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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

#471

Post by lovich »

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…

It currently would exclude all 3 companies because they aren’t publicly traded.

Post IPO they wouldn’t immediately be included. Every benchmark I am aware of doesn’t immediately include companies because there is a decent amount of volatility shortly after, especially due to all the internal stockholders who have restrictions on how quickly they can sell their stock and routinely dump their stock en masse the second those restrictions are lifted.

All the hubbub about benchmarks like Nasdaq right now is because they are altering their rules for these companies in particular and including them much earlier and before what are standard restrictions for employees to sell their stock.

The fear is that massive pension funds whose rules have them rebalance into these benchmarks will be buying up these stocks before that dump and the public’s retirement funds will be made into bagholders.

> Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. > A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.

Ok, now I know not to take you seriously if you can recognize companies aren’t following GAAP but think it’s wrong to not treat them the same. I don’t even know if it’s true that they aren’t following GAAP, but everytime a company tries to argue why they aren’t following GAAP but instead their own magic formula that shows how successful they are, we get another Enron or Theranos.

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

#472

Post by pera »

beernet wrote: post #442
tcp_handshaker wrote: post #383

Earlier quoted context omitted.

At this moment, there is so so much, publicly available information [1] on the fact the SpaceX IPO is the biggest scandal in the long history of Wallstreet insiders fleecing the "Johns". A scandal orchestrated and cheered on by the NASDAQ, as well as Goldman Sachs and JP Morgan the underwriters, that if you spend any money on it, you deserve to be parted with your money. And if you have a 401k...you are forced to buy…

Companies are innovating things that significantly enhance human capabilities and people will still find a reason to drag them down. I am not a fan of either these companies. At the same time, I strongly disagree with these doomer scenarios as they are dangerous for progress of humanity.

> they are dangerous for progress of humanity

A tiny bit hyperbolic for someone who's not a fan maybe? :)

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

#473

Post by lovich »

tristanj wrote: post #262
lovich wrote: post #243

Earlier quoted context omitted.

> Baseball rules exist to prevent cheating. > The S&P rules exist so the index can accurately reflect the market. I personally believe that accurately reflecting a market involves not allowing cheating. I personally believe that getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating. If you want to disagree…

> getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating. I disagree with you because you are vastly exaggerating the scope and effects of the proposed rule change. S&P was going to decrease their minimum index inclusion time from 12 months to 6 months. 6 months is far more than enough time for the market to…

> 6 months is far more than enough time for the market to decide a fair price of an equity.

I disagree.

> The rule change never ended up happening, hence this post. There is zero "cheating", I don't understand why you keep harping on that.

The S&P ended up not making the change. Other benchmarks like the Nasdaq did, and they went way faster than 6 months. The Nasdaq specifically is going to allow these firms to be included after 15 days.

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

#474

Post by phlakaton »

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…

Then your issue is not the S&P methodology, which despite changes in detail remains, as you've said, aimed at filtering out undesirable companies from the index. Your issue is that you want us to believe your favorite tech stocks, which are both wildly unprofitable and have P:S ratios that defy rational investment, are somehow desirable immediate additions to the index. And your argument for why this should be is a lofty claim that "the market environment has changed."

You believe in brand power over numbers. Which is your prerogative. But it's not how the S&P is managed.

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

#475

Post by btian »

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…

> Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say.

Are you suggesting index funds need unanimous consent from all owners before a company can be added or removed?

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

#476

Post by zeafoamrun »

chasd00 wrote: post #379
zeafoamrun wrote: post #152

Earlier quoted context omitted.

Everyone was certain they would. Multiple people I know were rebalancing their portfolios way from the big index funds

> Multiple people I know were rebalancing their portfolios way from the big index funds Hypothetically, let's say the SpaceX IPO is a wild success. Will those people be disappointed on missing out in the returns? In other words, did they rebalance away because of financial numbers they didn't believe in or did they rebalance away because of emotional or philosophical reactions to the company? If they just don't like…

No, it's definitely financial. Something along the lines of SpaceX's valuation only making sense if it replaces the entire productivity of white collar workforce of the entire USA with its AI ventures. If it ends up reaching escape velocity anyway, sure they would be disappointed, who isn't at least a little when they miss some opportunity.

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

#477

Post by nchmy »

btian wrote: post #475
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…

> Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say. Are you suggesting index funds need unanimous consent from all owners before a company can be added or removed?

That's not even slightly what they said. They said that people can trade the stock directly if they want to, rather than have it essentially forced upon them by inclusion in an index

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

#478

Post by tejohnso »

root-parent wrote: post #455
tejohnso wrote: post #427

Earlier quoted context omitted.

> if you spend any money on it, you deserve to be parted with your money. Yet it's already trading at >20% over IPO price on Bitmex

That is leveraged speculation on a future listing before real float, real index flows, or real public market ownership exist. With a 20% premium that is evidence that the hype machine is working, and the best evidence of engineered retail FOMO.

> evidence that the hype machine is working...

Which is exactly the kind of thing that can stave off disaster for years. Just look at TSLA market cap.

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

#479

Post by pnt12 »

btian wrote: post #475
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…

> Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say. Are you suggesting index funds need unanimous consent from all owners before a company can be added or removed?

Indexes have rules for entry, so people using them supposedly agree with them. On the other hand, they were talking about opening exceptions for these companies, which was not part of the initial rules.

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

#480

Post by dlenski »

AngryData wrote: post #340

Proof that inherent market efficiency is bullcrap if we need popular sentiment to get companies excluded for being obvious grifts.

> if we need popular sentiment to get companies excluded for being obvious grifts.

I don't understand this argument.

SpaceX is not being "excluded" for any exceptional reason.

S&P has stated, essentially, that SpaceX will be subject to the same INclusion rules as other companies. When (if!) SpaceX has a series of profitable quarters and reaches 50% free-float market cap, it will be included in the S&P 500 index like other companies are. https://news.ycombinator.com/item?id=48414252

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