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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SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
231–240 of 542 posts
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#232Earlier 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?
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.
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#233What 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...
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#234The 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 lo…
It'll be at 50% within 6 months, then 100% within a year.
https://www.economist.com/finance-and-economics/2026/06/01/c...
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#235What 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 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 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.
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#236Earlier quoted context omitted.
> 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 inde…
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…
> 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?
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#237Good. 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…
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 compan…
> 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.
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#238Earlier quoted context omitted.
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 sm…
>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…
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.
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#239Earlier quoted context omitted.
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.
Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P
#240Good. 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…
>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?