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Comment by ISL | Hacker News Reader

have to is a strong statement. Public investors need not buy a single share of a mis-valued stock.

That's the problem: Approximately half of the US stock market is made up of passive funds like index trackers which make up a large percentage of American 401k and retirement plan portfolios.

As soon as a company IPOs they enter into the portfolio of millions of passive investors, who unwittingly become bagholders for companies like Uber and WeWork that have no sound fundamentals or viable business model.

The market has become very distorted due to this and a myriad of other reasons. Everyone is gunning to find the next winning unicorn lotto ticket without any regard for fundamentals in a sort of collective pump-and-dump scheme. Thankfully there was a glimmer of rationale with Uber and Lyft's failed IPOs, and I expect WeWork's will be even more disappointing.

Major market index funds do not buy into recently IPO'd stocks because such stocks are not in major market indexes. While pension funds may buy in a little, most will not because recently IPO'd stocks are considered highly volatile and thus outside the remit of their investment objectives. Everyone is not gunning to find the next "unicorn lotto ticket". Lots are, but they are a minority of the money in the equity markets. Further, the equity markets are much smaller than the debt markets (i.e. bonds) these days. Do not mistake press attention (they go after the exciting stories) for actual market activity.

Last but not least, some indexes (e.g. S&P 500) have recently changed requirements so that most tech IPOs (which usually have two classes of stocks, one "insider" class that has a lot of votes, and one "general" class that has few (if any) votes) would be ineligible (existing members of the index were grandfathered in).

Index funds don't move capital allocations. Active investors do.

Even before the IPO you have VC firms raising billion dollar funds from pension funds and endowments to pump up their donkeys. A down round doesn't really matter when you're taking a 2.5% management fee on billions of dollars.

I'm genuinely impressed with the public's judgment on this; Uber's stock is generally falling, and Slack is settling into the same trajectory.

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