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SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

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Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#211

Post by ywvcbk »

tristanj wrote: post #188
usef- wrote: post #145

Earlier quoted context omitted.

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 p…

> 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.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#212

Post by JumpCrisscross »

stvltvs wrote: post #93
wiwiw1 wrote: post #51

Earlier quoted context omitted.

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.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#213

Post by JumpCrisscross »

WarmWash wrote: post #29
JumpCrisscross wrote: post #25

Earlier quoted context omitted.

> 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 make…

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.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#214

Post by matwood »

tristanj wrote: post #120
rchaud wrote: post #112

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 o…

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.

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.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#215

Post by ywvcbk »

tristanj wrote: post #153
majormajor wrote: post #138

Earlier quoted context omitted.

> 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 benchma…

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 nex…

> 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?

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#216

Post by ywvcbk »

tristanj wrote: post #177
tankenmate wrote: post #166

Earlier quoted context omitted.

"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…

"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 revis…

You want to turn S&P 500 to a total market index. Why? That was never its purpose.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#217

Post by Animats »

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.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#218

Post by Animats »

l23k4 wrote: post #179
vannevar wrote: post #124

Earlier quoted context omitted.

>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.

That's what "value funds" do.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#219

Post by JumpCrisscross »

Erem wrote: post #43
JumpCrisscross wrote: post #18

Earlier quoted context omitted.

> 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 grow…

> 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 s…

> 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

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#220

Post by ywvcbk »

tristanj wrote: post #136
MobiusHorizons wrote: post #129

Earlier quoted context omitted.

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…

> 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...

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