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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

#251

Post by chvid »

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.

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.

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

#252

Post by tristanj »

ywvcbk wrote: post #230
tristanj wrote: post #223

Earlier quoted context omitted.

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.

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.

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

#253

Post by usef- »

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…

My mistake: it was Nasdaq that is being reduced to days, not S&P. Thanks.

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

#254

Post by twiceaday »

chvid wrote: post #251
l23k4 wrote: post #179

Earlier quoted context omitted.

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.

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?

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

#255

Post by tankenmate »

tristanj wrote: post #244
ywvcbk wrote: post #216

Earlier quoted context omitted.

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.

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

#256

Post by tristanj »

onion2k wrote: post #229
tristanj wrote: post #120

Earlier quoted context omitted.

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.

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.

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

#257

Post by Panzer04 »

l23k4 wrote: post #186
thatswrong0 wrote: post #32

Earlier quoted context omitted.

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.

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

#258

Post by Hamuko »

parliament32 wrote: post #161

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.

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.

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

#259

Post by tristanj »

tankenmate wrote: post #255
tristanj wrote: post #244

Earlier quoted context omitted.

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.

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

#260

Post by onion2k »

tristanj wrote: post #256
onion2k wrote: post #229

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. 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, a…

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.

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