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The top 3 most popular index fund ETFs track S&P500, which doesn't really pull this kind of shenanigan. Only QQQ tracks the NASDAQ 100 and it's in 5th place by assets under management. You should probably read a book about index investing if you are going to invest.
Yeah, but the S&P500 is hugely concentrated in MAG7, which are all Nasdaq listed. So when they all get sold to buy SpaceX, you can bet your butt something's gonna happen to a S&P500 ETF.
So sounds like this will be a great short candidate after the index re-weighting.
Efficient markets hypothesis breaks down with Musk companies.
I’m trying to understand the mechanics here. I get that SpaceX and Nasdaq are in cahoots to get SpaceX bundled with a bunch of other stocks (and that bundle is called QQQ?) But why must retail investors hold this bundle? If I’m holding now, I can sell it and buy a different bundle right? And if I’m not holding it now, I can just continue not to buy it after SpaceX gets included.
Bingo. No sane investor holds QQQ because there is no academic theory behind why it should exist. Why is a stock better if it's listed on NASDAQ instead of NYSE? Can any investor answer this question? Doubt it. If you are into factor investing and you like large cap growth, you buy something like VUG. Most people should just stick with SP500 or total market. However, QQQ had a really good last 15 years and lots of in…
There's more than $1T tracking Nasdaq 100, so that's an ignorant statement.
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Who is contractually obligated to buy?
I have an index fund for NASDAQ with my broker. When I bought into the fund, the broker promised me that with my money, they will buy shares in companies traded on that exchange according to the specific formula that SpaceX is manipulating here. My broker is obligated to buy. They could open a new fund that has a contact like "we'll keep doing what we had been doing except for the whole SpaceX thing" but they would n…
A nasdaq index is no different from any other thematic index (like an oil index, or a robotics index). Thematic indexes tend to fail the investor in the long term for capturing beta. But because of lack of knowledge of the _actual_ academic research by retail investors, a lot of clever marketeers sell the idea of a thematic index as tho it is similar to a broad market index ("safety" and diversification).
Caveat emptor.
I get the allure of AI images for blogging, but for Pete's sake review what you're publishing or don't do it.
To explain the mechanism simply. Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$. You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company. You then rotate out a company for a new one also worth 1 G$. The index is still 100 G$, but to match the index you are contractually required to sell your 20% own…
> To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want. I can't imagine "any price they want" is quite right here. At the very least, shouldn't we expect underwriters and other stakeholders (in this case N…
So yeah, they don't really need to stick to 100% of the presented issue.
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Is this grey cause it's wrong? They are all on Nasdaq; and also around 35% of S&P. What am I missing? Is it that the "Most indexes" part is wrong (cause there are more than a few thousand ETF)?
Yeah, it's wrong. Nasdaq, Inc. is a company with a stock market ("the NASDAQ") and an index "Nasdaq 100"). They want SpaceX to be listed on their market, because they like having more things on their market for all the usual reasons. They are, apparently, offering to manipulate their index to win the listing. Accordingly, anything that uses or tracks this particular index (Nasdaq 100), such as the QQQ fund, will pote…
The index is just a function of the stocks. It only moves if the underlying stocks move. Rebalancing Nasdaq will cause selling in the 100 companies that aren’t SpaceX. And those stocks are held elsewhere too…
The Nasdaq 100 shares 79/100 stocks with the S&P. So if those stocks move (probably down because they’re being sold so SpaceX can get bought) pretty sure that's gonna affect anyone exposed to those companies. Whether that’s directly or through other index ETFs. Many of which have a huge concentration in Mag7 right now, for example.
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Most indexes will be affected. Two of the most common indices - the S&P500 and DJIA - are cross-exchange and include Nasdaq stocks. The biggest market cap companies on the market (MAG7) are all on the Nasdaq exchange and comprise about 35% of the S&P.
Actually these two indices will not be affected k as the article explains
I’m trying to understand the mechanics here. I get that SpaceX and Nasdaq are in cahoots to get SpaceX bundled with a bunch of other stocks (and that bundle is called QQQ?) But why must retail investors hold this bundle? If I’m holding now, I can sell it and buy a different bundle right? And if I’m not holding it now, I can just continue not to buy it after SpaceX gets included.
There's trillions of dollars sitting in indexes that are quite literally 'passively' invested. Virtually everything holds this bundle in one way or another. Passive indexing has both outperformed and overtaken active investing - leading a lot of money into VOO/VTI/QQQ/etc that track the S&P500 or some other index ("the market"). For retirement funds like 401ks, retail contributes money every paycheck that gets routed…
VTI is different. It literally tracks all public stocks, weighted by market cap so no such manipulation is possible.
If a bunch of people will be forced to buy Space X (QQQ holders), active investors will short the stock in anticipation of market correction and money will flow from those who were forced to buy. I’m sure there are other ways to take advantage of a forced buyer situation.
Total market will be unaffected, assuming efficient market hypothesis / no arbitrage.