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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

#271

Post by kortilla »

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…

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.

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

#272

Post by notahacker »

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.

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...

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

#273

Post by yorwba »

baobabKoodaa wrote: post #264
yorwba wrote: post #261

Earlier quoted context omitted.

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.

(deleted)

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.

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

#274

Post by tristanj »

yoavm wrote: post #269
tristanj wrote: post #115

Earlier quoted context omitted.

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…

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.

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

#275

Post by ptsneves »

Animats wrote: post #217

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 lo…

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.

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

#276

Post by bflesch »

chii wrote: post #164
HerbManic wrote: post #146

Earlier quoted context omitted.

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…

> 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)…

These two classes of shares were only introduced in the 1990s.

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

#277

Post by esskay »

siren2026 wrote: post #114

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…

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.

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

#278

Post by tristanj »

ab5tract wrote: post #196
tristanj wrote: post #126

Earlier quoted context omitted.

> 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…

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.

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

#279

Post by jimmydorry »

yorwba wrote: post #273
baobabKoodaa wrote: post #264

Earlier quoted context omitted.

(deleted)

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.

Indexes rebalance frequently. The "correct weight" today, won't be the correct weight in a year.

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

#280

Post by tristanj »

tankenmate wrote: post #170
tristanj wrote: post #126

Earlier quoted context omitted.

> 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…

"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 i…

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.

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