.
In addition, it's not just 0.5%. It's 0.5% now, and then the same for Anthropic, and then the same for OpenAI, then all the other IPOs in the future. To put that into perspective, most investors would baulk at 0.38% TER for a passive fund and move to 0.12% TER. 0.5% isn't nothing.
SpaceX is not worth $1 trillion, when most of that valuation is based on xAI being worth far more then their already dominant position in the space launch business.
That the rule change was a done deal. The pitch was some shadowy financial cabal forcing everyone’s retirement savings into SpaceX (which would not have been true even if S&P voted to include, but that’s a separate topic).
The top comment and most of its subthreads are run-of-the-mill alarmism.
Most assets don’t follow those funds. And NASDAQ 100 is explicitly tech focused, I support them making the change.
The doomsaying was around most retirement assets. Which don’t follow any single index. But to the extent they do, follow the S&P 500.
The market wasn’t pricing in any rebalancing. Commenters were screaming bloody murder about it. In the middle, I’m sure some numpties generated trading and management fees by switching target funds.
> The doomsaying was around most retirement assets. Which don’t follow any single index. But to the extent they do, follow the S&P 500.
Yes, which is why the news that S&P isn't changing their rules is kind of notable. Vanguard's S&P 500, $VOO, just hit US$ 1 trillion AUM; the next biggest, $IVV, is just over $800B; $SPY is just under $800B.
As they should have. The rules were in flight with a layover time measured in days on assets that are managed on the timescale of years. There was a legitimate reason to act urgently. It's easy to make claims in hindsight but the information on hand it was 100% the right call to protect your investments.
This is not misinformation. Misinformation is saying the proposed rule change and their proximity to trillion dollar IPOs introduced no risk. Please do not spread such misinformation.
It seems to me like there's a fair amount to be concerned about, I wouldn't consider myself an expert on finance by any means so if you have some explanation of why it's not that bad I'd love to hear it.
Two other indices changed their rules to allow these companies specifically. Pensions and retirement funds rely on these indices to have continual, stable growth. Often the people whose money is being invested don't even have control over its allocation into these funds.
Coupled with the precarious state of the economy due to all the money already flowing through AI, changing the rules to throw retirement fund money into brand new extremely highly valued stocks with P/E ratios in the hundreds seems like a recipe for disaster. It reminds me of subprime mortgages.
> Two other indices changed their rules to allow these companies specifically
One of which is the NASDAQ 100, marketed for decades as a tech-focused index.
> Pensions and retirement funds rely on these indices to have continual, stable growth
Pensions build their own benchmarks. About 10 to 20% of retirement assets follow these indices directly for a variety of purposes. The S&P 500 aims for continuous large-cap growth, but that isn’t true for most indices, which seek to replicate something random.
> changing the rules to throw retirement fund money into brand new extremely highly valued stocks with P/E ratios in the hundreds seems like a recipe for disaster
The NASDAQ 100 has seen practically no net outflows due to this decision. And most retirement assets don’t blindly follow any index, let alone any single one. I opposed the rule changes at S&P. But the catastrophising was made for clicks and views. Not to inform anyone.
Like, anyone who actually acted on that brouhaha changed out of an index that isn’t going include SpaceX, incurring transaction fees and potentially tax hits (for non-retirement accounts) in the process, and probably cycling into a higher-fee fund.
So why change? You're not building a case for why this change is needed. Is there even another Nasdaq 100 company like SpaceX? Probably not because it would be an obvious point of discussion. So now we need to add a new 'thing' to our definition of tech, then change our funds to adopt our new definition. To what end, with this haste?
> The NASDAQ 100 has seen practically no net outflows
Is it a fund or just an index? If an index, what are you monitoring when you cite 'no outflows'?
So you are happy with this outcome, but also so upset at the people that evangelized your preferred policy position that you think HN readers should cut them from the information diet?
Seems most likely that the public outcry actually influenced this outcome, so I don't see why the nuances of alarmism about it (imminent decision vs fait accomplit) should nix an entire information source.
> you are happy with this outcome, but also so upset at the people that evangelized your preferred policy position that you think HN readers should cut them from the information diet?
I'm fine with this outcome. I genuinely don't care about HN readers' opinions on this. I posted the original consultation to HN to crickets [1]. It's abundantly clear that people want to use this as a useless vector for griping.
> most likely that the public outcry actually influenced this outcome
Nope. Lots of reasons to show how and why that is the case. From personal connections to the timeline of the decision making. But I'm sure that's how the same YouTube commentors who misled the first time will spin it to great effect...
> I don't see why the nuances of alarmism about it (imminent decision vs fait accomplit) should nix an entire information source
Because they're bad information sources. They're terrific entertainment. And if you recognise that, keep subscribing. But this is in line with the numpties who listen to All In like it's the gospel.
I mean S&P had actually drawn up a lot of the changes, regulations, and paperwork for entrants, so it wasn't a done deal, but they absolutely were considering it, and it was a very real "risk".
Do you think that all the alarm had any effect on the blocking of the rule change? Is the right time to complain about a possible change is after it has been decided?
I could kind of agree with the argument that "well these companies stay private longer so they are more mature" but the float exemption with the seemingly arbitrary calculation to figure out weights completely belies that argument.
It wasn't. It's dumb. But that's different from shady. At the end of the day, the market never priced in the S&P making this decision because the default understanding was a public consultation by S&P goes nowhere. Influencers ran with a consultation being a fait accompli and now anyone saying otherwise is licking billionaire balls.
Yes, I think given that misinfo this was probably the right decision by S&P, everyone would be saying I told you so and screaming about providing exit liquidity.
My prediction is that this will overall end up costing index holders money though. They will ultimately get a worse entry price for SpaceX and the other mega IPOs. Only time will tell.
Exactly. There is this undercurrent of The End Times everywhere, that this is it. This is the end of ... everything that was. When in fact it is not the end times, and the people at those indexes want to exist longer than SpaceX.
That blog post is garbage and fails to accurately convey the paper it is based on.
>I rely on the Center for Research in Securities Prices (CRSP) monthly stock return
database, which contains all common stocks listed on the NYSE, Amex, and NASDAQ
exchanges. Of all monthly common stock returns contained in the CRSP database from 1926 to
2016, only 47.8% are larger than the one-month Treasury rate in the same month. In fact, less
than half of monthly CRSP common stock returns are positive. When focusing on stocks’ full
lifetimes (from the beginning of the sample in 1926 or first appearance in CRSP through the
2016 end of the sample or delisting from CRSP), just 42.6% of common stocks, slightly less than
three out of seven, have a buy-and-hold return (inclusive of reinvested dividends) that exceeds
the return to holding one-month Treasury Bills over the matched horizon. More than half of
CRSP common stocks deliver negative lifetime returns. The single most frequent outcome
(when returns are rounded to the nearest 5%) observed for individual common stocks over their
full lifetimes is a loss of 100%.
>Individual common stocks tend to have rather short lives. The median time that a stock is
listed on the CRSP database between 1926 and 2016 is seven and a half years. To assess
whether individual stocks generate positive returns over the full ninety years of available CRSP
data, I conduct bootstrap simulations. In particular, I assess the likelihood that a strategy that
holds one stock selected at random during each month from 1926 to 2016 would have generated
an accumulated 90-year return (ignoring any transaction costs) that exceeds various benchmarks.
In light of the well-documented small-firm effect (whereby smaller firms earn higher average
returns than large, as originally documented by Banz, 1980) it might have been anticipated that
individual stocks would tend to outperform the value-weighted market. In fact, repeating the
random selection process many times, I find that the single stock strategy underperformed the
value-weighted market over the full ninety years in ninety six percent of the simulations. The
single-stock strategy underperformed the one-month Treasury bill over the 1926 to 2016 period
in seventy three percent of the simulations.
>The fact that the overall stock market generates long term returns sufficiently large to be
referred to as a puzzle, while the majority of individual stocks fail to even match Treasury bills,
can be attributed to the fact that the distribution of stock returns is positively skewed. Simply
put, large positive returns to a few stocks offset the modest or negative returns to more typical
stocks.
>The implication is devastating for index fund orthodoxy: When you own a broad market index, you’re mathematically forcing yourself to hold the 96.6% of stocks that create no value while simultaneously diluting your exposure to the 3.4% that generate all returns.
The professor just told you that investing in any individual stock is a terrible decision and that investing in more stocks means having greater exposure to the stocks that do net a return, creating a puzzle, where diversification doesn't reduce yields, in fact it did the opposite: it increases the yields.
There's also a general fallacy that any index (directly referred to as index orthodoxy) has to be a "broad market index", when in reality there are many competing indices. If someone came up with an index that would follow any investment strategy the blog post suggests and it turns out to work reliably, then people would switch part of their portfolio to that index. "Index othrodoxy" would prevail, because people just need a better index rather than abandoning the idea of an index altogether.
It's also difficult to reconcile with the fact that after fees, most active funds have failed to net higher returns to their investors. This random blog post is basically delivering an active investment strategy on a silver platter that will make fund managers and the people investing into it rich, is this believable? Consider that it's written in a "shocking" AI style, trying to sell you something.
Funnily enough, the ad in the middle of the blog post "The U.S. Treasury collapse is HERE!" is incompatible with the premise of the article, that 96% of stocks are worse than treasuries.
>But even if we use the more moderate 80/20 framing, the strategic implication is identical: If 80% of market returns come from 20% of stocks, why would you construct a portfolio that treats all five hundred stocks in the S&P 500 equally?
The thing is, you don't have to do that, like at all. There are indices like the S&P 500 Pure Value and S&P 500 Enhanced Value that are known to outperform the regular S&P 500. The problem is that they have done so over the long term and long term really means long term. There have been decades where they underperform.
Also, the article is three times as long as it needs to be, it's clearly AI generated.
Edit: Invesco renamed their ETF to S&P 500 Concentrated QVM.
The appearance impropriety is almost always just as deferential as actual impropriety. Missing out on Gains will do a lot less damage than getting caught in a pump and dump scheme
> given that misinfo this was probably the right decision by S&P
The misinformation was almost certainly not taken into account, and it shouldn’t have been.
> everyone would be saying I told you so and screaming
Influencers will scream regardless. It’s what they’re paid to do. The NASDAQ 100 made these changes and is doing just fine.
> will overall end up costing index holders money though. They will ultimately get a worse entry price for SpaceX and the other mega IPOs
There are lots of indices. S&P largely targets those built around mature companies. If you want a total-market index, those exist and tend to rapidly incorporate IPOs.
> Multiple people I know were rebalancing their portfolios way from the big index funds
Hypothetically, let's say the SpaceX IPO is a wild success. Will those people be disappointed on missing out in the returns? In other words, did they rebalance away because of financial numbers they didn't believe in or did they rebalance away because of emotional or philosophical reactions to the company? If they just don't like the company (likely company leadership) then i would guess they don't care how much return they miss out on, they want nothing to do with SpaceX period.
I made a long drawn out comment up thread but i feel like a lot of this drama is due to an emotional response to SpaceX because of Musk, and the possibility of him becoming the first trillionaire, and Anthropic/OpenAI because of AI's risk to labor.
No, it's definitely financial. Something along the lines of SpaceX's valuation only making sense if it replaces the entire productivity of white collar workforce of the entire USA with its AI ventures. If it ends up reaching escape velocity anyway, sure they would be disappointed, who isn't at least a little when they miss some opportunity.
very mature decision by s&p, but at the same time will this not hurt spacex and other big IPOs?
i thought the reason these mega IPOs are coming is because investors have run out of money and they companies need access to broader market capital to sustain. without 401k and other funds, won't this just hasten the bubble burst? am i missing something?
This is why people are freaking the heck out and demanding that all the index funds MUST include the doomed stocks because they're just that important and totally aren't a doomed bubble you guys.
Not all viewpoints are unbiased overviews of the markets just wanting fairness. Some have always been trying to sell you something that's not what it seems, and they can be… vituperative.
> if we need popular sentiment to get companies excluded for being obvious grifts.
I don't understand this argument.
SpaceX is not being "excluded" for any exceptional reason.
S&P has stated, essentially, that SpaceX will be subject to the same INclusion rules as other companies. When (if!) SpaceX has a series of profitable quarters and reaches 50% free-float market cap, it will be included in the S&P 500 index like other companies are. https://news.ycombinator.com/item?id=48414252
Good. Indexes are supposed to be slow-moving, precisely due to their entry requirement of sustained profitability that skews towards mature companies.
All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk.
SpaceX and OAI stock will be available through Robinhood, Questrade and all the other retail investor markets. Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say.
At this moment, there is so so much, publicly available information [1] on the fact the SpaceX IPO is the biggest scandal in the long history of Wallstreet insiders fleecing the "Johns".
A scandal orchestrated and cheered on by the NASDAQ, as well as Goldman Sachs and JP Morgan the underwriters, that if you spend any money on it, you deserve to be parted with your money.
And if you have a 401k...you are forced to buy no questions asked.
This will become such a disaster for retail, that hopefully Goldman Sachs and JP Morgan and the NASDAQ too, will spend their next 10 years in court defending action group lawsuits.
[1] - https://www.instagram.com/reel/DWzTFAEAhSe/
"SpaceX IPO retail offering is worrying" - https://youtu.be/T8e2FbwN7dw
"SpaceX IPO: Nice Try Though" - https://youtu.be/IHD8BDFYyGI
"SpaceX IPO Scandal" - https://youtu.be/8rS3fTbC7TE
"Anthropic, OpenAI Should Not Be Allowed to IPO, Says Ed Zitron" - https://youtu.be/zbKDmkJPVvI
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Two of those YouTube links are to Patrick Boyle who is a very respectable and knowledgeable ex hedge fund manager who dives DEEP into the topic while remaining entertaining. It’s a hilariously outdated take to say that YouTube content guarantees a lack of value or authority.
Patrick B is also a finance professor and most of his presentations (generally) maintain a level of academic rigour.
he got into the youtube during covid because he was posting YT vids for his students, and they just kept sharing them with everyone; he just ran with it
also: he talks deliberately slowly for subtitle and non-english speaker purposes; use the settings to speed him to x1.25 or x1.5 speed
Who cares? Only people who are willing to give their DNA samples to meta and google can access those links anyway.
Of course, they'd also have to be willing to consume the content in the least efficient format imaginable.
And your argument is?
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>> I'm attacking their sources for being youtube and instagram
Bzz..Bzz.- [LogicLint #GENETIC-FALLACY]
Input: “It was on YouTube/Instagram.”
Expected: refutation of claim.
Received: complaint about delivery vehicle.
Where did I say I was refuting their claim? Why would you expect that?
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> if you spend any money on it, you deserve to be parted with your money.
Yet it's already trading at >20% over IPO price on Bitmex
That is leveraged speculation on a future listing before real float, real index flows, or real public market ownership exist. With a 20% premium that is evidence that the hype machine is working, and the best evidence of engineered retail FOMO.
> evidence that the hype machine is working...
Which is exactly the kind of thing that can stave off disaster for years. Just look at TSLA market cap.
Companies are innovating things that significantly enhance human capabilities and people will still find a reason to drag them down. I am not a fan of either these companies. At the same time, I strongly disagree with these doomer scenarios as they are dangerous for progress of humanity.
> they are dangerous for progress of humanity
A tiny bit hyperbolic for someone who's not a fan maybe? :)
Concentrating the cognitive power of AI in the hands of just a few sociopathic Capitalists is NOT, I repeat NOT PROGRESS.
yea but you realize you're posting on HN, right?
Of course? I’m not expecting upvotes or whatever — IDGAF about that. I care about stating the truth in places where truth is in short supply.
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For your own safety do not read or be advised by Ed Zitron. By all means skip the SpaceX ipo if you like: makes sense. But Ed is neither perceptive nor correct historically.
Case in point: a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers: it adds liquidity to a major cliff every IPO company faces: liquidity seeking by insiders on a schedule.
Now it may be bad for axed buyers like pension funds but buy side liquidity coming in to a company is always good for existing shareholders. Reading Ed would make you think the opposite.
>> a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers
I cant believe you wrote this. You are making Ed Zitron case for him. And the lockup period in this case has been reduced to 15 days or less:
https://youtu.be/T8e2FbwN7dw?t=96
https://youtu.be/T8e2FbwN7dw?t=123
> a major cliff every IPO company faces: liquidity seeking by insiders on a schedule.
LOL, so the insiders can dump their shares. This is exactly What Zitron says. Maybe we should have Mark Karpeles' or SBF's opinion on this matter, too.
Also worth noting that other index providers are less principled.
> Nasdaq changed its rules recently so SpaceX can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days
if i had to short 1 of the 3, it would be OpenAI
If I had to short 3 things, it would first be the NASDAQ 100, followed by anything Elon, then the greenback
The company with the best model by far?
Well, joint best.
At the target market caps people are talking about, I wouldn't blame anyone who shorts all three: even if you're optimistic about the value of the tech, monetising is hard, and competition reduces profits.
anthropic's products are much better, anthropic and google will win the AI race, we wont even be talking about OpenAI in a few years when they run out of $ or compute and get acquired. They will be remembered by their Wikipedia page(s).
Have you tried Claude Opus 4.7
There are so many indexes these days and they all have different angles. I don’t see this as being less principled and more it’s the nasdaq 100.
More like its a competition to get the listing -- not dissimilar to Amazon shopping cities for its corporate base. Set up a competition and get the best deal would be my speculation on why it was done (as well as goose the demand).
Yes, it's the same principle that gets you financial advisors who push you into high-fee fund choices that earn them kickbacks. Completely understandable from the PoV of these parties' self-interest, yet entirely contrary to your own self-interest as a customer and investor.
You seem to be confusing "listing" - the stock exchange where a company chooses its stock to trade (i.e. NYSE, AmEx, Nasdaq) with "indexes" - a list of stocks that is often the basis for index funds.
The Nasdaq 100 is not the same as Nasdaq. A company can be in many indexes but only one listing. There may have been competition for the listing but there is not competition between indexes for inclusion.
The implication is that Nasdaq (company) changed the rules for the Nasdaq 100 (index) in order to get the listing on Nasdaq (stock exchange).
Many companies are listed in multiple exchanges. Unilever, Shell, AstraZeneca, BP, and many more.
There was never a competition. It was explicitly designed to get a better "deal" where they wanted to open it.
>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk.
Carvana is the poster child for this. It's astonishing that a company with a history of shady practices, and that has yet to offer a convincing explanation for why it is not a scam, is part of the S&P 500.
Ah, so you'd like the passive broad market index which contains the 500 biggest good companies?
Do tell us if you find one I guess.
No, but how about the 500 that
have been profitable under GAAP accounting rules for at least 12 months
have a public float of at least 10% (so that new investors have some governance rights)
have traded for at least 12 months (and won't have sudden changes in public float or shares available due to lockups and recent listing)
Why is that set of rules particularly good?
Ultimately, it's consistency that's more important with stuff like this (IMO, obviously).
Move slow, fix things.
Would approximately 30 years not have been a long enough time horizon to move on this, or what?
No offense but your responses sound like AI or engagement farming. I think the "why are these rules good" is self-evident to anyone who read the comment.
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> Why would anyone "engagement farm" on HN? That's crazy.
All sorts of reasons! One is that when you reach 1000 karma, you gain the ability to downvote comments.
You seem like a smart person. I'm sure you can think of some reasons why that might be useful.
I mean, this forum is run by a billion dollar startup incubator.
People make farming HN a part of their business model.
This is just silly. HN rewards comments people agree with, not "engagement".
Engagement farming works on social media platforms that reward engagement. Posting engagement bait in HN comments would just result in downvotes.
HN rewards engagement in the form of upvotes. If you make a post or comment with the intention of getting upvotes, you're engagement farming. I hate to break it to you, but there are many people doing that on this website.
Why do you think all engagement farming would result in downvotes? You think HN posters are so keen at sniffing out bad actors that they would never reward them by accident?
It feels like you're being willfully dense about this. I can see why the other person accused you of being AI.
>It feels like you're being willfully dense about this. I can see why the other person accused you of being AI.
No, you fucking idiot. Not everybody who disagrees with you is AI.
"Engagement farming" is a term of art with a specific meaning, basically just the adult way of saying "ragebait". People engagement farming on IG or TikTok are typically doing so by posting deliberately controversial content designed to troll upset viewers into writing upset comments. It is inherent to the technique that it only works on platforms without downvotes.
You don't see anyone "engagement farming" on Reddit either, it's always specifically "karma farming" because farming karma requires positive engagement. Engagement farmers do not care if the engagement is positive or not, the required approaches are completely different.
You're conflating engagement farming and rage-baiting. Engagement can be both positive and negative. I can't find any online sources that agree with your definition.
Here's one that I think sums it up pretty well:
"Engagement farming refers to a range of deceptive practices on social media designed to artificially inflate engagement metrics such as likes, shares, comments, and followers."
"Engagement farming employs various tactics to exploit social media algorithms, with the intent to appear more popular than actual user interest would warrant. Examples include posting controversial content to provoke emotional responses, repurposing successful posts without originality, and using automated systems for mass liking or following." [1]
If you don't think this is happening on HN (especially to mass downvote posts) you're naive.
[1] https://www.isme.in/engagement-farming-prof-sriram-prabhakar...
Maybe look at how people actually use it? Not sure why the Indian blogspam is worth looking at.
"Engagement" has a specific meaning. It's different from "like farming" or "karma farming". Some platforms specifically reward engagement, making it a reasonable thing to farm on those platforms.
> using automated systems for mass liking or following
Clearly the author was clueless, this has nothing whatsoever to do with engagement farming.
To me it's more about how real the financial strength of the company is versus being propped up on some shady accounting. Not sure if that was the case with Carvana or any of these new IPOs, but personally I have my nest egg in the S&P and don't want sharks abusing the index for their pump and dump exit strategy.
> Ah, so you'd like the passive broad market index which contains the 500 biggest good companies?
And a reminder: not just "good" now, but good over time.
Good companies turn bad (Apple almost went bankrupt), and bad companies can become good (see again Apple; in the UK, recently Rolls-Royce).
Rolls-Royce the luxury car or power plant manufacturer?
Aerospace/defence:
* https://en.wikipedia.org/wiki/Rolls-Royce_Holdings
90 in 2022 to about 1100 now:
* https://www.londonstockexchange.com/stock/RR./rolls-royce-ho...
Interesting interview with the CEO, Tufan Erginbilgiç:
* https://www.youtube.com/watch?v=yYkBpzq5Sqw
Power plant - the car company is owned by BMW
That's what "value funds" do.
But do they historically beat the S&P 500?
Yes, but not in the last decade or so.
In any case, it's been only in the last years that we have had an explosion of a huge variety of funds with low fees, so some of these product strategies need to be retro fitted for a time they did not exist.
Please cite funds that beat passive indexes over long periods of time.
Medallion, Renaissance, Dodge, Sequoia.
But I don't think that's what you were really asking.
Interesting those are value funds? Of course that was not what I was asking or what this thread was about.
Your question is still not what you're asking. Passive funds do nothing but follow indexes, so what you're really asking is "have value indexes ever beaten the general sp500 index?".
And the answer is yes, e.g. both the S&P 500 Value Index and S&P 500 Pure Value Index have beaten the S&P 500 historically.
Small Cap indexes, have also *significantly* outperformed the S&P 500 from 1927 till today (a compounded 13.1% annual growth).
Value stocks represent companies whose price-to-book is particularly attractive compared to the underlying business, and since investing is tied by the sell/buy ratio, buying at a discount improves it. Needless to say, value stocks require more risk, and risk is directly related to potential growth.
Small caps, are both riskier and have a much larger room to grow, they have significantly outperformed the SP500 since 1927.
Neither value nor small caps have done well, in the last decade, as the financial markets have multiple times provided better returns to a small but heavy portion of the market that was neither risky nor at any point had particularly attractive price-to-book ratios.
No you’re just assuming what I am asking. You have proven my point so thank you. No examples and lots of buts and exceptions. We are probably talking around each other to some degree but that’s ok!
Not sure what I have proven.
I gave you numbers and names of indexes that have historically beaten the S&P 500 index in the value category.
All of those have one or more ETFs that replicate that index.
There's an extensive amount of scientific literature talking about the outperformance of value and small caps to the broader market, starting from Nobel price winning Eugene Fama.
No you provided examples with but statements and a few of the examples are private close ended funds.
You can just pick stocks - if you pick a fairly low number of large stocks in broad categories with correct weight, you will track the index.
And the relative values of those stocks will shift requiring rebalancing. You might be able to do that with new dollars for a while but hopefully, eventually, the swings are much more than new dollars and then what? Pay capital gains tax on sales to rebalance? Convince yourself the new random allocation is fine?
I thought the point of index funds weighting by market cap is that they don't require rebalancing, because the weight of stocks in the index exactly tracks price movements. You just keep holding the exact same number of shares, and more valuable stocks automatically take up more of your portfolio.
Yes, this is one of the benefits of a cap-weighted index fund.
It doesn't eliminate the need for the fund to rebalance, because of companies moving in and out of the index criteria.
But it certainly vastly reduces the need of the fund manager to trade.
(Also, stock buybacks and new share issuance should in principle not change a company's index weight, but in practice they sometimes do.)
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If you pick stocks with the correct weight to track the index, you're effectively running an index fund. And so you don't have to rebalance to keep tracking the index.
1 If you never rebalance, you're never adding new stocks to the index, nor removing stocks that do not belong to it anymore.
2 You need to rebalance to take corporate events into account: new stocks, buybacks, dividends, etc...
You can add stocks whenever you put money in. Whether that's because you got your paycheck or a dividend or some other income is kind of irrelevant. And you can remove stocks when you take money out. But you probably shouldn't start selling one stock to buy another just because their prices moved, unless you have information that lets you time the market.
But then you wind up with a portfolio that isn't balanced and isn't tracking like an index fund. An index fund doesn't simply buy a flat amount of stock and hold it, they buy stock in proportion to the relative weight of the exchange. Which is always moving
Market cap weighting is special. If company A has 500 shares, company B 500 also, than a fund that has 5 shares of A and 5 of B is market cap weighted.
And what happens if company A issues more stock? Company B is delisted? Company C is now listed? Company A and C merge? Company A spins off it's most valuable side business into it's own independent listing company?
Most transactions just getting the results is all you need
This is only true if those 500 shares had identical value, as market cap is the number of shares x the price.
They do have identical value.
500 shares of company A is worth 100% of the market cap of company A.
500 shares of company B is also worth 100% of the market cap of company B.
So if you have 5 shares of each, you'll have 1% of the market cap of each, even if one of those companies finds the cure for cancer or turns out to be a money furnace.
Indexes rebalance frequently. The "correct weight" today, won't be the correct weight in a year.
What are you talking about? Those index fund are constantly rebalancing. This is why you buy an index fund, so you don’t have to constantly rebalance your portfolio.
Philanthropically-minded people will move the winners to a donor advised fund which gives FMV write off without ever paying capital gains.
With index funds you never have the strong winners to do this with, and so giving is far less tax-efficient.
I don’t think this is correct. Gains historically accrue to a small number of companies in a given time window. If you buy all the grocery stores, you’re exposed only to sector risk, if you pick one or two, you’re also exposed to the risk those companies don’t contain the “winners”.
I suspect the number of picks you would need is surprisingly small to reach high parity with the S&P.
If you don’t pick the right grocery company, you have a shot at picking the right telecommunications company. You pick fewer winners, but you’re also picking fewer losers.
The real reason to do this is because you want to avoid specific companies that are inside the index. You would only do this if you felt confident in your ability to avoid investing a lot of capital in losers. Even if you’re great at avoiding the telecommunications loser, you might be worse than average at avoiding the loser in other sectors.
I don't know about the typical HN contributor but I personally lack the cash to but all the stocks in the S&P. There are 503 stocks tracked in the S&P 500 index. It would cost about 2.8 million USD to buy 100 shares (one board lot) of each if you were naive enough to weight your purchases that way. If you were to weight the stocks differently (eg. total market capitalization of each company) the amount would be higher.
Or, I can pick up 100 shares of an index ETF for a few thousand and have someone else do all the work for me including rebalancing and doing all the other required calculations (lot tracking and cost basis calculations etc.).
Trading in lots of 100 hasn't been required since I dunno, the 90s?
Assuming you're in the US there are several competent brokers that sell fractional shares. Any broker will do lot tracking and cost basis calculatioms for you, they're required to.
Rebalancing might be a pain, yes. I'd bet the drift isn't too bad most of the time, but it's probably effort every time you add or remove money. You'd want to build a tool to tell you how to add and remove to get closer to the index. If you can get the index weights and your holdings in a machine readable format, it would seem pretty tractable, but it would take time to setup; there's a reason funds have expenses, but index fund expenses are small.
I'm 100% invested in funds because it's a lot less work, but if you felt strongly about excluding certain stocks, I think it's pretty doable for say S&P 500. Tracking a total market index, or an international index would be more challenging. Bond indexes are also challenging to track, even for bond funds.
Interactive brokers offers fractional shares I'm sure other brokers do as well.
ESGV
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Im pretty sure Enron was in there in the past as well - 7th largest by revenue... that would make Carvana seem like nothing.
To answer your question honestly though -- the inclusion is mechanical based on criteria not policing based on opinion. Carvana being a history of shady practices is your opinion... (I would agree with you)
My opinion, yes. But if someone said they had invented anit-gravity, then showed you a bowling ball "floating" but with a sheet covering any potential support, you'd be pretty suspicious. And if they refused to remove the sheet, and had previously been convicted of fraud, you'd probably be extremely suspicious. But it would still only be your opinion until the sheet was removed.
But what if your dad had a closely-related sheet company that you regularly transacted with but isn’t public because he was barred for life from giving public demonstrations but owned tons of shares in your demonstration and sold millions of dollars worth on a daily basis?
Surely then it would ease your suspicions…
why go that far? herbalife moto is probably "we're a pyramid scheme scam" and they are 45% vs sp500 25% for last 12mo.
you'd better of investing scam500 than sp500 nowadays.
Herbalife has decades of profits from selling wannabe Herbalife distributors a dream of financial independence they'll never achieve though, which might be unethical but is a bit less likely to lose your pension fund money than a company accused of getting 73% of its earnings from a deal with a convicted fraudster...
Whenever someone says nowadays, they're highlighting recency bias. The goals of holding a broad market ETF are diversification leading to sleeping well over the long term (at least to me).
How well do SCAM500 stocks do over a time period that includes two recessions, compared to SP500 ones?
I've no doubt that the short-term gains during a bull market on all sorts of garbage are significant.
Crime pays. But when you go that far, why stop at investing in scams? Surely you can make money faster by robbing old ladies at knifepoint?
It's a matter of latency vs. throughput.
the discussion is Old Ladies At Knife Point LLC being in the stock exchange and in indexes.
Please elaborate why caravan is a scam?
See my reply to @rtpg. The short answer is that it is believed they are selling high-risk loans to a company they control, making it look like the publicly traded Carvana is some kind of miracle in the car industry while offloading the risk to anonymous shell companies.
Time will tell if it’s a ponzi or not. I am not fully convinced but it will be interesting to see, the family dynamic is always a bit suspicious and especially how they were at the end of a rope post Covid.
https://en.wikipedia.org/wiki/Carvana#Controversy
"In January 2025, short-selling investment firm Hindenburg Research published a report titled "Carvana: A Father-Son Accounting Grift For The Ages," in which it disclosed a short position against the company. The report alleged that Carvana's financial turnaround was a "mirage" propped up by accounting manipulation and lax loan underwriting."
"A class-action securities fraud lawsuit is proceeding against Carvana, its founders, executives, and underwriters in the United States District Court for the District of Arizona."
(i have no opinion on the matter, just functioning as your google)
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>...if they indeed are running a ponzi it would be surprising it could last so long.
There's a practice in the loan industry called "pretend and extend," which basically means endlessly extending credit to lendees who are behind to avoid acknowledging the loss. Remember, in Carvana's case the loan buyer only exists to take on debt, not be a going concern. I think much of the market actually realizes Carvana is a scam, they just see that it is a relatively sustainable one as long as the government doesn't step in. And they don't see that happening, particularly with the current administration.
Madoff’s scheme ran for nearly 15 years, starting in earnest possibly 20 years before that.
I think “long” is very relative to the scam.
Carvana has been written about in the WSJ in glowing articles, that now have shifted to a questioning tone. This may be that inflection point.
https://hindenburgresearch.com/carvana/
what's the argument for it being a scam?
They're an outlier in the industry in terms of profit per car. But they don't actually get revenue from selling cars, their revenue comes from selling car loans. So they're making the additional margin on the financing. They are also famous for not turning down loan applications. So putting the pieces together, it seems like they are selling high risk loans at a healthy profit. Which brings up the question of who is buying those loans. They don't disclose the buyers, but claim that those buyers are not controlled by Carvana or its parent. Given the history of fraud, it's hard to take those claims at face value. The suspicion is that they are selling the loans to family-controlled shell companies and leveraging the stock to finance the scheme.
This is how many businesses operate. You have still not provided example of fraud or scam behavior.
If "many businesses" operate this way, then "many businesses" are committing fraud. You can't publicly claim to be selling loans to an unrelated company when in fact you control that company.
The latter has not been proven and the former is pretty normal for business. We will see how it plays out in the court and markets.
The second law of thermodynamics hasn't been proven either, but I'm fairly confident in it. ;-)
Fair enough, but courts tend to apply a slightly higher evidentiary standard than thermodynamics. ;)
You don't think the last sentence, if proven to be true, is fraud? Or, at the minimum, an example of scam behavior?
shady debt offloading onto its sibling financing entity, which is run by Carvana CEO's father, a man convicted of fraud
> a man convicted of fraud
Most practitioners in the field see that as a very strong signal of future fraud.
At that level they call it financial engineering.
> financing entity, which is run by … a man convicted of fraud
I didn’t think that was allowed.
Commander in chief got convicted in NY before being re-elected, I think everything's allowed these days.
On a fundamental level, the S&P 500 index is meant to be a benchmark of the market. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know all use the S&P 500 as the benchmark of the US stock market.
If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
S&P500 is not a total market index. It tracks a specific kind of large firm, with certain filters.
Fast tracking means that the market likely wont have enough time to find the settled price (especially with the knowledge that passive funds are about to buy), and including a mispriced thing does not necessarily make the benchmark more accurate.
Those filters for S&P 500 inclusion criteria have changed many times. They are not sacred nor set in stone. The question is, do those filters, which were designed for GAAP profitable traditional companies & discriminate against fast growing cash-flow-reinvesting startups that prioritize growth over profit, unnecessarily exclude major players in the U.S. stock market? The S&P inclusion criteria reward companies that prioritize profit over growth.
SpaceX, Anthropic, and OpenAI are all giga-caps preparing to IPO, and none of them will be eligible for S&P inclusion because of the 12-month profitability requirement. At current valuations, all are part of the top 20 largest companies in the US. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.
And you are vastly overstating the effect of S&P500 fast track inclusion, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.
> Under current rules, these fast-growing companies would be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.
> And you are vastly overstating the effect of S&P500 fast tracking, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.
They might never reach 6 months of profitability, let alone 12 months.
> which is more than enough time for the market to find a price
The price markets find would still inevitably be influence by the knowledge that the demand would increase massively in a few months.
> inclusion criteria reward companies that prioritize profit over growth
Or stable and sustainable growth. Whatever else SpaceX, OpenAI, Anthropic valuations are price in extremely optimistic growth. But yeah, I do see a point that including adequately priced growth stocks could be a net benefit but of course accouting for the actual valuation would turn index funds into managed ones.
Thankfully its not an issue at all since there is Nasdaq 100.
Thank absolute Christ none of the companies you just listed will enter SP500 by default. The Risk/Reward is not functionally there to fast track companies and all of the examples you listed are too big to keep coasting on venture capital. Let them be public for 6+ months and let's see where they are at in the eyes of the public markers and then their inclusion can be re-evaluated.
What's the downside for the average pension holder with a 30 year horizon if they miss 6 months of Elon's newest scheme?
My mistake: it was Nasdaq that is being reduced to days, not S&P. Thanks.
> If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
So what's the reason for fast entry specifically? If it's a significant portion of the market and will remain so, it doesn't need an accelerated entry. A benchmark should be conservative about new entrants so that it doesn't turn from a market benchmark to a trend/fad benchmark.
If time validates the valuations the entry will come in time, just like for previous entries.
> So what's the reason for fast entry specifically?
Inclusion in as many indexes as possible is basically the definition of "too big to fail." It's the ultimate de-risk to know that if you fuck up badly enough the government will just give you everyone's money.
Has anyone made sure Elon wasn’t born on Jekyll Island
Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds.
In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the next 5 years. These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.
"Because the index needs accuracy.", and I would argue that include price accuracy not just inclusion accuracy. The S&P is a benchmark that is designed to reflect a subset of the market, and giving only some companies early access to the benchmark changes the benchmark. So if you want a benchmark that's designed to include all the big stocks regardless of age, profitability, etc then go make a new benchmark. The only thing you need to do is convince others to use your benchmark.
"go make a new benchmark" completely ignores how this works in practice. Benchmarks are only useful because everyone uses the same one, you can't swap it out. The S&P 500 benchmark is used as a comparison for trillions of dollars of mutual funds, index funds, and institutional mandates. The further the S&P 500 strays from reflecting the actual market, the more useless it becomes.
Also the S&P criteria have been revised multiple times, it's not some sacred unchangeable document.
> The further the S&P 500 strays from reflecting the actual market, the more useless it becomes.
Here I once again agree with you in part, and disagree in part.
The S&P 500 should reflect the actual market. That is, the actual market of publicly-traded companies with legal requirements for transparent accounting and reasonable expectations of future positive cash flows.
As you wrote yourself (https://news.ycombinator.com/item?id=48408363), "These [mega-cap IPO] companies will likely never meet S&P profitability inclusion criteria for the next 5 years."
At this point in time, I don't think it's reasonable to expect future positive cash flows from SpaceX or Anthropic. There are indeed some reasons to suspect that there won't be future positive cash flows from them.
You want to turn S&P 500 to a total market index. Why? That was never its purpose.
No? Where did I say that?
The purpose of the S&P 500 is to be the "best single gauge of U.S. large-cap equities". That's direct from their website. I never dispute this.
I dispute the fact they claim to be the best benchmark of large-cap U.S. equities, yet have rules that (currently) exclude large-cap equities like SpaceX, OpenAI, or Anthropic.
Sure, but then it comes down to your opinion vs the S&P board's opinion. I suspect (given that there's only been a few days of this getting into the public eye) that more people support the S&P's position vs their critics. But the trade flows will show if people get out of SPX (or SPY/VOO) in the coming days.
My issue is that so many people have forgotten the purpose of the S&P 500 index (i.e. it's a benchmark to reflect the large-cap U.S. equity market), and instead treat it as a list of approved companies they should blindly invest their 401ks into. These people do not want to invest their retirement funds into the upcoming IPOs of the overpriced & unprofitable (SpaceX, Anthropic, OpenAI), and then are arguing the benchmark index should not include these companies.
But at a fundamental level, the S&P500 index exists to track the market. It was created decades before passive investing even existed. These companies are all large enough to qualify as major members of the index. If S&P started arbitrarily excluding parts of the market they find uninvestable, then that's compromising the integrity of the index, and defeats the purpose of the index entirely.
Reading this thread, there is so much confusion happening.
> If S&P started arbitrarily excluding parts of the market they find uninvestable, then that's compromising the integrity of the index, and defeats the purpose of the index entirely.
But they haven't started arbitrarily excluding parts of the market they find investable: on the contrary you are demanding they start arbitrarily change a long established and pretty basic rule to arbitrarily include pre-profit companies. Criteria on non market cap factors including positive earnings and liquidity are defined explicitly on their website along with the subjective "best gauge", which is entirely compatible with the idea it's a better gauge of large market cap company performance if it only includes companies whose market cap is supported by having given the bare minimum indication their business model can be financially sustained, not the ventures whose potential is most hyped[1]
[1]which obviously applies to OpenAI and Anthropic to a greater extent than SpaceX which actually achieved positive earnings as a private company before it pivoted to a model which bankrolls other Elon ventures and ambitions and needed to IPO as a result.
That's a fair point that the inclusion criteria are applied consistently, not arbitrarily. But I fundamentally disagree with their inclusion criteria. It was designed for traditional companies with low growth and high GAAP profitability, not high-growth companies rapidly reinvesting into the core business.
Amazon is infamous for having positive cash-flow yet running near-zero GAAP earnings for nearly two decades, because they reinvested absolutely all profits into the business. They were famously unprofitable, by choice of Jeff Bezos, and he created one of the most successful businesses ever. Under your logic, Amazon didn't belong in the index for most of its most important growth years. Only when it became GAAP profitable, it was allowed to enter.
SpaceX is cash-flow positive in its core launch business. OpenAI and Anthropic have tens of billions in revenue. These companies have found product-market-fit, and clearly demonstrate working business models. But neither of these companies satisfy one specific accounting metric that the S&P 500 requires for inclusion, so they get shafted.
The market has already priced these companies at giga-cap levels, these are some of the largest companies ever created, and that is a clear signal of something. The benchmark index should include these companies in some form, rather than gate them behind an antiquated metric.
I don't think earnings is an antiquated metric for valuing companies though. Other metrics exist to estimate future earnings and attract a different class of investor looking for different risk/return profiles than people wanting to index companies big enough to generate steady returns with fairly high confidence they'll be doing a similar thing tomorrow. If people want to invest in a different type of company from the companies the index was designed to capture they're entitled to do so: if their expected returns are that good you don't need to browbeat indices into changing their entire ethos to get funds involved in their IPO.
Sure, some companies which vastly outspent competitors on growth became very successful profitable midcaps and joined the relevant indices when they did, but everyone else waited their turn (including the ones that never became profitable midcaps because the money tap was their moat)
You can just buy the stock, you know. Nobody is keeping it off the exchanges. Or you can buy another fund that includes it.
Thanks for entirely missing the point. My argument is for benchmark purity, and to not exclude significant parts of the market from the benchmark to accommodate the whims of passive investors.
The benchmark has much more use than just a list of stocks passive investors should blindly follow.
Amazon has been in the S&P500 since 2005.
> But at a fundamental level, the S&P500 index exists to track the market
No, it exists to track a subset of the market based on specific criteria and weights. It's not even based on the market cap of included companies directly.
'S&P Total Market Index' exists to track the market.
> qualify as major members of the index
Not based on the inclusion criteria.
AND even if that were changed they wouldn't be near the top anyway, despite the trillion dollar valuations initially they wouldn't even be in the top 20 by weight.
> and defeats the purpose of the index entirely.
The index has operated based on specific rules defining inclusion criteria for a while. Can we just conclude that it did not become the most popular index despite never being designed to track the full market or be based directly on total market caps.
After all it's the people advocating the inclusion of these companies are advocating an arbitrary modification to the rules just to get them in.
The "total market index" point has been addressed twice now. Nobody ever claimed the S&P 500 tracks all equities. Only you keep bringing it up.
On your claim that these companies "wouldn't be in the top 20 by weight": as I addressed to you other times in this thread, SpaceX float 1 year after IPO would be 50%, giving it an index weight of $800 billion. That places it easily in the top 20 large-cap U.S. companies. The article linked has a chart of forecast free float. Your claim is false.
https://www.economist.com/finance-and-economics/2026/06/01/c...
On "arbitrary modification" of rules: every criterion in the index was itself added or revised at some point. The profitability requirement, the float threshold, the dual-class share exclusion then reinclusion. All these rules were modified. If all rule changes are "arbitrary," so are the existing rules. The only meaningful standard for evaluating a rule change is whether it better serves the index's stated purpose.
The stated purpose of the S&P500 is to be the "best single gauge of U.S. large-cap equities." A company with a $1.75T market cap that ranks in the top 5 by size in the US is, by definition, large-cap. Excluding such a large company is contrary to the stated purpose of the index.
> Where did I say [I want to turn S&P 500 to a total market index]?
Right here:
> Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now.
If it's not a total US market index, then why is the index wrong to not include it?
Edit: and then again here:
> But at a fundamental level, the S&P500 index exists to track the market.
There are indexes which explicitly try to capture the entire market- the Russell 3000 is most prominent, but the Wiltshire 5000 is another one, and Vanguard's Total Market Funds and ETF follow the CRSP US Total Market Index. I believe all of them plan to include SpaceX/OpenAI etc. within a few weeks of its listing, which is what I'd expect from their goal of tracking the total market. Other indexes follow just a few stocks- most famously, the Dow Jones Industrial Average (built during an era of when it had to be calculated by hand every night) looks at just 30 stocks in a weird way(1).
The S&P 500 isn't either of those. It has a list of criteria for inclusion, one of which is profitability. They are sticking with that criteria. If you don't like it, sell your VOO and buy VTI instead.
1: It is essentially impossible to build an index that tracks the DJIA because, since it was done on pencil and paper, it isn't actually market-cap weighted, but is share price weighted, with a correction factor for each stock to account for splits, one stock replacing another, etc. Because of that nature, the weights of the DJIA change minute by minute, so someone attempting to track it would be subject to enormous error.
> Because the index needs accuracy
So you are saying that S&P 500 should be merged with Russell 2000 or rather just become a fully market index to be more "accurate". You do know that's something that exists already, having different indexes makes perfect sense and consumers can pick the ones they want based on their risk profile and preferences.
> most civilization changing companies from the benchmark
It took Google 2 years to get into S&P 500. For Microslop it was 8 years (!). So what's new?
I am saying none of those things. S&P claims their S&P500 index is the "best single gauge of U.S. large-cap equities". That's taken directly from their website.
I dispute this claim, because the (current) rules for S&P500 inclusion exclude companies like SpaceX, Anthropic, and OpenAI. All of these companies are planning to IPO this year, and even if these companies maintain their present valuation for a year, none are eligible for S&P 500. Due to profitability requirements.
Yet these are all U.S. large-cap companies, among the top 20 largest in the U.S., and by S&P's description of the index, should be included. Not including these companies makes the index inaccurate.
> [Google and Microsoft took years go get into the index], so what's new?
Because SpaceX, Anthropic, and OpenAI are $1T+ companies. Google and Microsoft were much smaller relative to the size of the index when they joined.
Best single gauge, not summary. Systematically excluding companies that are large and buzzy yet not profitable is a matter of intentional design to improve the accuracy of the gauge, even if previous companies were not quite this large. Anthropic and OpenAI are great illustrations of why you might want such a design: the bull case for each is that they're going to dunk the other and become the US's primary provider of AI inference, and neither is yet profitable, so by including both of them in the index you're "double counting" investor expectations of how valuable a company producing profitable AI inference will be.
> If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now.
To be clear, S&P 500 relies on float, not total US Market Cap, and Space X will have a tiny float.
Even if it was included, SpaceX would not account for 1-2% of the S&P 500 (more like 0.1%), so even if we reason on the basis of a benchmark, it's not a meaningful difference.
https://news.ycombinator.com/item?id=48407542
Thanks, but should I conclude you agree with my point?
Even if he did, it seems he would keep arguing regardless.
No, because after lockups expire in 6 months, SpaceX float would increase to 40-50% and it's float-adjusted weight would be >1% of S&P. This is assuming share prices remain unchanged, when they could go either way.
SpaceX at its current valuation places it as one of the 5 largest companies by market cap in the US.
Maybe you know this already, but this reads like exactly the kind of reasoning that people looking back at irrational market euphorias point to as a sign things were about to go awry.
The purpose of a benchmark is to reflect the market. If the US economy is pumping out high-growth but overpriced & unprofitable companies via IPOs, at unreasonable valuations, the benchmark should reflect that.
It's not S&P's fault this is happening.
On the contrary. There are many benchmarks, some small subset of which are intended to reflect the whole market.
There are indices for every little thematic and niche corner or strategy or idea, there are broad-as-possible indices, and there are indices with requirements like listed age and profitability.
I'm not debating any of that. This discussion is about the S&P500 as a benchmark, which has an expressly stated purpose of tracking large-cap US equities.
This discussion is about if S&P500 actually achieves this benchmark, when it has (antiquated) rules that exclude large-cap US companies of the likes of SpaceX, Anthropic, and OpenAI.
Benchmarks are governed (to some extent) by natural selection. If the S&P criteria prove obsolete, then it will be replaced by other indices that use your proposed criteria. Everything's going to be just fine.
> Because the index needs accuracy.
No, it doesn't. At least, not the way you are probably defining it.
This sounds to me like you may be trying to use the index for something it's not really meant to be used for.
What is the S&P 500 meant for then? It was created in 1957 as a benchmark of US equity performance. That's S&P Global's own stated purpose. If it's systematically excluding companies that represent significant chunks of total US market cap, the index isn't doing its job.
Investment funds are for making money. Nobody cares about 'accurately reflecting the state of the market' if that's objectionably high-risk. You invest in an investment fund to make money.
There is no way you can commit to holding big quantities of these methane bubble swamp gas companies and claim it isn't high risk. You'd have to be certain you could bail at the right moment, and that doing so would not obliterate the market through your giant market move… or commit to being a giant bubble of fraud that can never possibly blow up, forever.
These are not responsible ways to make vast sums of money, not because they're unethical but because they're gambles at very high stakes.
You are confused what the S&P 500 actually is. It is a benchmark, not a managed fund. Investment funds that track the S&P 500 do not have a say on which stocks to buy. They copy what the index allocates. Whether these companies allocated are risky or not, has no relevance to if the benchmark accurately represents the US equity market. If three of the top 10 largest companies in the U.S. are excluded from the index, which may be the situation this year, then the benchmark is wrong. The benchmark is failing to achieve its stated function.
Your risk argument applies to actively managed funds, not to an index whose entire purpose is to represent the U.S. large-cap market.
If they are methane swamp bubble giant frauds (there can be others: for instance, Enron, historically) then they don't count as companies for the purposes of the S&P 500. Methods for determining this might include the metrics the S&P 500 elected not to waive…
Nobody cares whether the benchmark is no longer accurate (or whether it was accurate in the first place). People are furious because their investment allocation is tied to this rule change. If you or anyone wants an orignalist SnP number that accurately (by whatever standard you want it to be) benchmarks the market, you are free to do so very easily.
But it is not 1-2% of the total US market cap, is it?
It aspires to be that way. The market decides, and it hasn’t decided yet.
Am I missing something?
> These companies will likely never meet S&P profitability inclusion criteria for the next 5 years.
They won't stay gigacaps for 5 years if they don't become profitable. At their size, they can't just keep burning money at that scale under the public's eyes. The funding will divert from VC to shareholder equity and that will quickly see they don't stay gigacaps.
So this is a self correcting problem. Either they'll start making money and hit profitability targets or their market cap will diminish.
> If a company is 1-2% of the total US market cap
Over what time horizon should that number be computed? Every day? Every second? Every month/quarter?
It is not as simple as it seems.
If they're doomed, they're bad companies. This isn't complicated. You can run a fraud and double down real aggressively and as long as you're not called on your bullshit you look incredibly good, until you don't.
If they're doomed, they're bad companies. You can make the argument they're not doomed, but that's a separate argument.
I'm with you on this part:
> Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO.
I'm nodding vigorously on this part:
> These companies will likely never meet S&P profitability inclusion criteria for the next 5 years.
But here, you lose me…
> These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.
The point of investing in a total(ish) index of the public stock market is to invest in companies that have a reasonable expectation of net-positive future cash flows, justified in part by legally-mandated transparent reporting of their finances.
You can't just buy every publicly-traded stock though: for one thing, that would massively incentivize obvious scammers to do the bare minimum to get their stocks included, and drag the index down. Avoiding companies that are illiquid, non-transparent, or lacking in a clear track record is important. The SpaceX IPO bears more than a passing resemblance to a pump-and-dump scheme:
1. SpaceX's line of business* is tremendously unclear.
2. SpaceX doesn't actually need external capital to fund its operations.
3. SpaceX is floating only a tiny fraction of its putative market capitalization.
4. The main purpose of the IPO appears to be to allow insiders to cash out.
5. The way the lion's share of the IPO gets sold is if large index funds and pension-holding companies demand shares, and that only happens with the index-inclusion exceptions we're discussing here.
So, we agree that these "mega cap IPO" companies won't be profitable in the next 5 years. That's a huge period of time. How can public markets accurately value a company that isn't expected to be profitable for such a long period of time; there are so many things that could change their trajectory towards profitability, all the more so if we accept your premise that these companies are "civilization changing."
My conclusion is that it's perfectly fine, even beneficial, for indices like S&P 500 to avoid any special treatment for these companies. If SpaceX is clearly profitable 5 years from now, and has reached 50% free-float, that seems like a good time to start including it in the index.
---
* Nearly all of its revenue comes from launching satellites and running a satellite-based communications network, but much of its putative valuation comes from a hastily glommed-in also-ran AI company, and its association with a person who is famous for running other businesses and for political connections.
It’s a benchmark of the market under certain rules, like having multiple quarters of earnings for the market to value them at.
These companies want special exceptions. If you are an exception why should you be included in a benchmark? At best they should have an asterisk against their name like Sammy Sosa or Mark McGuire if they are not following the same rules.
Your baseball cheating analogy makes no sense here. Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. S&P rules are supposed to make the index reflect the market. Totally different.
The profitability requirement is something made up by the S&P committee. If that rule ends up excluding trillions in market cap, the rule has defeated its own purpose. The 12 months of profitability requirement punishes high-growth companies that invest their FCF into growing the business vs taking profits.
It excludes companies like Amazon, which when ran by Bezos, was famously unprofitable and invested all free cash flow into growing the business and never turned a significant profit until >20 years after its founding.
> Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally.
> The profitability requirement is something made up by the S&P committee.
Those are both equally made up. In this case the rules are being changed for new entrants into the market such as SpaceX for the Nasdaq and other benchmarks that are allowing it for that none of the previous companies in said index were allowed to get in under.
And since it’s 15 days and I know most companies have lockout terms on the order of months for various levels of stock, I’m hesitant to believe this won’t modify the benchmarks beyond what has happened with previous inclusions.
`JumpCrisscross’s reply to one of my other comments on this thread in regards to the S&P being a committee based decision actually has had me pause to think, but your argument that the rules are arbitrary so it can’t be cheating like my baseball analogy fails to land.
Baseball rules exist to prevent cheating. The S&P rules exist so the index can accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions in real market cap, that means the rules are badly designed and broken by its own standard. You're trying to compare updating badly written S&P 500 rules to cheating, which makes no sense at all. They are completely different.
And calling out how the rules are being changed for new entrants into the market such as SpaceX on Nasdaq proves my point. Index providers are already quietly admitting their criteria are too rigid.
Even S&P adjusted their rules to allow SpaceX into the index, although only for the total market index.
https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-...
"The S&P rules exist so the index can accurately reflect the market", the rules exist to reflect a subset of the market, and the committee chooses that subset. It's their subset so they get to set the rules, you don't have to use it if you don't want to. If you don't like that subset then create your own index. Then you just need to convince others to use it.
Per the S&P 500 website, the claimed subset of the market is "U.S. large-cap equities". S&P claims their index is "best single gauge of U.S. large-cap equities". But, it's clear that given the current iteration of the rules, none of the major upcoming IPOs of Spacex, Anthropic, or OpenAI are eligible for S&P500 inclusion, and they likely will not be for years.
Claiming to have the "best single gauge of U.S. large-cap equities", yet having rules that exclude three of the top 20 largest U.S large-cap equities which make up ~5% of the total market cap of the U.S. stock market, means your benchmark is inaccurate by my book.
"means your benchmark is inaccurate by my book.", and like The Dude says "Yeah? Well, you know, that's just like uh, your opinion, man."
Create your own benchmark, and you can say it is a subset of "U.S. large-cap equities" and "best single gauge of U.S. large-cap equities" and let the market decide who does a better job.
> Baseball rules exist to prevent cheating.
> The S&P rules exist so the index can accurately reflect the market.
I personally believe that accurately reflecting a market involves not allowing cheating. I personally believe that getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating.
If you want to disagree with me on these points then please do so, but understand why I am claiming that this behavior is cheating.
> getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating.
I disagree with you because you are vastly exaggerating the scope and effects of the proposed rule change. S&P was going to decrease their minimum index inclusion time from 12 months to 6 months. 6 months is far more than enough time for the market to decide a fair price of an equity. The rule change never ended up happening, hence this post.
There is zero "cheating", I don't understand why you keep harping on that.
> 6 months is far more than enough time for the market to decide a fair price of an equity.
I disagree.
> The rule change never ended up happening, hence this post. There is zero "cheating", I don't understand why you keep harping on that.
The S&P ended up not making the change. Other benchmarks like the Nasdaq did, and they went way faster than 6 months. The Nasdaq specifically is going to allow these firms to be included after 15 days.
> 6 months is far more than enough time for the market to decide a fair price of an equity
6 months from when? The IPO with its minimal float?
> accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions
Define what that means? The weights are based on the value of shares available publicly, not market cap. So even if included SpaceX wouldn't even be in the top 20 and have a lower weight than Johson & Johson.
A lot of what people are saying here seems to be based on a misconception of what S&P 500 is supposed to be. Maybe it became the most popular index because of those rigid rules?
> S&P rules are supposed to make the index reflect the market.
Where did you find that? Link?
I ask because common understanding is that the index is a stable tracker of the market, specifically to exclude volatility.
IOW, it reflects a smoothed market, not a point-in-time-with-daily-granularity market. I would really like to know where you read what you read.
The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI.
All three companies are in the top 10 largest companies in the US by market cap, based on their current valuations. If these companies maintain their valuations over the next year, they'd still be ineligible under current rules. Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.
A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.
https://www.spglobal.com/spdji/en/brochure/article/sp-500-br...
It currently would exclude all 3 companies because they aren’t publicly traded.
Post IPO they wouldn’t immediately be included. Every benchmark I am aware of doesn’t immediately include companies because there is a decent amount of volatility shortly after, especially due to all the internal stockholders who have restrictions on how quickly they can sell their stock and routinely dump their stock en masse the second those restrictions are lifted.
All the hubbub about benchmarks like Nasdaq right now is because they are altering their rules for these companies in particular and including them much earlier and before what are standard restrictions for employees to sell their stock.
The fear is that massive pension funds whose rules have them rebalance into these benchmarks will be buying up these stocks before that dump and the public’s retirement funds will be made into bagholders.
> Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. > A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.
Ok, now I know not to take you seriously if you can recognize companies aren’t following GAAP but think it’s wrong to not treat them the same. I don’t even know if it’s true that they aren’t following GAAP, but everytime a company tries to argue why they aren’t following GAAP but instead their own magic formula that shows how successful they are, we get another Enron or Theranos.
> The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark,
Okay, but isn't that gauge measured over a specific timeframe? Since investors in this index have timeframes in years/decades not days, why would you expect the index to have a ranularity of days?
> That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI.
Sure, but it excludes lots of companies. This specific index is risk-averse and caters to risk-averse investors; regardless of whether the company is SpaceX, Anthropic or OpenAI, rick-averse investors are going to shy away from any share that hasn't been traded long enough for price-discovery to kick in.
S&P 500 weights are based the value of shares available on the public market not the market cap. Based on that SpaceX will be nowhere near the top 10.
Do you think their valuations wouldn't fall dramatically if they were willing to float a significant proportion of their shares on the market anytime soon.
I addressed that exact point here https://news.ycombinator.com/item?id=48407542
Based on previous IPOs, SpaceX will grow to ~40% float by 12 months, thus if it keeps its current valuation unchanged, will remain near the top 10 spot.
Assuming it's share price does not drop significantly because of that.
What is it a benchmark for? All investable public stocks or the economy writ large?
Neither? What makes you think it was supposed to be a benchmark for either.
Amongst other thing weights are based on the value of shares that are traded publicly, not market cap.
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If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
If you change a benchmark whenever you think it'll be 'wrong', then it becomes a measure of the heuristics you use to predict what'll impact the benchmark rather than a benchmark in its own right.
S&P claims their S&P 500 product is the "best single gauge of U.S. large-cap equities". For this benchmark to be accurate, at a fundamental level, this benchmark has to follow the market and reflect current market conditions.
The market decides what the large-cap U.S. equities are, not S&P. If S&P excludes some of the largest U.S. companies, which based on their current rules, will exclude all of Anthropic, SpaceX, and OpenAI; then they do a poor job reflecting the benchmark they claim to follow.
It's not S&P's fault that market conditions have changed.
this benchmark has to follow the market and reflect current market conditions
Sure, but right now they don't know how the market will react, so changing the index rules before there's any data would be a measure of their heuristics (e.g. what they believe the market will do), not a measure of what the market is actually doing.
The core issue is that S&P requires companies to be profitable for 12-months to get included in the index. Yet all of SpaceX, OpenAI, and Anthropic are highly unprofitable, because they are prioritizing investing all free-cash-flow into growth instead of returning money to shareholders. These companies likely will not be profitable for years, and without a rule change it's unlikely they will be included in the index anytime soon.
Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index.
Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index.
It's not outside the realms of possibility that the price of the shares post-launch could collapse if the market decides they're over-priced. Shares in companies have been known to settle on valuations far below the IPO price in the past. At that point they won't represent ~5% of the total. Changing the index rules immediately before finding out what's going to happen feels like putting the cart before the horse.
Even assuming a post-IPO valuation drop by 50%, SpaceX would still be a top-25 US company by market cap.
Your "wait and see" argument doesn't apply, because (SpaceX, Anthropic, OpenAI) are excluded from the index for profitability reasons, not valuation reasons. These companies are deliberately reinvesting free-cash-flow into growth rather than booking GAAP profits. That's not going to change 6 months after IPO, and likely not for 3-5 years.
At the current pace, three of the ten largest US companies will not be included in the S&P 500, for probably 5 years after IPO.
The question still remains: should a benchmark that claims to represent large-cap US equities exclude companies that are demonstrably large-cap, just because they allocate their capital towards growing the company instead of generating profits?
Matt Levine, who probably knows more about finance than anyone on this site, has said the same thing. He’s also talked about all the hate mail he gets. Large market etfs like VTI or VOO are supposed to track the market. It would be weird if they ignored trillion+ market cap companies. If the market decides to dump these companies then they’ll fall out of the index.
Index criteria have also changed many times over the years, and they are changing again to deal with later stage companies coming to the market with already huge valuations.
Yes, Matt Levine said that, but he also argued the other side's point of view, as he regularly does.
I completely agree. People have parroted the benefits of passive investing and blindly following the benchmark index for decades, yet the instant some overpriced turds (Anthropic, OpenAI, and SpaceX) are considered being adding to the benchmark, they backtrack and fight tooth and nail against including them.
All three companies are large enough by market cap ($1T+) to qualify for the S&P 500 benchmark, which claims to track the top 500 largest U.S. large-cap equities.
They have a point (not wanting to invest in overpriced equities), but if you don't like the companies that surface through passive investing then don't be a passive investor. It sounds like these people want active investing instead. If that's your position, just buy actively invested funds, not ruin the benchmark for everyone.
S&P is caught in a bind, because if they add these companies to the index, it would aggravate millions of passive investors.
While there's some truth in your point, I think you're being unfair in framing this story as passive investors betraying their own philosophy because they suddenly realize this passivity would cause some "overpriced turds" to be included in their portfolio.
Passive investors did not "backtrack", on the contrary their preference on this matter is that index rules should remain unchanged. Conversely, it seems fully consistent for a passive investor to criticize Nasdaq-100 for actively amending their rules to achieve a specific result.
So I find it rather unfair to conclude that "these people want active investing instead". As far as I know, these people are reacting to "active" decisions (such as Nasdaq-100's) and cheering actual passivity (such as S&P500's decision).
Now, one can argue that there are good and legitimate arguments for the inclusion rules to evolve, but by definition amending the rules is an active decision.
The reasoning here is backwards, because the rules in their current form exclude all three of the major upcoming IPOs of civilization changing companies (spacex, anthropic, openai). These companies are all large-caps, are currently in the top 20 largest companies in the US, but the S&P 500 index which claims to be a measure of the 500 largest companies in the US will systematically exclude these. Very likely for 3-5 years and more.
How can S&P justify excluding these three companies from an index of large-cap US companies, which when combined together, consist of 5% of the total market capitalization of entire stock market of the United States?
If the rules are not changed, then the S&P 500 will exclude a significant part of the US stock large-cap market, which defeats the entire purpose of it being a benchmark index.
If the S&P 500 was only used as a benchmark as it is originally intended, there will be no debate to adjust the rules to include these companies.
Yet because today there's trillions of dollars tied up to this benchmark, inclusion and exclusion becomes a financial issue.
S&P is under immense political pressure to not adjust their index because asset managers and the general populous don't actually want passive investing.
You're changing the discussion.
I was specifically not discussing whether S&P would be right to change the rules. As I said, there can be good and legitimate reasons for such change; I'm not disputing it.
The point of your previous comment was a critic against individual passive investors, accused of backtracking and betraying their own credo. This is what I was reacting to.
Not wanting to change the rules just because these three companies really really want in before prices settle and before they are profitable is the correct behaviour.
The unjustifiable thing is changing rules for them.
I don't care about being forced to own SpaceX if it's in the index, I do care about it being forced into the index before it's had a chance to settle, so that private investors can dump on me.
But that wasn't going to happen with the S&P 500, the proposal was to reduce inclusion time from 12 months to 6 months, and this did not pass. 6 months is more than enough time for price discovery to occur.
And even if it was added to the index immediately after IPO, index weighting in S&P is float weighted, SpaceX at IPO will have minimal float, and SpaceX would be ~0.125% of the index at IPO. Not much to matter.
That ".125% is not much to matter" argument also cuts the other way, against the Matt Levine argument that the S&P is excluding trillion dollar companies and should adjust the rules for them.
Should S&P really adjust the rules for such a small portion of the index?
Yes, because that number increases to 1-2% of the index after the IPO lockup period ends.
There are three IPOs coming this year that meet this criteria.
Then it seems pretty disingenuous to keep arguing it's only 0.125% so it's not a big deal
Market pricing will be interesting. People have been complaining about TLSA being over priced for years and now it's 2%+ of the S&P. Are people selling VOO and VTI because of the TSLA allocation? Nope, in fact TSLA has made them all a lot of money.
People were falling over themselves to invest in these AI companies and SpaceX not that long ago. 75B worth of SpaceX now has to get sold to IPO investors to hit the desired valuation. People say a lot (especially on the internet), but when the rubber meets the road we'll see what people do with their money.
The other bind the S&P is caught in is if these AI stocks IPO and then moonshot before they get added. The question will then be is the S&P an antiquated index? How do multiple trillion dollar companies in the market not end up in the S&P 500 sooner? No one thinks of that case because everyone is so sure they are all going to zero.
It may be used as a benchmark, but that’s not actually the purpose of it. The purpose is to serve as a way for people to invest in a representative sample of the market. It can still be a representative sample with safeguards. If you want a benchmark without safeguards, you can calculate one without risking millions of people’s life savings.
You have your history backwards. The S&P 500 was created in 1957 as a benchmark. The first investable index fund tracking it (Vanguard's) wasn't created created until 1976. Vanguard created their fund to track the benchmark, not the other way around.
And if you need a second, different index to function as the true market benchmark because the S&P 500 no longer reflects the actual market, then you just agreed the S&P 500 is no longer an adequate benchmark. You just agreed with my point.
Because it's selective, the S&P by definition does not reflect the actual market. It reflects a subset of it.
If you're comfortable with this notion of what the S&P does, then you ought to be comfortable with S&P applying the same methodology they've always used. There are other indexes you can reference if this particular sampling of the market isn't to your personal liking.
The S&P's historical inclusion criteria were designed to filter out unstable, illiquid questionable companies to get a view of large-cap US equities. That logic worked when every major American company was public and profitable.
That's not true any more. Today we have multiple giga-caps (SpaceX, Anthropic, OpenAI) vying to IPO, all of which potentially in the top 20 largest companies in the US market, all ineligible for S&P 500 inclusion because of the 12-month profitability rule.
You claim S&P can "apply the same methodology they've always used" but this is just factually wrong. The inclusion criteria are not sacred rules set in stone and S&P has rewrote them multiple times. For example, they banned dual-class share structures in 2017 to stop SNAP from joining the index, but reversed it in 2023 because they excluded too many companies. The rules get rewritten when the market changes, and it's clear the current market environment has changed.
Meanwhile, Nasdaq changed their rules to handle this situation. And S&P changed the inclusion criteria for the S&P Total Market Index so SpaceX would be included.
It's clear these inclusion rules are changing.
> out unstable, illiquid questionable
So Space X, OpenAI, Anthropic? Those are perfect examples.
It's unlikely their valuations could survive the IPO if their float wasn't extremely low.
> top 20 largest companies in the US market
You do know that S&P weights are based on the free float and not the market cap. So based on that SpaceX etc. will not be in the top 20. The total value of shares of Johnson & Johnson available on the public market will be much higher than that of SpaceX/etc. based on their current valuations.
Then your issue is not the S&P methodology, which despite changes in detail remains, as you've said, aimed at filtering out undesirable companies from the index. Your issue is that you want us to believe your favorite tech stocks, which are both wildly unprofitable and have P:S ratios that defy rational investment, are somehow desirable immediate additions to the index. And your argument for why this should be is a lofty claim that "the market environment has changed."
You believe in brand power over numbers. Which is your prerogative. But it's not how the S&P is managed.
AKA, the ol' "this time is different"
> the S&P 500 no longer reflects the actual market
Well it was never intended to reflect the full "actual market".
> no longer an adequate benchmark
According to your definition it never was. However there were and are plenty of other index benchmarks which serve different purpose. Its just that S&P 500 managed to become the most popular one, why did it happen if it was always inherently flawed?
Like they didn't even add Microslop for 8 years...
Thanks I believe you are right.
> Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say.
Are you suggesting index funds need unanimous consent from all owners before a company can be added or removed?
Indexes have rules for entry, so people using them supposedly agree with them. On the other hand, they were talking about opening exceptions for these companies, which was not part of the initial rules.
That's not even slightly what they said. They said that people can trade the stock directly if they want to, rather than have it essentially forced upon them by inclusion in an index
Thank god
No, indexes are meant to track something. The Russel 2000 index has very different criteria for the S&P 500 index. The Dow Jones is yet another one.
The criteria for none of the above is “slow moving”, far from it. Those are all expected to be high growth vehicles for retirement. Safe stuff is bond blended.
Plenty of people at shit in the GFC being invested in “slow moving” S&P 500 companies like Lehman Brothers, WaMu, AIG, GM, etc.
“Was profitable for a while” != “safe” nor is it necessarily good to park money there. You need explosive growth companies that invest rather than profit (like Amazon) being in the S&P 500 are a critical part of its performance.
If retirements only tracked stable mature companies that would be utilities and other stuff that doesn’t actually get you to retirement.
>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk.
The purpose of an index is to provide a benchmark of the market, not to build funds that follow the index.
> The purpose of an index is to provide a benchmark of the market
Usually a subset of the market based on specific criteria. Total market indexes and funds exist, maybe there is a reason S&P 500 despite its "strict" inclusion criteria is more popular than them?
Good for the SP500 but I don’t think it’s true that indexes need to be slow moving. They can serve any purpose! Comparatively I think it makes sense Nasdaq100 would want to include it earlier. Not all indexes need to be slow moving or representative of a buy and hold type strategy. Maybe you only want to capture the highest volume in daily activity for example.
It’s important to note that index funds will eventually get in, so it’s not like 401k will never be holding these stocks. It would be silly to assume that the stock is going to tank that much on day 1, on the asumption that there are not enough investors to buy the big three IPOs that are coming out this year. There is plenty of money in the market, and everyone knows index funds will buy these stocks when the companies get in, so everyone will be able to dump them if needed in a year or so.
Btw I don’t really know how index funds work, but if they need to track the index as closely as possible, they will all have to buy those stocks on a certain day, no? There will be a crazy price hike when they do so. Or maybe they have terms that let them smoothen their trading around entry and exit?
To a first approximation, yes, the index funds all need to buy the stock on the same day.
An unexpected surge of buying like this should lead to a big price hike. But everyone knows it's happening, so you'd expect every hedge fund and proprietary firm in the world to buy the day before the index funds buy, and sell into the price hike. So in fact the price hike will be a day earlier than expected. But wait, anyone smart enough to see that should buy the previous day...
In this way the "smoothing" of the trading at entry and exit gets passed on to intermediaries: other market participants who are expert at this.
This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor. And huge index events like this are a particular bonanza for these traders. But it probably costs less than you think. Ultimately it's a highly competitive market: the slippage from this approaches the extent to which the prop traders have a higher cost of capital, plus a small risk premium. And remember that they don't have to find "extra" money to fund this trade. When they buy SpaceX they will sell 499 other stocks, doing the same trade there in reverse. Here's a study that approximates the effect at 0.86%[0]. By comparison, the banks underwriting the IPO typically take around 6% [1]. Though this will be smaller for a huge IPO like SpaceX, while the index arb trade will be bigger.
[0] https://www.eastspring.com/hk/insights/deep-dives/navigating...
[1] https://www.pwc.com/us/en/services/consulting/deals/library/...
0.8% of drag is a lot when you can do basically the same thing by not strictly following the index.
There are funds from Dimensional and Avantis that are basically just index funds but with a bit more leeway to avoid these obvious pitfalls, and from what I saw they do perform approximately 0.5% better per year.
0.8% is substantial indeed, but if i understand correctly, it’s 0.8% on that one stock, so much less on the index itself.
Those funds that perform better probably take a higher management fee that might cancel out the gain. May be worth it to have a smoother return though.
As in, current indexes perform that much worse. Frontrunners around index rebalancing etc. SpaceX is the same idea, just way more obvious. People knows what the index funds are going to do, and so they exploit that.
The alternative funds are a little pricier, but not so much so as to negate the inherent performance advantage. Typical cost ratio is 0.1-0.5% depending on the niche (wide indexes are cheaper, more niche things like small cap value cost more)
>This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor.
This is so wrong I'm not sure you understand common sense economics and by economics I don't mean anything you can find in a text book. If I invest nothing, the other investors or traders can still make a profit without costing me anything.
Opportunity costs are never real costs. If I have $10, and the traders do weird things with the prices and I don't spend the $10 on anything, I still have $10. The traders failed to cost me.
You're also ignoring the underlying issue which is that the valuation of SpaceX on the open market is different than the valuation it could get from forcing index funds to buy in early. If the stock is worthless then short sellers will make money, but short selling only works if the short sellers don't get squeezed. If the passive funds buy two weeks in, then early traders know that they can sell to a greater fool at inflated prices. Any short seller who is trying to discover the true price will stay back and short directly after the indexes have bought. That's the perfect moment for them. They want the post IPO hype and bull market, only for the stock to collapse within a year.
There's a real desire out there to tell a narrative where SpaceX is a massively fraudulent piece of financial engineering, a pump and dump scam where the stock will "collapse within a year" and retail investors will be left holding the bag.
There's definitely some financial engineering at the margins, but as I see it the facts are:
- Musk is still going to own 40% of the company. If he's selling 4% of it, his incentives are aligned with keeping the rest of it high
- the index funds ultimately are fast tracking the big IPOs because their customers, in aggregate, want that. And the market structure really has changed since the days when the index inclusion rules were first written and companies went public smaller.
- People have been banging the same drum about short sellers with Tesla since at least 2017 - AFAIK it's still one of the most shorted stocks - and it's up 20x since then.
- Institutional investors with more sophisticated strategies than "buy the index" or "pump and dump lol sell to the index funds" will be participating in the IPO and in fact will be the main drivers of price. Everything I've seen suggests that if this is a "retail heavy" IPO, that means 20 or 30% of the shares ending up with retail instead of a more typical 10. These other institutions could be wrong, but they're not mechanical price takers.
I've shown above how one of the effects people make the most noise about - the index balancing arbitrage - is likely an effect of order of magnitude 1%. It's on the noisemakers to show how any of the other effects you mention can be massively more impactful.
'their customers, in aggregate, want that' citation needed
> It’s important to note that index funds will eventually get in
S&P500 at least requires profitability, so these stocks may not make it in anytime soon.
> There is plenty of money in the market
Their float will be very small so yes, the value of their shares that anyone could buy at even the most optimistic valuations would be tiny compared to most public megacaps.
> Btw I don’t really know how index funds work, but if they need to track the index as closely as possible, they will all have to buy those stocks on a certain day, no?
S&P wouldn't include them until they became profitable and even if they did they wouldn't even be in the top 20.
The decision means companies like SpaceX would not be eligible for inclusion in the S&P 500 until at least one year after its listing and would also need to satisfy the index’s existing requirements for profitability and public float.
Sudden outbreak of common sense.
SpaceX is going "public" with only 4% of the stock being sold to outsiders. The S&P 500 requires a 50% public float. That may disqualify SpaceX for a long time.
Although GOOG and META are listed, despite control being held by insider shares of a different class. There was a time when the NYSE did not permit companies with more than one class of stock to be listed on that exchange. (Except F, FORD, which predates the NYSE). That was lost some time around 1990 or so.
It'll be at 50% within 6 months, then 100% within a year.
https://www.economist.com/finance-and-economics/2026/06/01/c...
Is that a legally binding requirement, or just Elonspeak? (Like sending people to the moon by 2018 and summoning cars hands-free from NYC to LA)
If Elon said that, it's probably more like 4% now, 12% in 5 years, then a chicken-out because whatever and never 100%.
See full-self-driving.
Can't he just list his own shares but just keep holding them without selling.
And 200% within 2 years?
Matt Levine wrote that flouting the rules could be fine if there were market alternatives (he said otherwise it would be a market failure). I am pretty sure there would be market alternatives appearing, at least in the ETF tracking space, and that would erode the brand.
It would be a bad show to have SP500 (cheating rules) underperfoming SP500(proven rules). It would also be a bad show with many financiers and even influencers calling out the corruption.
I for one would be advising newer investments in the proven rules ETF trackers. I also think there might be lawsuits from people who had contracts tied to the old rules. After all if you need to sell to transfer to another vehicle there might be tax consequences.
PS: It is a shame that multiple classes of, non floating, controlling stock do not cause penalties in terms of market cap weight. I will research the issue. I know an ETF is not an index, but the relationship is tight enough for practical reasons.
GOOG and META are listed on the Nasdaq, as far as I know, hence the four letter ticker, so maybe NYSE still has a mono-class requirement. That's something worth knowing, I avoid investing in companies where my stock isn't the same as everyone else's.
This seems a sensible thing to do. If you change the rules on how things end up on your index, you force everyone using that index to reevaluate it. Your index is now perceived as more volatile (and probably is), and all the finance people need to reevaluate the risk of their index funds and decide if it is now 'growth', 'high growth' or whatever bucket it belongs in based on the new risk profile. And then all the portfolios need to be rebalanced. Which all takes time, more time than was being proposed. The sensible thing to do is to create a new index with the new rules.
> sensible thing to do is to create a new index with the new rules
It depends. Indices aren’t funds. They aren’t meant to balance investor interests. They’re meant to communicate some metric about the market.
The S&P tells you how big companies are doing in an index optimized to balance representation against trading cost. So in 2005, float was taken into account for weighting (versus just market cap). This made sense. Also, since the start, the S&P 500 has been a committee-based index. Not rule based. This has made it successful; if you want stable and unchanging, you never went for the S&P 500.
The S&P 500 may not be a fund itself, but Standard & Poor's is a business whose ability to sell services is correlated with the continued relevance of the S&P 500. It absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis.
It seems entirely reasonable to say: "if we make a certain decision, we correlate both our reputation and a nontrivial portion of the U.S. economy with the whims of one of the most volatile personalities in industry, and we should likely pay attention to this trial balloon that shows such anticipatory fear of the decision that we might lose our reputation as an index altogether."
> absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis
As a business, sure. As a committee, it’s still a deeply technical process. I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault.
> and a nontrivial portion of the U.S. economy
This vastly overstates the amount of assets tied to the S&P 500. It’s a lot. But it’s a strong minority of equity exposures.
> I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault.
How can you possibly know that? Do the people on that committee have a cast-iron tenure guarantee?
> How can you possibly know that?
I know folks who have been on these. They don’t have tenure. But they’re basically emeritus. If S&P wanted to do something that would cause chaos, it would be fucking with those folks because they made a decision that looks bad.
It’s a public benchmark fund that has much of its value based on its decisions being publicly stable and publicly consistent.
Who would want to invest in a benchmark fund with arcane(the literal term as opposed to mundane) rules that were privately decided? If your statement is accurate it sounds like moving out of such a fund would be prudent. I feel like it’s not accurate since they are sticking to their guns and not changing the rules to benefit oligarchs like Musk such as Nasdaq is doing.
> Who would want to invest in a benchmark fund with arcane(the literal term as opposed to mundane) rules that were privately decided?
There are lots of rules-based funds. S&P is transparently committee based. It’s why dual-class new entrants are banned, but Google and Berkshire are grandfathered in.
There is a genuine debate on rules versus committees in the index world. But S&P has stuck to its guns as a bastion of the latter. And it works. Everyone picking the S&P 500 over its competitors chooses that.
> Everyone picking the S&P 500 over its competitors chooses that.
I'm fairly confident most people deciding to allocate to s&p trackers have no idea about rules-based vs committee-based governance. They just pick the default. And that default can quickly change if the S&P starts making weird/unpopular decisions in a highly publicized situation.
> most people deciding to allocate to s&p trackers have no idea about rules-based vs committee-based governance. They just pick the default
A lot of retail goes into S&P lookalikes. And at the end of the day, they've consistently picked one over the other.
> that default can quickly change if the S&P starts making weird/unpopular decisions in a highly publicized situation
Unlikely. Nobody has dropped NASDAQ 100-tracking funds. If anything, these guys will see long-term net inflows due to this move. S&P probably would have if they’d changed rules—this was an econometric, not business, decision.
Just a FYI, S&P rolled back the dual-class rule. It was in place from 2017 to 2023.
Doesn't https://advisors.vanguard.com/investments/products/vfiax/van... have $1.7T in AUM alone? That single fund is already a significant part of the $20.8T in AUM across index funds.
https://www.ici.org/research/stats/combined_active_index_042...
There's overlap between strong minority and nontrivial, so not sure how it can be vastly overstated. Do you have numbers you can add to this, or any explanation of equity exposure etc?
Indexes are not funds, correct.
However, the SP500 index is one of the few indices that is strongly represented in 401K plan options.
That changes its role from "communicate some metric about the market" to forced buying of the metric.
which makes changing the metric, especially in such a drastic way, consequential.
The market cap of the S&P 500 according to Google is ~$65T. Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. That's a big deal.
The rules around index inclusion exist for a reason. Too much control in one person's hands (which SpaceX has), too small a float (so you don't get price discovery), lack of a history of financial performance and minimal trading days just don't give investors confidence and, like it or not, investment decisions are made based on the index. If you want to argue against passive investment, well, good luck with that.
I think a lot of people have this weird idea that what we need is some theoretically unfettered market for "true" price discovery when it's actually regulations like this that create markets. It's like a libertarian brain worm.
I don't think anybody wants these mega-companies out of the index, specifically. They just don't see why rules that exist for a reason should be suspended when the net effect of that is that investors have less information and there is a lot of forced purchasing. If you have confidence in your IPO, let the market decide what it's worth without trying to fix the price because what they seem to want is for insider lock-ups to end about the time we'd otherwise be getting normal price discovery. Kinda weird.
Investor confidence needfs to be managed by creating a stable, regulated market.
> Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia.
This is a common misconception. The S&P 500 weights allocation by float-adjusted market cap, not by total market cap. In the case of SpaceX, they are planning to float ~4% of shares at IPO. Even if SpaceX was added to the index, its index weight would be based on that tiny float, and at a $1.75T valuation it would be treated as roughly a $70 billion company.
SpaceX weight would be ~0.125% of the index, not ~2.5% as you imply.
Nasdaq "solved" that problem by including a 5x float multiplier for stocks with less than 20% of shares available to the public...
That's misleading.
Before the changes, the Nasdaq-100 index was total market cap-weighted not float-weighted. Once a company crossed 10% floated shares, the company was added to the index at full weight.
Nasdaq's new system is a hybrid of float-weighted and cap-weighted. If a company has below 33.3% float, its weighting is 3x float. Above that, it's cap weighted. This allows a gradual fade-in of the company into the index.
It's a better system than the previous one, and in Nasdaq's own words, more conservative.
For the Nasdaq-100, SpaceX at 4% float gets 3 x 4% = 12% of its market cap counted, which is $210B not $1.75T. Still <1% of the index.
Also, the multiplier is 3x, not 5x. Nasdaq proposed 5x, but after feedback, this was reduced to 3x. The new thresholds are 3x and 33%, not 5x and 20%.
https://www.nasdaq.com/newsroom/nasdaq100-index-methodology-...
I stand corrected, I was not aware of the full mechanism, and I was still stuck at the proposed multiplier and not the actual one.
SoaceX plans to continually unlock float for the first six months of being listed. So the percentage of the index would continue to rise.
except $4T is a made up number, a complete fantasy not rooted in any reality. it us more like $750bn (this is also made up number) :)
All valuations are “made up” numbers.
Some are more made up than others though!
Price discovery isn’t “making up” a number it’s discovering a number that meets a specific criteria.
Critically it’s not simply averaging a bunch of made up numbers. I may think gold is worth 1,000$/kg but if nobody is willing to sell me gold at that price then my “made up” number has zero effect on the market price.
The 409a has a lot of words and numbers to justify a particular valuation. It's not made up from the ether based on nothing. You can disagree with their reasoning and come to a different number, but you need to show your work if you want anyone to give a shit about your made up number. How many satellites have you launched this year? What's the going rate for a kilogram to LEO? Who are the competitors and what do they charge? Things like that which aren't magic made up numbers.
The valuation is actually mostly about AI. Satellites, like electric cars, don’t have quite the growth story (and I do mean “story”).
https://bsky.app/profile/patigallardo.bsky.social/post/3mnhc...
That’s total addressable market. It’s claiming that AI products they could build could be that amount. It assumes they gain 100% of the market which techbros are basically claiming is most current human effort. It’s stupid, but not what’s actually driving the price.
They are making more revenue off satellites than nearly every current AI subscription today put together. The launch capacity and growth in space based applications are the real company, everything else is to line Musks pockets and have markets subsidize his dumber projects.
It’s a shell game. I believe in their Space based products, but I’m not touching those investments until the market levels out.
> The 409a has a lot of words and numbers to justify a particular valuation
That's tangential. The valuation is based on supply and demand, nothing else.
Amongst other things the supply part of the equation will be low because all these companies are only to make a very small proportion of their shares available on the public markets.
409As are absolutely made-up numbers. Management writes a number on a sheet and a 409A consultant signs it.
You do realize SpaceX valuation is completely detached from the space business at this point?
Their S1 cites (by memory) a 370B addressable market for space stuff and a 27 trillion for AI.
And for AI they counted all Twitter accounts as grok users.
The Spaces eXploration company was a cool company, but it's not what's being sold to the market now.
Closer to 1.7 trillion for space. You’re quoting launch but discounting satellites and broadband.
The AI stuff is dumb and just subsidize Elons prior dumber investments.
> The 409a has a lot of words and numbers to justify a particular valuation.
Wow, you should educate yourself on what 409A is and how it gets created before writing something like that, you'd find it in the dictionary under the definition for what my original comment was :)
Oh come on. They absolutely have to target a valuation that's profitable for previous rounds, any reasoning is subservient to that imperative.
> They’re meant to communicate some metric about the market.
Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.
> Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters?
Yes. There are more indices than there are stocks. Publishing an index is, business wise, a game of getting funds to license them.
Once you have an index, you can offer all sorts of products around it.
-You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc)
-A fund manager can use it as his benchmark and you get to see if he is good or not.
-If its a factor index you can now use it for risk management and return attribution.
The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.
I mean, they get paid for it, sometimes quite a lot, for this "broadcasting". $100mm of AUM gets you like $200k profit/yr. (Like $500k minus fees)
an etf that tracks the S&P 500 is what then?
This is a big win for many S&P 500 etf holders
Exactly. The S&P 500 isn't a fund, but let's not pretend that inclusion in the index doesn't mean real money is at stake.
> let's not pretend that inclusion in the index doesn't mean real money is at stake
Straw man. Nobody claims this. The point is (a) the state of decisionmaking was misrepresented for clicks and (b) the effects of a decision one way or the other way way overblown.
Hating on Musk sells subs. That's fair and, frankly, deserved. It doesn't mean we need to get misled chasing that high.
Sp500 is not passive. Keeps updating the rules every few years. https://www.reddit.com/r/stocks/comments/1tvuhgy/sp500_100_y...
See top relevant changes in 100 years
Fyi reddit is now consistently authwalled on mobile (at least for me). You may want to extract any meaningfully information and rehost it.
They have to be rebalanced every quarter regardless. And I'm not sure how many people would actually sell due to the inclusion of a single company. They're very loud about it, but no evidence that this is causing a significant amount of selling.
Because it hasn't happened yet, and now, won't.
So by that metric the very loud people succeeded: these new IPOs will enter the index under the established rules and time-frames.
At a fundamental level, an index is supposed to reflect the market. If the current market is IPO-ing unprofitable companies at absurd multipliers, the index should reflect that. Because that is the market.
The longer major indexes exclude these companies, the further the index strays from representing the market, and the worse they do their core job of tracking it.
It's not the index's fault that market is pushing out overpriced and unprofitable companies.
Indices are supposed to reflect a part of the market. That's why you have all of S&P500, the Dow, NYSE Composite, and Nasdaq Composite (and several others) in the US — They each reflect different attributes of the market as a whole.
As it stands, it's clear that the users of S&P500 are not interested in the performance of the parts of the market made up of overpriced (and potentially highly volatile) IPOs.
The problem with your framing of "users of S&P500 are not interested overpriced IPOs" is that it conflates two fundamentally different things: what an index describes vs what investors prefer. The moment you start filtering out parts of the market based on investor appetite vs market reality, you stop building an index and instead start creating an actively managed product. That's active investing. It's no longer an index.
The S&P 500 is used as the benchmark of the market by practically everyone. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know. If the benchmark that everyone uses as a market proxy is systematically excluding a substantial part of the market, then the gap betweeen "the index" and "the market" has real consequences.
You can't have it both ways: Either the S&P 500 is a market proxy, in which excluding parts of the market is a problem; or it's a curated slice, in which everyone needs to stop it as the default benchmarket for the market.
An index is an index. It works fine as an index if it excludes one or two stocks. People seem to forget as well that this is a question of waiting a single year before it including the stock. It is literally just long enough to make sure the price settles, it's not some catastrophic thing.
> it excludes one or two stocks.
It's more than that. None of SpaceX, OpenAI, nor Anthropic will meet the criteria, and they will make up a significant part of the US stock market. Each of these companies is heavily investing their cashflow into growing the company and are unlikely to be profitable many years.
The inclusion criteria prioritizes companies that extract their cashflow into profit, and excludes companies that invest their cashflow into growing the company. For example, when Jeff Bezos ran Amazon he described his company as "famously unprofitable, And that is a conscious strategy and an investment decision." Amazon only joined the index in 2005, nearly 8 years after IPO, even though it was a significant member of the stock market at the time.
"The inclusion criteria prioritizes companies that extract their cashflow into profit", in almost all cases, yes. But if you want to buy into these newer stocks there are various high growth indices you can buy, no one is stopping you. If you want to buy into only one or two of those stocks then you can. It's a free market for stocks and it's a free market for indices. There's no regulation that says the S&P has to include certain stocks.
The issue is a contradiction with what S&P 500 claims to do vs what they actually do. S&P 500 claims to be the "best single gauge of U.S. large-cap equities". But if they exclude high-growth no-profit large-cap equities such as (Anthropic, OpenAI, SpaceX) from their index, then S&P is doing a poor job at what they claim to benchmark.
It's not not an insignificant oversight. The valuations of (Anthropic, OpenAI, SpaceX) total to ~5% of the total US stock market.
> S&P 500 claims to be the "best single gauge of U.S. large-cap equities"
Right...
> But if they exclude high-growth no-profit large-cap equities such as (Anthropic, OpenAI, SpaceX) from their index, then S&P is doing a poor job at what they claim to benchmark.
So it comes down to a difference of opinion between Standard and Poor's and tristanj. Go make the Tristanj500, include these companies, and make the same claim - "the actual best single gauge of U.S. large-cap equities". No one's stopping you.
And that approach famously hurt investors, the economy, and/or Amazon in what specific ways, exactly?
It meant that during this time, the S&P 500 index less accurately tracked the large-cap U.S. market.
It doesn't conflate anything. The inclusion rules weren't given to us by God, they were created by humans because they thought, rightfully, that people will be interested in that as a product ("prefer"). As the market changes, the product can be adjusted.
Lastly, there's no such a thing as a real "market proxy", except the whole market. If you scope any subset of it, you're making some inclusion and exclusion rules.
The S&P 500 is primarily a benchmark index, not a list of approved stocks to invest your 401k into. The GP is conflating the two. GP is claiming there's a subset of stocks that people don't want to invest in, and these should not be included in the S&P 500. Sure. But, per the S&P website, the S&P500 was created as a benchmark of U.S. large-cap equities. On their website, S&P advertises it as "the best single gauge of large-cap U.S. equities".
The S&P 500 index was created in 1957. It was created decades before the first index fund (by Vanguard), which copied the index in 1976.
The index is intended to follow the all of the largest large-cap U.S. equities, not pick and choose which ones to invest in. GP is arguing that many passive investors, who blindly follow the S&P500 index, don't want to invest in these upcoming unprofitable mega-caps. That's not how the index investing works, that's picking and choosing approved sectors of the market, which is active investing. If you want active investing, buy an active investing product, don't buy a fund that copies the benchmark index.
> The index is intended to follow the all of the largest large-cap U.S. equities, not pick and choose which ones to invest in.
This particular piece is incorrect. S&P has preexisting rules to pick and choose which large-cap equities to follow. They had a discussion about whether to drop those rules in order to become a more accurate benchmark, and they chose to stick with what they had been doing.
Regardless of what they say they were doing (or what they’re trying to do), the fact that they changed nothing means that what they had been doing is the same as what they are doing now, ie, picking and choosing stocks at the risk of diminishing their benchmark capabilities.
> what an index describes vs what investors prefer
What makes you think S&P 500 did not become the most popular index (instead of full market ones) because of the rigid entry criteria and and rules for weights.
Amongst other things the weighting is not even based on the market cap.
No, an index reflects a specifically defined subset of the market. The S&P 500 is very much not trying to include the entire stock market. There are more than 500 public companies...
Why do index inclusion rules exist in the first place….?
Go do a google search
I feel like a lot of people discussing here have no clue what they're talking about, they just have an opinion - which, combining both, most likely means it's an opinion they did not form themselves.
The rules for index inclusion absolutely make sense in many ways.
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What a pleasant surprise. I was positive S&P would get strongarmed into the bamboozle like Nasdaq but it seems they have a bit more integrity. Good for them.
I think key difference here is that Nasdaq is also the market. Where as S&P is external. From this view them manipulating their own market which they profit in various ways actually is somewhat more questionable...
Incentives are entirely different. And really now I am starting to think that Nasdaq maybe should not have index it runs in the first place...
Yeah, this has taken me several readings to understand, I guess because I hadn't really dug into it or thought about it, and also a lot the articles talk about "stock exchanges competing for SpaceX's business".
This whole story is about Nasdaq (company) specifically dangling inclusion into the Nasdaq-100 (index) as a means to get SpaceX to list on the Nasdaq (market). They're uniquely able to do this by owning a market and also an index that people care about.
NYSE couldn’t really do this because its own indices don’t matter much. FTSE Russell could theoretically make FTSE 100 inclusion easier to help attract a company to list on the London Stock Exchange, but SpaceX choosing London as its primary market would be odd. S&P Dow Jones Indices has no equivalent incentive, because it doesn’t own a listing venue; its main asset is the credibility of the S&P 500.
In all, this entire story has been about Nasdaq specifically being willing to weaken their index rules in order to attract SpaceX to their market.
> key difference here is that Nasdaq is also the market. Where as S&P is external.
As someone who has little experience in American stocks and index, would you explain it a bit more ? What you mean that nasdaq is also the market ?
I thought they are both index, a valuation of entreprises and that's all.
Trading of publicly listed stocks happen on stock exchanges, Nasdaq is one of these. They make money by charging fees for companies to publicly list stocks. But also charging fees from anyone who wants to directly trade there. Say stock brokers who allow smaller customers to trade via services these brokers offer.
So Nasdaq owns the company which facilitates this trading of stocks. But they also own the company which says what are 100 most important companies on that market.
Now they changed rules to get big new most likely popular stock on their market. This could at least maybe get some new brokers in. Or make them in general more desirable market to be connected to and thus get fees.
I am not just sure if there is even more fees in some part I don't know there...
Contrary to the sp500 that only earns money from listing companies but not when people buy shares, right ?
That's a serious conflict of interest.
Didn't Nasdaq change its rules specifically in order to get SpaceX to list on Nasdaq? Not really sure why other funds would follow them since SpaceX can't list on all of them.
They changed the rules to let SpaceX into the Nasdaq 100, which is kinda like the S&P 500 for people who drive Cybertrucks.
"Strong-armed" by whom exactly? Deepstate, lizard people, just (((them)))?
Having lived through a couple big market busts over the past 30 years, it's interesting to see that almost all of them were caused by a loosening of standards.
e.g.
- DotCom boom was letting companies IPO even if they had no revenue
- Great Recession was due to loosening credit restrictions for mortgages e.g. giving people NINJA (no income, no job) loans
so very curious to see how this plays out.
Caused by, or is it more like the rules were changed to postpone an already inevitable bust?
Important to note:
Nasdaq changed its rules recently so SpaceX can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days.
The market is more unpredictable than it’s been in a long, long time so I hesitate to make a firm prediction but to me the odds that SpaceX will be a successful IPO over a 3-6 month window are significantly lower now. S&P inclusion basically requires funds to hold a position by default, and per their own estimates $20tn of assets are indexed/benchmarked to the S&P.
They'll still be included in total market indexes (FTSE, MSCI, CRSP).
As I understand it, VTI will be a major thing.
Still, they're float adjusted (for the most part?).
I think total market indexes are outside the scope of concern. They are buying SpaceX regardless of IPO rules.
Not to say I have an opinion one way or another, but why do you think that SpaceX odds to have a successful IPO is lower now?
Not OP but I will weigh in. The numbers for SpaceX were not looking great, they are burning cash faster than Starship crashing into the Indian ocean. The idea was that with a fast indexing, this would be mostly irrelevant as retirement funds would automatically buy into the IPO after 15 days thus bolstering the company before any sanity would prevail on the markets.
Now that they have to wait a year for that point, that cash burn is going to work against them fairly heavily. There is also something like $20 billion of debt they have to pay back in the next 12 months that might not be covered over so easily now.
That said, SpaceX and a lot of Elons companies have had figures that look terrible for ages, and yet they keep manage to pull rabbits out of the hat. So who knows. Maybe they sell a bunch of assets, they have more than enough to cover the gap.
The real issue is that existing shareholders will all be eyeing each other wanting to exit at the highest price it'll ever be. That's a lot of selling pressure.
I can't imagine many people seriously believe SpaceX is a business worth 1.75T.
Satellite internet is not a new invention- Iridium already did it and they went under. Nice for war zones and remote areas but not much else.
Besides the Chinese are launching their own network which will mean a price war. And the Chinese tend to win those.
Well, let’s not pretend like Starlink is the same as previous satellite internet providers. No previous providers were anywhere near as fast or low latency. The use cases for Starlink are a lot wider than previous solutions and it can even compete directly for customers who have cable existing service.
I still agree that the company is disastrously overvalued. Even if we consider Starlink to be just as valuable as a telecom like Verizon, that’s only a $190 billion dollar company.
Starling is an entirely different beast. However, it's addressable market is not unlimited. More people live in urban and suburban areas with fixed line internet than ever - the only real customer base is rural, and it still needs to compete with conventional mobile internet.
Starling is indeed very good, but it alone doesn't get spacex to 1.75T
Iridium cost $3/minute for voice or 2400bps data. Starlink prices and speeds are comparable to terrestrial broadband.
> retirement funds would automatically buy into the IPO after 15 days
This is a misrepresentation of the rule change. The proposed S&P500 rule change was to decrease S&P inclusion time from 12 months to 6 months, not to 15 days.
Not to whom you're replying...
Depends what you mean by successful. If you mean "the IPO goes ahead" then I don't think this makes a difference (unless Elon cracks the shits at this decision and pulls out, which I'm not sure is an option).
If "successful" equates to number-go-up, then my understanding is that Fast Index Entry would have resulted in, effectively, forced purchase of shares by various funds.
When Fast Index Entry (FIE) was a chance of being introduced, the odds of number go up were higher. Now that FIE has been ruled out, there's a lower chance of number go up because there's no "forced blind purchase" group.
Glad there are some grown ups in US leadership
They’ll be gone by Monday and replaced by a fitness coach or something.
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Although it’s good they stood by their rules, elsewhere Reuters points out
> S&P Global said it would modify entry rules for its broader S&P Total Market Index and Dow Jones U.S. Total Stock Market Index, creating a pathway for SpaceX to join those less widely followed indexes.
So not really as principled as it seems
https://www.reuters.com/business/finance/sp-global-keeps-fas...
Funny enough, I'd say that is exactly the place where tristanj's crusade actually makes sense, because those indexes are supposed to track the total market
Note that Nasdaq and Russel did put in place fast entry rules. S&P is the only one that didn’t.
https://www.nasdaq.com/articles/new-fast-tracks-account-olde...
Yea, this is great but I'm not sure how much this helps since it's just 1/3 keeping their wits about them.
Nasdaq clearly did it for the big bucks and getting the listing, why did Russell bend the knee?
Russell tries to represent what investors are actually buying and selling, a larger swath of the economy than S&P Dow and Nasdaq do
so they get a little bit of a pass for me, but Nasdaq doesn't
CRSP is changing the index VTI tracks
I wasn't familiar with the Center for Research in Security Prices (CRSP). Apparently they were acquired by Morningstar in February 2026. I also found this press release from Vanguard announcing they will be updating fund names (including VTI) to reflect the acquisition https://corporate.vanguard.com/content/corporatesite/us/en/c... but nothing on the fund composition or rule changes.
CRSP has had fast track rules for quite a while.
They changed their minimum float rule for these mega IPOs with low float.
Sorry so CRSP will be fast-tracking SpaceX? I just checked and my Vanguard has 50% in that so would like to understand how exposed...
According to their methodology, they will be fast tracking SpaceX (after five days).
The index is float adjusted so its initial weight in the index will be relatively low.
https://global.morningstar.com/en-ca/stocks/how-will-mega-ip...
I feel like you need at least one of the two rules (time, float)
This does seem sensible and I’m glad most of my holdings are in s&p funds.
Just to play devils advocate though, what are the downsides of not having 3 of the biggest 10 in the world not in your fund, if you hold to track broad market performance? Wouldn’t that have a massive blind spot on AI related growth?
Whether or not I personally think ai is over hyped or not, the whole point of these ETFs is to make sure I don’t get a say in the matter, since I’m a terrible stock picker
The new stocks are still going in, they're just going in after a year (the normal rules), rather than 5 or 15 days. The outrage here wasn't that the stocks were going into the indexes at all, it's that they were going in before price discovery, several quarters of earnings, more float, and expiration of insider lock-up periods, which seemed especially sketchy because of the (correct or not) perception that these IPO valuations are inflated and unrealistic. It seemed like they were trying to dump the bag on the public.
It seems the general consensus on HN is that they are overvalued and for sure will collapse in value down the road, I could imagine some frustration down the road if these companies actually become, say, 4T by the time they get added to indices.
There are different indices if you want to be exposed to that risk.
What examples have there been in the past of a company which did all its growth in the 1-year period following the IPO, then stopped right when they were added to the index?
GoPro?
> the whole point of these ETFs is to make sure I don’t get a say in the matter, since I’m a terrible stock picker
When you IPO, the company basically can set its own price. Then investors can buy it or not at that price. If you set the price so high it makes your company one of the biggest, it means automatically index funds will buy you at the price you set for yourself, no questions asked.
To prevent abuse from this, index funds that track "biggest stocks" have a waiting period, it was often 1 year. That way, by the time the index buys the stock, the price should be reflective of what the market think it's worth, not what the company decided it was worth when they IPOed.
These ETFs have always done this, because you want to hold the biggest company the market chooses as biggest, and not that the company decided.
> Just to play devils advocate though, what are the downsides of not having 3 of the biggest 10 in the world not in your fund
The same downsides as not having giant private companies in your fund.
I'm certain that no index wants to be known as a bubble index. The AI bubble is going to trash huge numbers of industries and wipe out enormous amounts of investor wealth when the music stops. That bubble bursting will make the 2008 financial crisis look like peanuts.
No, because AI is still unprofitable and could even be called a speculative venture given the crazy spending amounts. Let the speculators take the risk and reap the rewards. When profitability and all the other conditions are met, I’m happy for the greater market to buy in at the price the market determines. I think everything is functioning as designed.
Good thing they're not dropping the profitability requirements. Ed Zitron would be proud.
This made my day. The fast track entry is 100% a pump and dump setup.
All that wailing and gnashing about Spacex ipo 'forcing' index fund to invest and thus 'loot' poor people's retirements... when all you had to do was just...add a waiting clause.
It can still be a passive fund, not the end of the world.
Index trackers hire talented people surely they can add a waiting clause in their tracks too, just like S&P.
If your index isn't adding waiting clause, it's simply because they are greedy.
Those mega IPOs are the latest grift to unload overpriced shares before the whole AI tulip bubble explodes in everyone's face.
The insiders know it, which is precisely why those IPOs are happening right now. Employees and VCs don't want to be holding the bag. small-time investors will be.
Also, SpaceX is going to unlock more and more on their float at around the same time most indexes will have to buy it. It has been engineered to socialize the losses.
I'm happy SP didn't agree to fast track any of those, unlike VTI and Nasdaq100. I spent the weekend to rebalance all my retirement accounts to make sure none of them are going to fast track those grifty IPOs. Unfortunately, I cannot do that for my taxable accounts as it would generate a tax-event.
Think it does also need to be said because there's a LOT of amateur investors here: If you're a person sitting there thinking you'll drop even just a few thousand dollars into SpaceX, OpenAI, etc when they list - you probably shouldn't. You'll very likely be losing it and you're the one about to make someone else rich.
They are happening now because the entire space narrative is dependent on SDI, sorry Golden Dome, as a massive heist of taxpayer money for the militarization of space (nobody believes in economic civilian space compute). Like SDI it’s bullshit but like SDI it works at robbing everyone blind.
That relies on Trump in power.
No?
No one believes the Golden Dome will get built. No one is valuing space on that basis either.
Even SpaceX's IPO isn't valued based on space launch and that's the problem.
“Space Datacenters”
Two words - Thank Goodness.
Before the flood of money from the index funds arrive, I'd love to see what's the right valuation for them.
So relieved to see this!
What is prompting SpaceX to IPO all of the sudden?
I'm personally convinced that this is Musk trying to get out of debt from his Twitter purchase.
That is a part of it.
Think of it like security backed bonds, if you bundle a lot of dud businesses into a single business that is doing ok then as an aggregate it looks fine. So bundling Twitter and xAi into SpaceX covers up that. This is why I suspect they will eventually merge Tesla into SpaceX as it is on the decline now.
The problem is that with the current cash on hand and large loans coming due, they only have a 6 month runway. Thus the IPO to get other peoples money to hopefully fund themselves until solvent.
All IPO's are essentially that, people invest in your business, the business uses their money to achieve more, and if it all works out then future profits can eventually be paid back to investors.
> people invest in your business, the business uses their money to achieve more
that was what normally would happen. However, in the last few decades of IPO, it's become common to have two classes of shares - one being the controlling shares that founders hold on to (with 10x the voting rights), and a 2nd class of ordinary (common!) shares with 1x vote per share.
This means the founders (and early investors perhaps) don't give up any controlling stake of a company at all when the IPO while only selling common shares. Doing this means they get to control the company's operations and financial moves, without shareholder oversight, but obtain all of the shareholder investment cash.
You could argue this can lead to better management, as the founders are more likely to care about the company than professional managers that typically would be hired to manage a public company. I say that is only an argument of luck of the draw, rather than a good argument against the above share and voting right splitting.
Look at facebook/meta - would that company be as invested in things like the metaverse, etc, if zuckerberg weren't in a controlling position?
These two classes of shares were only introduced in the 1990s.
"Get out of debt" is funny because his whole shtick is always being in debt. But yes, his creditors are probably asking to be paid out so he needs to milk SpaceX. Luckily, he can take the company public with a tiny float so that index inclusion drives the share price through the roof, allowing him to borrow against considerably greater assets.
> What is prompting SpaceX to IPO all of the sudden?
i've wondered the same thing. I honestly think it's going to hurt SpaceX rather than benefit so there must be a reason other than furthering the mission. SpaceX beholden to the market seriously constrains them in my opinion. For a group already tasked with an unbelievably difficult mission, having to please Wall St. seems like a PITA distraction.
That already happened with the merger of X with XAI and then the merger of Xai and SpaceX.
But the reason is because SpaceX is trying to tool up for orbital datacenters. They're building a bunch of solar cell manufacturing plants and Starship launch pads.
Or at least they are selling the idea of orbital data centers since the technology for orbital data centers does not exist yet or in the short term.
It’s literally just a satellite with GPUs on it. SpaceX already has about 100MW of satellites in orbit. They’re making an upgraded version of these satellites, V3, designed for launch on Starship. Making a bigger versions of those with larger radiators (because of the duty cycle) and putting them in sun-synch is all that is required, if it can be done cheaply enough. And Starship, if it works, should be cheap enough as its propellant cost would be less than the fuel cost of using airliners to do transpacific air freight.
Ok… but thats not a data center?
I’ve ran a small datacenter. 30kW can be a “datacenter”
Orbital datacenters is just an excuse of a reason to merge the two companies when there’s nothing else tying them together. They won’t actually happen.
SpaceX will run out of things to profitably launch with Starship once they launch Starlink V3 (a few hundred launches per year), and orbital datacenters provides effectively unlimited launch demand. Like Starlink was for Falcon 9, orbital datacenters are a way to fully leverage the insane launch cost advantage and launch capacity that Starship brings to the table.
I see your point. All this launch capacity is coming online but, once Starlink is built out, who is going to buy it? Surely Starlink maintenance isn't big enough [edit: maybe it is, it's hard to get my head around the number of sats]
The datacenters in space thing just doesn't make sense to me. Datacenters get their value from scale which is why they're so freaking massive here on earth. I just don't see any datacenter in space being big enough (unless built over multiple lifetimes) to use let alone profitable/desireable. What am i missing?
It didn't already happen. As you pointed out, people who funded the purchase of Twitter hold SpaceX shares, and this IPO is how they get their money back.
It did. After the merger with SpaceX, the Xai debt got renegotiated at a very low rate.
Excellent. I was getting ready to reposition due to the risk.
S&P500 is already the A&I5 so yeah.
See also S&P press release, "S&P Dow Jones Indices Consultation on Treatment of MegaCap Companies - Results":
* https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-...
So they did tweak the rule for total market indexes, just not the "curated" ones.
In the summary table of "proposed changes, current methodology, and result", the result column is "no change" for all rows. What rule tweak are you referring to?
Edit: Ah I see it now. Separate tables for S&P cap-based indices and their other indices.
it makes sense for a total market index as it's a "total market" index. Given the purpose of the SP500, it makes less sense but I still see the argument. Grift or not, morals or not, an index shouldn't care. An index shouldn't care any more than Excel should care about the morality of evaluating a formula. It just tracks what it is defined to track. Leave it to the individual index tracking funds to apply a philosophy to their investments.
I was quite concerned about this, so this is really good news.
In Spain, it's much better to use mutual funds rather than ETFs (for tax reasons) so I didn't have as much choice of funds to avoid these IPOs.
Thank goodness. I was v concerned about the implications of this.
It’s a huge relief. This was one of the largest frauds about to be forced upon so many unsuspecting investors. Epic in proportion.
* https://archive.is/https://www.bloomberg.com/news/articles/2...
* https://archive.is/15pOn
For me, that only shows the first two paragraphs.
This lets you read the whole article: https://finance.yahoo.com/markets/stocks/articles/spacex-oth...
Unsurprisingly, it was all fluff.
It seems MSCI will add them, maybe? See: https://www.msci.com/indexes/markets-in-motion/megacap-ipos
But it's written in a rather confusing manner so I'm not certain.
Keeping newly-publicly listed companies off an index keeps outliers from screwing with the index. It's no secret that companies that have recently gone public tend to be considerably more volatile than companies that have been public for a while.
I see a lot of comments saying things to this effect: "S&P 500 is just a metric/benchmark, not a fund, so it should consider the whole market even if that includes a newly-listed but very large company." And yeah, the S&P 500 is an index, not a fund.
But you know what is a fund? SPY, VOO, IVV, FXAIX, and loads of others. Regardless of what institution(s) manage your retirement accounts, you are almost certainly benefitting from the S&P 500 filtering out post-IPO fuckery.
The irony of all this drama is probably 90% of 401ks (retirement accounts) are in a target date fund since that's the default for most/all. When you get your 401k it figures out when you're going to be 65 and then drops you in a fund that gives you the highest and safest return at the time you hit 65. Target date funds contain all kinds of other funds and are actively managed and drift towards bonds (historically safer). As you get closer to retirement you have less time to make up a downturn therefore the risk level gets automatically turned down.
So the whole argument of taking advantage of retirement accounts with these rule changes kind of falls apart. If you're close to retirement these funds want nothing to do with equities let alone high risk IPOs. If something happens, like a rule change to a tracked index, and all of a sudden the risk goes way up then the fund managers will make an adjustment to the portfolio that gets the risk back to where it was. Further, the SP500 deciding not to change rules doesn't do anything really anyway. If you're far from retirement your target date fund is going to get exposure to these IPOs because you can tolerate the risk and therefore maybe reap the reward.
If you're actively managing your 401k and have everything in say a total market fund or some other investment then you're well enough aware and educated to switch funds as you please. I don't think those people are going to be impacted either because they will/should just switch to a fund they like. If they are negatively impacted then they made the wrong decision.
If you have your own brokerage account and you're invested in a fund tracking an index you no longer like, well, then you need to sell and buy something you do like. I still don't see the reason for all the drama :shrug:
What i think is really happening is people are having a very emotional response to SpaceX because of Elon Musk and the idea of him becoming a trillionaire and Anthropic/OpenAI because of AI and the risk to labor.
I do wonder if some of it is big tech fatigue. A lot of people east of the Rockies are sick and tired of SV, and to them this just feels like the latest round of "big tech in places nobody asked it to go."
I am currently reading a book about the post war history of the Amsterdam stock exchange and it's quite funny reading about the booms and busts.
Although I am in my 40s I had already forgotten a lot- but yeah I was there in the 1990s. Repressed traumatic memories. Dutch consumers really soured on stocks when that house of cards collapsed.
I would say "it is happening again" but at least now we have bots who trade for us in milliseconds (although those didn't save anyone in 2008).
I feel like this drama is another example of the overall society change toward the culture of victimhood. Now it's passive investors outraged about being victimized by stock market index rule changes. The answer is, if you're so upset and impacted then cease being a passive investor. But then the standard reply is "well what about all the retirement accounts and people who just can't adjust?!". Those accounts are in target date funds actively managed for risk anyway so it doesn't matter. For the people who adjust their 401k's as they see fit, well, they should keep doing that.
I feel like SP500 made the right decision because the proposed changes don't really align with the purpose of the SP500 IMO but i'm not a financial expert. The HN drama on some issues is a sight to behold.
It’s popular to trash these IPOs now but I bet if spacex or the big AI companies don’t follow the same pattern as other IPOs and the stocks just keep climbing and making the shareholders a bunch of money, I can’t wait to see people saying stuff like “the market can stay irrational longer than you can stay solvent!” and giving explanations on why they knew this was going to happen all along and why the rule changes were actually a good thing!
As far as I know, will still be included in the NASDAQ 100 (since NASDAQ changed their rules already and SpaceX will be listed on that exchange).
> SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
Good. Looks like there's still a bit of sanity left in this world.
This is the right decision. These indices are intended for stable, profitable companies with a proven long term business model. It’s not ment to be a casino.
The market has plenty of other options available for folks that just want to bet the house on red and hope for the best.
How can we get the other indexes to also follow this too
Huge win for investors, given that S&P 500 funds are by far the largest index funds on the market, with VOO, IVV, and SPY being the 3 biggest ETFs.
Interesting from a sentiment perspective. The market is pricing in inclusion before it happens. By the time it's official the alpha is usually gone.
At least someone still has some backbone.
I wonder how much of this decision is driven by recent media coverage about ETF holders getting screwed
https://podcasts.apple.com/ca/podcast/the-rational-reminder-...
Long listen but a very thorough and nuanced discussion by a bunch of smart investment / finance guys in Canada. No click-bait-sky-is-falling content.
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You broke the site guidelines in more than one way here, including crossing into personal attack. Please don't do that on HN.
There's nothing wrong with someone sharing a link to a podcast they found interesting. That's normal and fine on HN. What's not fine is attacking other people or criticizing them for ordinary conversation.
https://news.ycombinator.com/newsguidelines.html
were you trying to reply to someone else?
No, I'm saying they are hyping up some random podcast while saying sweet nothings. I really don't like empty hype. I want some actual content to posts that actually says something, not just links breathlessly encouraging me to go spend an hour listening.
Not sure where you get the breathless bit from. If you don't want to listen, then don't. If you want me to summarize everything for you and give you the bullet points that is also something that will take more time than I am willing to commit at the moment. You can listen to it, or not. No skin off my back. The irony with some of the commentary is along the lines of "don't listen to influencers" and the like. I provided a link to (what I feel to be) a very worthwhile listen that is the antithesis of the grab-a-headline news of late. I have no connection to this particular podcast and have listened to a handful of episodes over the years on subjects that interest me. This particular subject (Huge IPOs, what is or isn't tracked, what float is, etc) turns out to be a relatively deep domain and there are inherent tradeoffs between different approaches. That's all.
And where did the ad hominem part arise?
https://human.libretexts.org/Under_Construction/Clean_Up_(Pr...
Search for "positive ad hominem".
It's all empty words.
> a very thorough and nuanced discussion
> bunch of smart investment / finance guys
> No click-bait-sky-is-falling content.
The middle one is the ad-hominem puffery. The rest isn't quite exactly 100% 'of the person's, but still doesn't give me any actual leads into what the content is: its just empty puffery.
> vacuous empty comments > saying sweet nothings > empty puffery
By definition the only ad-hominem comments to be seen anywhere above.
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No, I'm going to advocate for more than empty posts. I should have some concrete expectations, some reason to click in, beyond "I like this". That's not good enough.
Looks like US society and its systems are well and alive despite the usual doom and gloom.
It’s a single index… that doesn’t say anything about the country and its systems
Not just any index, it's the most important index.
Which doesn’t change the fact that says nothing about US society and systems…
I wouldn’t buy an ETF for an index fund that includes non dividend paying stocks
The amount of misinformation around this topic was absolutely nuts over the past few days. Good rule of thumb: if a YouTuber or other influencer was pitching doom and relaying this rule change by S&P as a fait accompli, stop following them.
(It was a common misconception on this thread: https://news.ycombinator.com/item?id=48364055.)
Contrarily, you can interpret the doom pitches as a necessary political backlash whose degree of panic and whose quantity prevented the change from ending up as a fait accompli.
Public decisionmakers do this sort of thing all the time. They "float an idea", "test the waters", "put up a trial balloon". They see what they can get away with. When the decisionmaker has a strong desire for the change, it may only get rolled back if powerful and widespread public dissent makes itself known, as it did in this case. When they don't really care about the issue, they might cancel it at the first sign that anyone has an issue. We can't know their degree of insistence just based on outcomes in these cases.
> the doom pitches as a necessary political backlash
It was totally misinformed, came well after the public-comment period had ended and had zero net effect other than maybe generating some commissions and management fees for rando managers.
There is bona fide hatred for these companies and their managers. Influencers twisted the facts to channel that for views.
What's the urgency to bend the rules? It is not like SpaceX is banned for good. It will be included as soon as it meets the requirements.
> What's the urgency to bend the rules?
If you’re buying into a tech-marketed fund like the NASDAQ 100 and it doesn’t include a large chunk of the tech market, you’re no longer passively investing in tech. You’re investing in an actively-managed fund.
Historically, companies like SpaceX would have gone public earlier and grown into the index. Recognizing that has changed with multiple $1+ trillion IPO contenders makes sense; as it turns out, I think both NASDAQ and S&P decided correctly.
Yeah, but is SpaceX actually worth $1T or does Elon just think that because of how Tesla investors value Tesla?
> is SpaceX actually worth $1T
Actually irrelevant to an index calculation. If your index manufacturer is taking this into account at any level, they're actively managing. S&P predates the modern active-versus-passive dichotomy, but it functions within it in practice, and despite being a leader of committee-based indexing philosophy, they've broadly found success by also being champions of passive management. And part of doing that is rejecting judgement over how the market is weighing this or that.
That would be true IF the stock was already being traded.
All we have at the moment is just Elon saying "I think this is worth $1.5T, convincing a small subset of people to buy shares, and then because of this change, market following funds will be forced to pile in before the market has had time to discover the actual true fair price, thus artificially propping up the price until Elon has had time to unload a load more shares. The rule changes serve only Elon, not regular investors.
Historically, the share price falls sharply after an IPO in the vast majority of cases. In this case, with the asking price masssively over earnings, significantly more than any other company, it should be expected that the price will fall significantly in the weeks after IPO.
Shortening the window before it gets included in the index is a cheap trick to force passive investors to pile in at the inflated prices, in an attempt to artificially boost demand and prop up the share price.
If the company genuinely was worth the valuation being asked for in the IPO, they would have no problems with just waiting a few months before it would be included under the existing rules.
If someone is trying to bend the rules of my passively managed index fund to their will, are they trying to actively manage my passively managed index ETF ?
Only Elon is allowed to actively manage my passively managed fund. The fund manager shouldn't be allowed to do it!
Historically a $1T market cap with a PE of 20.0 would be achievable with a $50B/yr profit. That seems easily achievable eventually for SpaceX, as it has actual hardware and services and IP.
> Historically a $1T market cap with a PE of 20.0 would be achievable with a $50B/yr profit. That seems easily achievable eventually for SpaceX, as it has actual hardware and services and IP.
It seems crazy to me to make a comparison between a company being valued on it's current profit and then to say it's reasonable for another company to have the same market cap because it could eventually have the same profit.
I didn't say that at all. I said it was achievable for SpaceX eventually. It's not a $1T company yet. Reading comprehension, people.
Your sentence was the direct response to the question:
> Yeah, but is SpaceX actually worth $1T
The question and context of your response was about SpaceX's present value. Given the context, I think my response was absolutely a fair reading of your response.
> Reading comprehension, people.
Indeed.
It's years away from $50B/year profit, if it ever gets there. The IPO valuation is insane.
Plus they now also have to compensate for the giant money fire called xai and the nazi cuddle huddle X/Twitter.
The valuation is insane and the very low float plus short timeframe for actual price discovery just seems built to extract money from index investors.
They can follow the same rules as everyone else.
It does have real hardware, but it’s not in wild growth areas. They’re making their most consistent money from Starlink, which is a solid product but has growth limited by competitors from conventional ISPs with far-superior fiber networks, and the space launch business is similarly not the kind of thing where you get Google/Facebook-level growth curves. That’s not a slight, it’s just different industries: advertising companies can grow rapidly because scaling customers is so much easier than launching cargo into orbit.
The wildcard there is AI, and that seems especially dangerous to project long-term revenue from their current performance: xAI is barely in the market except renting capacity to Anthropic, so you’re gambling that they’ll continue to pay $1¼B/month for what is largely a commodity offering. Even if you’re bullish on Anthropic, that doesn’t mean xAI gets part of their profits, and given the way they blindsided the local authorities there’s a substantially greater than zero chance that they’ll get a major setback if the neighbors win their lawsuits. That doesn’t mean they’re doomed, but anyone estimating their future performance has to factor in some real risks.
Yet, I, a relative peasant financially has been hit by 3 different brokers that I'm eligible to participate in the offering. I would hazard a guess they are not getting the uptake in institutional money they were hoping for.
“ Historically, companies like SpaceX would have gone public earlier”
Could woulda shoulda. Mate they didn’t. Moreover if they had, the existing investors would’ve got a shittier exit.
Yes, they did. In the wake of Enron, Sarbanes-Oxley was passed, for which the 2nd order effect was that companies take years and years longer to IPO. 10-17 years on average since 2010 (it used to be lower). (There are other reasons, it's not purely due to SOX.
The existing investors don't have liquidity. I can't buy a house or pay my bills with shares I'm not allowed to sell. A better exit later is worthless if I starve to death before the exit.
“ The existing investors don't have liquidity.”
Did mom and pop invest..? No they did not. The investors who did knew the long time horizon they were committing to.
They could’ve gone public earlier - they chose not to and venture capitalists were happy to keep supplying the funding.
Also lol @ using that act to explain why people take longer to ipo. Lest we forget how deep venture capital has become. Hahahha
> You’re investing in an actively-managed fund.
Nitpick: It’s still a passive fund, just that the index constituents are decided actively by a committee rather than by a simple criterion. As you no doubt already know, S&P500 isn’t just taking U.S. companies publicly traded on an exchange, sorting them by market cap, and then truncating the list to the first 500.
Not really. The underlying rules for Nasdaq has changed.
The preexisting ruleset was used by investors to gauge their portfolio balance.
Now investors have to revaluate their portfolio based on the new ruleset as their fundamental risks have changed.
Yeah, the rules have kind of made the passive investment active. I don't understand OPs point at all. I don't understand why we suddenly change the rules and rush things, and OP has provided 0 justification for that.
>I don't understand why we suddenly change the rules and rush things
Because this is how the rulemaking processes for these indices have always worked?
Why are you suddenly making this argument now, and weren't complaining about previous rule changes?
Because the rules are clearly going to result in lots of buying pressure from passive indexes on a large stock with little time for price discovery.
Come on, let's be adults here. Is there a prior example of this on a comparable scale?
It's already well known that passive indexes bleed ~0.5% performance solely to front running and exploitation from the market. This is that writ large.
> You’re investing in an actively-managed fund.
I see others are listening to the Money Stuff podcast ;)
Wrong.
HN has been speculating on how wealth would be extracted from 401k and IRAs at least since the November elections in 2024.
Far before any influencers even thought this would be a thing.
I thought forced cryptocurrency funds, but it turned out to be something else.
S&P wasn't fait accompli, but the NASDAQ 100 was
> S&P wasn't fait accompli, but the NASDAQ 100 was
Sure. Nobody was properly making this distinction in social media, including on HN. Particularly with respect to the differences in scale and purpose between the NASDAQ 100 and S&P 500.
I would't be surprised if the freak-out reaction to SpaceX being on the nasdaq100 and even being considered for the s&p500 was a strong factor in S&P saying no; if so than the histrionics were worth it.
> would't be surprised if the freak-out reaction to SpaceX being on the nasdaq100 and even being considered for the s&p500 was a strong factor in S&P saying no
I would. I know some of the people. And NASDAQ 100-tracking funds have seen inflows, not outflows, as a result of the flip.
S&P management wanted the flip. The econometricians said no, because they're that sort of folk. The influencers get to entertain and drive some fraction of listeners to churn, which I guess keeps the ecosystem fed through commissions and management fees.
The fact that a fast track was even considered is controversial IMHO. People flipping out, especially if their retirement is tied up with those indices, is to be expected. No one wants to be a bag holder for billionaire insiders.
Every rule change is controversial. This one was less so than almost any prior one I can remember–the dual-class one in 2017 (later reversed) generated far more real press. This one was mostly an influencer thing.
You're making a similar mistake treating it as fait accompli that SpaceX will tank between IPO and some future date, but that isn't a given either.
sure it's not a given, but I certainly am not confident enough that it won't happen to bet my money in it, which I would automatically be doing if it was admitted to the SP500
It would make up less than 0.15% of the index with the limited float available at IPO. Even if it went to zero, your portfolio wouldn't notice it.
Firstly, I think 0.15% might be significantly lowballing. Other commenters I've read trying to low ball it suggested 0.5%, which matches up with my calculations - this IPO is allegedly $1.5T on the total amount, and 25% is up for sale, making $375B. The S&P 500 market cap is $69T, which puts the IPO at 0.54%.
In addition, that's just the initial IPO free float value, and other shareholders will be free to shed their shares after IPO (and presumably, that's where the bulk of index investment funds will actually buy from), so the free float will be higher, pushing up that share even higher.
Sure, in terms of overall market fluctuations, 0.5% is significantly less than a typical day of market volatility, but on the other hand in terms of my current portfolio, as a dollar amount that's significantly more than my monthly expenditure when I'm not vacationing. I don't particularly want to be funding Elon's exit strategy when I already believe it to be a scam. Thanks to S&P's decision, about 25% of my investments are safe, but approximately 60% of my funds are linked to FTSE World indicies, which is changing the rules.
As I stated in another post, this is just a cheap stunt to force passive investors to prop up the price before it has a chance to settle. The majority of IPOs settle on a price below the IPO price in the months afterwards, and never before have we seen an IPO with such a high P/E ratio. This is literally unprecedented, and the sensible thing to do would be to stick to the old rules to allow the market time to discover the true value before inclusion in the indices. At the moment, the valuation is just a number in Elon's head rather than a fair market valuation. Forcing index-following funds to purchase it at the artificially high price is reckless at best and profiteering at worst.
In addition, it's not just 0.5%. It's 0.5% now, and then the same for Anthropic, and then the same for OpenAI, then all the other IPOs in the future. To put that into perspective, most investors would baulk at 0.38% TER for a passive fund and move to 0.12% TER. 0.5% isn't nothing.
SpaceX is not worth $1 trillion, when most of that valuation is based on xAI being worth far more then their already dominant position in the space launch business.
It's more about sidestepping the waves of market manipulation.
What was the common misconception?
> What was the common misconception?
That the rule change was a done deal. The pitch was some shadowy financial cabal forcing everyone’s retirement savings into SpaceX (which would not have been true even if S&P voted to include, but that’s a separate topic).
The top comment and most of its subthreads are run-of-the-mill alarmism.
> The top comment and most of its subthreads are run-of-the-mill alarmism.
Worth considering:
* https://en.wikipedia.org/wiki/Prevention_paradox
And the rules for the NASDAQ 100 were changed, as were MSCI and CRSP:
* https://www.schwab.com/learn/story/some-indexes-accelerate-e...
Most assets don’t follow those funds. And NASDAQ 100 is explicitly tech focused, I support them making the change.
The doomsaying was around most retirement assets. Which don’t follow any single index. But to the extent they do, follow the S&P 500.
The market wasn’t pricing in any rebalancing. Commenters were screaming bloody murder about it. In the middle, I’m sure some numpties generated trading and management fees by switching target funds.
> The doomsaying was around most retirement assets. Which don’t follow any single index. But to the extent they do, follow the S&P 500.
Yes, which is why the news that S&P isn't changing their rules is kind of notable. Vanguard's S&P 500, $VOO, just hit US$ 1 trillion AUM; the next biggest, $IVV, is just over $800B; $SPY is just under $800B.
* https://etfdb.com/compare/market-cap/
* https://www.tradingview.com/markets/etfs/funds-largest/
That's about USD 2.5T.
As they should have. The rules were in flight with a layover time measured in days on assets that are managed on the timescale of years. There was a legitimate reason to act urgently. It's easy to make claims in hindsight but the information on hand it was 100% the right call to protect your investments.
This is not misinformation. Misinformation is saying the proposed rule change and their proximity to trillion dollar IPOs introduced no risk. Please do not spread such misinformation.
VTI uses crsp and is very large
Fourth largest, after three S&P 500 ETFs:
* https://etfdb.com/compare/market-cap/
and I think they have a non-ETF branch as a mutual fund that is larger
It seems to me like there's a fair amount to be concerned about, I wouldn't consider myself an expert on finance by any means so if you have some explanation of why it's not that bad I'd love to hear it.
Two other indices changed their rules to allow these companies specifically. Pensions and retirement funds rely on these indices to have continual, stable growth. Often the people whose money is being invested don't even have control over its allocation into these funds.
Coupled with the precarious state of the economy due to all the money already flowing through AI, changing the rules to throw retirement fund money into brand new extremely highly valued stocks with P/E ratios in the hundreds seems like a recipe for disaster. It reminds me of subprime mortgages.
> Two other indices changed their rules to allow these companies specifically
One of which is the NASDAQ 100, marketed for decades as a tech-focused index.
> Pensions and retirement funds rely on these indices to have continual, stable growth
Pensions build their own benchmarks. About 10 to 20% of retirement assets follow these indices directly for a variety of purposes. The S&P 500 aims for continuous large-cap growth, but that isn’t true for most indices, which seek to replicate something random.
> changing the rules to throw retirement fund money into brand new extremely highly valued stocks with P/E ratios in the hundreds seems like a recipe for disaster
The NASDAQ 100 has seen practically no net outflows due to this decision. And most retirement assets don’t blindly follow any index, let alone any single one. I opposed the rule changes at S&P. But the catastrophising was made for clicks and views. Not to inform anyone.
Like, anyone who actually acted on that brouhaha changed out of an index that isn’t going include SpaceX, incurring transaction fees and potentially tax hits (for non-retirement accounts) in the process, and probably cycling into a higher-fee fund.
> marketed for decades
So why change? You're not building a case for why this change is needed. Is there even another Nasdaq 100 company like SpaceX? Probably not because it would be an obvious point of discussion. So now we need to add a new 'thing' to our definition of tech, then change our funds to adopt our new definition. To what end, with this haste?
> The NASDAQ 100 has seen practically no net outflows
Is it a fund or just an index? If an index, what are you monitoring when you cite 'no outflows'?
> So why change? You're not building a case for why this change is needed
It has changed loads of times. Nobody noticed any time. Including this one. (Look at flows into and out of related funds.)
> Is there even another Nasdaq 100 company like SpaceX?
Right now? No. Including SpaceX. By the end of the year? Probably a few.
> Is it a fund or just an index? If an index, what are you monitoring when you cite 'no outflows'?
Covered assets. Indices license their indices. Funds pay that royalty.
> I opposed the rule changes at S&P
So you are happy with this outcome, but also so upset at the people that evangelized your preferred policy position that you think HN readers should cut them from the information diet?
Seems most likely that the public outcry actually influenced this outcome, so I don't see why the nuances of alarmism about it (imminent decision vs fait accomplit) should nix an entire information source.
> you are happy with this outcome, but also so upset at the people that evangelized your preferred policy position that you think HN readers should cut them from the information diet?
I'm fine with this outcome. I genuinely don't care about HN readers' opinions on this. I posted the original consultation to HN to crickets [1]. It's abundantly clear that people want to use this as a useless vector for griping.
> most likely that the public outcry actually influenced this outcome
Nope. Lots of reasons to show how and why that is the case. From personal connections to the timeline of the decision making. But I'm sure that's how the same YouTube commentors who misled the first time will spin it to great effect...
> I don't see why the nuances of alarmism about it (imminent decision vs fait accomplit) should nix an entire information source
Because they're bad information sources. They're terrific entertainment. And if you recognise that, keep subscribing. But this is in line with the numpties who listen to All In like it's the gospel.
[1] https://news.ycombinator.com/item?id=48054324
I mean S&P had actually drawn up a lot of the changes, regulations, and paperwork for entrants, so it wasn't a done deal, but they absolutely were considering it, and it was a very real "risk".
>> What was the common misconception?
> That the rule change was a done deal.
What are you talking about? The rule has already been changed in the NASDAQ. That makes it a done deal.
Anything changed can always be undone, but to be clear it has already happened. That makes it a done deal.
The S&P change was taken as a done deal. Search that page for S&P. The indices that flipped are less relevant than many individual active managers.
Do you think that all the alarm had any effect on the blocking of the rule change? Is the right time to complain about a possible change is after it has been decided?
I don't think doom and gloom on HN had any effect, no.
It was much broader then HN
> Do you think that all the alarm had any effect
Nope. S&P management probably wanted the rule changes passed.
>if ... YouTuber... stop following them.
Great advice.
Oh come on Jump, how can you deny it's not shady?
I could kind of agree with the argument that "well these companies stay private longer so they are more mature" but the float exemption with the seemingly arbitrary calculation to figure out weights completely belies that argument.
> how can you deny it's not shady?
It wasn't. It's dumb. But that's different from shady. At the end of the day, the market never priced in the S&P making this decision because the default understanding was a public consultation by S&P goes nowhere. Influencers ran with a consultation being a fait accompli and now anyone saying otherwise is licking billionaire balls.
Yes, I think given that misinfo this was probably the right decision by S&P, everyone would be saying I told you so and screaming about providing exit liquidity.
My prediction is that this will overall end up costing index holders money though. They will ultimately get a worse entry price for SpaceX and the other mega IPOs. Only time will tell.
They might but changing the rules for a highly controversial company would do more harm in lost trusts than gain for investors.
Exactly. There is this undercurrent of The End Times everywhere, that this is it. This is the end of ... everything that was. When in fact it is not the end times, and the people at those indexes want to exist longer than SpaceX.
Index investors often believe that indexes work well because they average everything out.
The reality is something like 96% of public companies underperform treasuries.
ref: https://paretoinvestor.substack.com/p/why-96-of-stocks-are-d...
That blog post is garbage and fails to accurately convey the paper it is based on.
>I rely on the Center for Research in Securities Prices (CRSP) monthly stock return database, which contains all common stocks listed on the NYSE, Amex, and NASDAQ exchanges. Of all monthly common stock returns contained in the CRSP database from 1926 to 2016, only 47.8% are larger than the one-month Treasury rate in the same month. In fact, less than half of monthly CRSP common stock returns are positive. When focusing on stocks’ full lifetimes (from the beginning of the sample in 1926 or first appearance in CRSP through the 2016 end of the sample or delisting from CRSP), just 42.6% of common stocks, slightly less than three out of seven, have a buy-and-hold return (inclusive of reinvested dividends) that exceeds the return to holding one-month Treasury Bills over the matched horizon. More than half of CRSP common stocks deliver negative lifetime returns. The single most frequent outcome (when returns are rounded to the nearest 5%) observed for individual common stocks over their full lifetimes is a loss of 100%.
>Individual common stocks tend to have rather short lives. The median time that a stock is listed on the CRSP database between 1926 and 2016 is seven and a half years. To assess whether individual stocks generate positive returns over the full ninety years of available CRSP data, I conduct bootstrap simulations. In particular, I assess the likelihood that a strategy that holds one stock selected at random during each month from 1926 to 2016 would have generated an accumulated 90-year return (ignoring any transaction costs) that exceeds various benchmarks. In light of the well-documented small-firm effect (whereby smaller firms earn higher average returns than large, as originally documented by Banz, 1980) it might have been anticipated that individual stocks would tend to outperform the value-weighted market. In fact, repeating the random selection process many times, I find that the single stock strategy underperformed the value-weighted market over the full ninety years in ninety six percent of the simulations. The single-stock strategy underperformed the one-month Treasury bill over the 1926 to 2016 period in seventy three percent of the simulations.
>The fact that the overall stock market generates long term returns sufficiently large to be referred to as a puzzle, while the majority of individual stocks fail to even match Treasury bills, can be attributed to the fact that the distribution of stock returns is positively skewed. Simply put, large positive returns to a few stocks offset the modest or negative returns to more typical stocks.
https://obj.portfolioconstructionforum.edu.au/articles_persp...
Compare this to the blog post:
>The implication is devastating for index fund orthodoxy: When you own a broad market index, you’re mathematically forcing yourself to hold the 96.6% of stocks that create no value while simultaneously diluting your exposure to the 3.4% that generate all returns.
The professor just told you that investing in any individual stock is a terrible decision and that investing in more stocks means having greater exposure to the stocks that do net a return, creating a puzzle, where diversification doesn't reduce yields, in fact it did the opposite: it increases the yields.
There's also a general fallacy that any index (directly referred to as index orthodoxy) has to be a "broad market index", when in reality there are many competing indices. If someone came up with an index that would follow any investment strategy the blog post suggests and it turns out to work reliably, then people would switch part of their portfolio to that index. "Index othrodoxy" would prevail, because people just need a better index rather than abandoning the idea of an index altogether.
It's also difficult to reconcile with the fact that after fees, most active funds have failed to net higher returns to their investors. This random blog post is basically delivering an active investment strategy on a silver platter that will make fund managers and the people investing into it rich, is this believable? Consider that it's written in a "shocking" AI style, trying to sell you something.
Funnily enough, the ad in the middle of the blog post "The U.S. Treasury collapse is HERE!" is incompatible with the premise of the article, that 96% of stocks are worse than treasuries.
>But even if we use the more moderate 80/20 framing, the strategic implication is identical: If 80% of market returns come from 20% of stocks, why would you construct a portfolio that treats all five hundred stocks in the S&P 500 equally?
The thing is, you don't have to do that, like at all. There are indices like the S&P 500 Pure Value and S&P 500 Enhanced Value that are known to outperform the regular S&P 500. The problem is that they have done so over the long term and long term really means long term. There have been decades where they underperform.
Also, the article is three times as long as it needs to be, it's clearly AI generated.
Edit: Invesco renamed their ETF to S&P 500 Concentrated QVM.
The appearance impropriety is almost always just as deferential as actual impropriety. Missing out on Gains will do a lot less damage than getting caught in a pump and dump scheme
> given that misinfo this was probably the right decision by S&P
The misinformation was almost certainly not taken into account, and it shouldn’t have been.
> everyone would be saying I told you so and screaming
Influencers will scream regardless. It’s what they’re paid to do. The NASDAQ 100 made these changes and is doing just fine.
> will overall end up costing index holders money though. They will ultimately get a worse entry price for SpaceX and the other mega IPOs
There are lots of indices. S&P largely targets those built around mature companies. If you want a total-market index, those exist and tend to rapidly incorporate IPOs.
lol what
You can just wait for the price to drop post ipo as it usually does if you actually want to invest.
Not really seeing the issue you are raising. Seems like a pretty nuanced thread.
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Good. I'm surprised, though, that the usual fanboys/stans aren't converging on this to protest how unfair the S&P is.
They are.
Guess I got in a bit early then ...
This feels like massive news that general public won’t ever hear.
Basically nothing happened though. SpaceX asked them to change rules and they said no.
Everyone was certain they would. Multiple people I know were rebalancing their portfolios way from the big index funds
> Multiple people I know were rebalancing their portfolios way from the big index funds
Hypothetically, let's say the SpaceX IPO is a wild success. Will those people be disappointed on missing out in the returns? In other words, did they rebalance away because of financial numbers they didn't believe in or did they rebalance away because of emotional or philosophical reactions to the company? If they just don't like the company (likely company leadership) then i would guess they don't care how much return they miss out on, they want nothing to do with SpaceX period.
I made a long drawn out comment up thread but i feel like a lot of this drama is due to an emotional response to SpaceX because of Musk, and the possibility of him becoming the first trillionaire, and Anthropic/OpenAI because of AI's risk to labor.
No, it's definitely financial. Something along the lines of SpaceX's valuation only making sense if it replaces the entire productivity of white collar workforce of the entire USA with its AI ventures. If it ends up reaching escape velocity anyway, sure they would be disappointed, who isn't at least a little when they miss some opportunity.
Thank god.
very mature decision by s&p, but at the same time will this not hurt spacex and other big IPOs? i thought the reason these mega IPOs are coming is because investors have run out of money and they companies need access to broader market capital to sustain. without 401k and other funds, won't this just hasten the bubble burst? am i missing something?
This is why people are freaking the heck out and demanding that all the index funds MUST include the doomed stocks because they're just that important and totally aren't a doomed bubble you guys.
Not all viewpoints are unbiased overviews of the markets just wanting fairness. Some have always been trying to sell you something that's not what it seems, and they can be… vituperative.
Proof that inherent market efficiency is bullcrap if we need popular sentiment to get companies excluded for being obvious grifts.
> if we need popular sentiment to get companies excluded for being obvious grifts.
I don't understand this argument.
SpaceX is not being "excluded" for any exceptional reason.
S&P has stated, essentially, that SpaceX will be subject to the same INclusion rules as other companies. When (if!) SpaceX has a series of profitable quarters and reaches 50% free-float market cap, it will be included in the S&P 500 index like other companies are. https://news.ycombinator.com/item?id=48414252
I don’t know. Will this just delay bubble burst as people will be just waiting for the index inclusion?
Huge relief. Thank God!
Baffling number of total-paywall links on the front page here these days.
Now the other golden question: Will they still require profitability?
Thank fucking g-d.
Paywalled.
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Good.
For all the people worried about spacex inclusion in nasdaq/qqq/etc
It won't matter for your portfolio. Your portfolio will keep growing.
Maybe! Returns aren't guaranteed either way.