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Comment by topherPedersen | Hacker News Reader

Anthropic has a great product, but what's going on in the stock market is astonishing. Companies waiting to be valued at a trillion dollars before going public? (I'm writing this comment with the assumption that they will go public soon and the valuation will be higher than this $965 billion dollar private valuation) The stock market used to be a place for companies to raise money from investors. But that isn't what it is anymore, it's a dumping ground. Venture capitalists & private investors are sucking all of the possible growth and future upside from these companies and then dumping them on retail investors when there's nothing left. There is no growth or upside left by the time these companies go public. If you invest in these IPOs you are buying the absolute peak with all potential future profits baked into the price, with nowhere left to go but down.

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Yeup, no shortage of tech IPOs over the past five years that are now valued at like 5% of what they were after being dumped onto the market: ZoomInfo, Bumble, Gemini

And many more that are 50% of what they were: Snowflake, Coinbase

And many more that went back to private companies and then were sold off: Carbon Black, etc...

I'm actually too lazy to go list out all of them.

But employees, beware, of those gnarly lockup periods post IPO where all the better classed options than yours get to exit.

... still, "on average" IPOs tend to make money, no? that's why people (fight to be able) to buy them.

this gives a nice comfy exit to many late-stage investors, etc.

and, of course, it's hard to say that it's great that these companies are mere shadows of themselves post-IPO, but also it's impossible to non-misleadingly assess each IPO as if they were in a vacuum.

obviously Coinbase is/was a stupid venture, but at the same time it was a pretty good bet at the time. and the same stands for a lot of these.

> Approximately 56% to 60% of U.S. initial public offerings (IPOs) lose absolute value over a five-year period. Historically, the median IPO stock has lost roughly 41% of its value five years after its first day of trading.

Ipos are somewhat notoriously risky investments.

I remember seeing a video about this subject, since large IPOs are automatically included in index funds it is kinda of a way to extract value from passive investors. Insiders cash out before it hits the indexes, index crashes by a fraction for a %, all pensions in the country (and many overseas) pay for it.

But with OpenAI and SpaceX IPOing roughly at the same time it will likely be more than fraction of a % in this/next year.

but also, getting IPOs included captures the upside.

of course, public markets nowadays are definitely paying a pretty serious "agent-principal premium". (since public exits are usually very good for the C-suite and for all those vested stocks.)

but that's the cost of access to equity (compared to PE - which nowadays underperforms public markets https://www.hamiltonlane.com/2026-market-overview/performanc... )

so yeah, it seems it would make sense to buy the post-IPO dip, but then you would need to have some kind of formula for that, and ... that seems ripe for gaming by speculators ... so all in all, it's just more efficient to do what the rule of the index says. (and of course there's already speculation at the discontinuity.)

> since large IPOs are automatically included in index funds

No, this was not allowed. Until a certain someone with deep connections to the corrupt government (coughspacexcough) changed the rules for themselves for the upcoming IPO. It's going to be.... ballistic.

What do you mean? If a US company is big enough it ends up on the S&P500 _eventually_. I know index funds don't auto-include IPOs immediately, but eventually they are forced to buy into them.

sure, but does that risk have good returns to go along? if IPOs are known to be very bad bets why do institutions (supposedly savvy professional investors) participate?

Because they (should) have sophisticated risk models that account for the long tail. If even a few ipos become Google or Facebook, the risk is worth it. But for average retail investors ipo participation will be bag holding exercise. That said betting your conviction is one of the only ways to beat the market, even if it comes with additional risk (emotional+intellectual attachments). If you really believe in ai or space exploration, the upcoming ipos represent an opportunity to bet on your beliefs and predictive capability

you mean that if average Retail Ronnie directly buys the new hot stock at IPO versus getting exposure to it through whatever ETF they have?

yes, directly buying a stock at IPO sounds really strange for me. (because either you know it's undervalued, but then it's insider trading. if not, then why compete with irrational fanatics?)

Maybe snowflake was a bad example considering that stock is up 36 percent today haha

yeah, wild!

Coinbase wasn't an IPO, they didn't create any new shares to sell as part of going public. They did a DPO, Direct Public Offering where they listed the existing private shares publicly and allowed most shareholders to sell immediately from day one. It was a great way to make the founders rich, VC to cash out their initial investment, and... well mostly just that.

Is there any sense in buying (out-of-the money) put options, to make sure you can taste some of that sweet lucre that your overlords are getting?

If you like gambling, sure. Market can stay irrational longer than you can stay solvent, or something like that

You're normally not allowed to trade derivatives during the IPO lockup period. Otherwise it would defeat the whole point.

Options are not initially available. Conveniently.

Hashicorp comes to mind. From ~$90 at IPO, cratered to $25 and then taken private again by IBM

I think index funds are a big reason for this change, as many of these stocks are now guaranteed to be bought by a huge chunk of the market, making it much easier for them to become bag holders.

Lots of professional investors are passing on the SpaceX IPO for example, which is why they had to increase the share of the retail investors.

> dumping them on retail investors

They are dumping them on your 401k -- especially SpaceX.

Often only minimal shares are floated on the public market - 5-10% now is not unusual. Also, founders keep priority shares to keep the company.

So IPO is not particularly a liquidity event for investors as much as a valuation/pricing event. Indeed, the tech IPO's that have done the worst were the ones where shareholders wanted liquidity.

Clearly none of the multi-trillion dollar companies could find a buyer now if they really needed to sell themselves, so they're not really "worth" that much. (Nor are their founders, who can't sell their shares without tanking the stock.)

So these stocks are more like derivatives: a way to bet on the future where betting volume is huge relative to the underlying asset.

dumping ground because they spent the last 20 years convincing everyone with a 401k it belonged in index funds.

index funds will be the cause of the next catastrophic collapse

elaborate please

easy: 1. Shit goes into S&P 500 (pump phase)

2. Shit goes to 0. Your 401(k) invested into S&P 500 takes a dive (dump phase)

3. Retail holding bags (full of shit) phase.

Case study: Tesla, with a P/E ratio in the hundreds along with declining sales and TAM, is a part of the S&P 500 and, consequently, of many people's 401(k)s.

Index funds are market cap weighted. As companies fail, as they always do (median lifespan of S&P companies is about 15 years), you have less of it.

Buy high, sell low in other words?

Well... in normal times they would be entering at the bottom of the index due to the company beginning to grow, the purchase of which is being funded by a firm exiting the index due to shrinking, so assuming you have bought and held units in the fund, most of the time an index fund is buying low and selling low.

And then when you sell your units, hopefully in aggregate the index is worth more than it was when you entered...

"That's the point: just pump the shit and offload it to retail. Yeah, it's less than 1% of the S&P 500, so who would even notice?"

Tesla is 1.75% of Vanguard SP500 index. It could go to zero and most investors wouldn’t notice.

Isn't it a nice bussiness, pulling 2% from sp500, I wish I could join.

> But that isn't what it is anymore, it's a dumping ground.

We got "dumped" Google and Facebook, so... Those probably made up for all the other "dumps".

We also got "dumped" TSLA, which is meme-ing in the trillions at the moment.

You can short Anthropic at IPO if you want...

Google IPO 20 years ago, Tesla 15 years ago, facebook almost 15 years ago.

Situations change.

When did they change? 3 years and 4 months ago? 1 year ago? 8 years?

Because when Facebook IPO'd everyone was saying the stock market was a dumping ground...

Same with Google...

Same with Pets.com and WebVan...

Few Pheonix(s) rise from the ashes of many Unicorns.

Sometimes when things change in an insidious manner, it’s hard to point out _when_ the decline started.

Maybe but can you elaborate what the changes are?

"This time it's different", right?

Or he can just steer clear of the eventual Anthropic stock. Shorting is not the only strategy available to avoid losing money.

But you, of course, can buy on their IPO. They need every bagholder they can get :)

Looking back it feels like GOOG, FB, TSLA etc. all went IPO at reasonable valuations. Retail & public investors did benefit long term and continuing to get higher valuations in public is not a small feat compared to a VC valuation.

A trillion dollar valuation seemed so hard back in the day and now there are so many companies in that list. What's the next level?

Is this just signs that $ is no longer the inflating at the same rate over time and its the realistic inflation that is reflecting in the stock market?

Prices of all goods surely has to follow to make up for the revenue needed to sustain these valuations and also the salaries to sustain the prices.

Unfortunately, those who are not in the loop is not going to have a good time.

maybe we will look back and also think that the current slate of IPOs were reasonable valuations?

The critical view is that these IPOs are bumping up against physics. How many trillion dollar companies can the economy support? The US GDP is roughly 32 Trillion. A company with 100 billion dollars in revenue and 10x annual growth would be expected to increase the size of the economy by 3.2% in its first year, and about 30% in it's second year post IPO existing.

While we could claim that such a company can grow by consuming a larger share of the GDP ... this would not bode well for future political stability, and nationalization would be a major topic.

So your left with a fast take off scenario, a job apocalypse, or a massively reduced growth rate.

Wait for more inflation. See https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...

If Anthropic has anything line that level of success, it will also be at the expense of huge unemployment, because Claude is really competing with knowledge work

> Looking back it feels like GOOG, FB, TSLA etc. all went IPO at reasonable valuations

Yeah, looking back. At the time, I distinctly remember people were going batshit over the insane FB valuation. It wasn't at all obvious it was justified.

Hindsight is 20/20.

I remember a ton of people talking about how FB ipo'd at way too high a valuation. Just checked and it opened at $38 and was $19 3 months later

I think this is usually the case for most IPOs, insiders cash out, index-funds buy in. Basically it is a one-time technique for investors to extract money from pensions.

If you try to configure the index-fund to avoid this problem it is not longer passively managed as each new stock needs to be evaluated in a (at least) semi-subjective manner.

Facebook has been reasonable only in hindsight.

IPO was in the 50B $ valuation range, and at the time, there wasn't any hint it made any financial sense.

Of course, hindsight is hindsight, but for every Facebook there's been countless IPOs of tech companies shrinking their IPO valuations by 90% in the following years.

If they could have gone public, they probably would have. I hope they do, their S1 might be good meme material.

Companies that reached a level of maturity where going public make sense don't keep doing funding rounds to cover the rate at which they bleed money.

Bingo. The bigger story is that the float is not there so the companies are "public" in that they sell a small number of shares at IPO to get crazy market caps that then force the ETFs to buy stimulating demand. It's genius and infuriating at the same time.

It is a one-time technique for private investors to extract money from pensions.

I moved all my money outside US index and global index funds because of SpaceX and OpenAI. At least until these IPOs have passed I will not move any money back. The sheer size of these IPOs might trigger a market crash.

Shouldn't you have waited to move your money after the IPO but before the holding period for insiders expires?

I moved more than a year ago, the US stock market is basically just gambling by now.

> Venture capitalists & private investors are sucking all of the possible growth and future upside from these companies and then dumping them on retail investors when there's nothing left.

A lot of the money that is deployed by VCs comes from pension funds and asset managers that ultimately manage money for the average Joe.

Is there any evidence of what is the share/volume of such assets involved?

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