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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

#221

Post by JumpCrisscross »

insane_dreamer wrote: post #158
JumpCrisscross wrote: post #17

Earlier quoted context omitted.

> 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.

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

#222

Post by JumpCrisscross »

dogwalker5000 wrote: post #28
JumpCrisscross wrote: post #17

Earlier quoted context omitted.

> 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.

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.

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

#223

Post by tristanj »

lelanthran wrote: post #181
tristanj wrote: post #141

Earlier quoted context omitted.

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…

> 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...

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

#224

Post by JumpCrisscross »

golden-face wrote: post #63
JumpCrisscross wrote: post #3

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 .)

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.

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

#225

Post by tristanj »

rileymat2 wrote: post #148
tristanj wrote: post #141

Earlier quoted context omitted.

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…

What is it a benchmark for? All investable public stocks or the economy writ large?

[dead]

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

#226

Post by ywvcbk »

tristanj wrote: post #199
phlakaton wrote: post #169

Earlier quoted context omitted.

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…

> 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.

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

#227

Post by Strom »

dgellow wrote: post #175
wg0 wrote: post #154

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.

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

#228

Post by vkou »

iririririr wrote: post #193
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.

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.

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.

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

#229

Post by onion2k »

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.

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.

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

#230

Post by ywvcbk »

tristanj wrote: post #223
lelanthran wrote: post #181

Earlier quoted context omitted.

> 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 compani…

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.

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