(It was a common misconception on this thread: https://news.ycombinator.com/item?id=48364055.)
Public decisionmakers do this sort of thing all the time. They "float an idea", "test the waters", "put up a trial balloon". They see what they can get away with. When the decisionmaker has a strong desire for the change, it may only get rolled back if powerful and widespread public dissent makes itself known, as it did in this case. When they don't really care about the issue, they might cancel it at the first sign that anyone has an issue. We can't know their degree of insistence just based on outcomes in these cases.
It was totally misinformed, came well after the public-comment period had ended and had zero net effect other than maybe generating some commissions and management fees for rando managers.
There is bona fide hatred for these companies and their managers. Influencers twisted the facts to channel that for views.
If you’re buying into a tech-marketed fund like the NASDAQ 100 and it doesn’t include a large chunk of the tech market, you’re no longer passively investing in tech. You’re investing in an actively-managed fund.
Historically, companies like SpaceX would have gone public earlier and grown into the index. Recognizing that has changed with multiple $1+ trillion IPO contenders makes sense; as it turns out, I think both NASDAQ and S&P decided correctly.
The preexisting ruleset was used by investors to gauge their portfolio balance.
Now investors have to revaluate their portfolio based on the new ruleset as their fundamental risks have changed.
Because this is how the rulemaking processes for these indices have always worked?
Why are you suddenly making this argument now, and weren't complaining about previous rule changes?
Come on, let's be adults here. Is there a prior example of this on a comparable scale?
It's already well known that passive indexes bleed ~0.5% performance solely to front running and exploitation from the market. This is that writ large.
The valuation is insane and the very low float plus short timeframe for actual price discovery just seems built to extract money from index investors.
They can follow the same rules as everyone else.
> I would hazard a guess they are not getting the uptake in institutional money they were hoping for.
It seems crazy to me to make a comparison between a company being valued on it's current profit and then to say it's reasonable for another company to have the same market cap because it could eventually have the same profit.
> Yeah, but is SpaceX actually worth $1T
The question and context of your response was about SpaceX's present value. Given the context, I think my response was absolutely a fair reading of your response.
> Reading comprehension, people.
Indeed.
That said, I don't agree on the valuation, but I can see where some people could be coming from.
The wildcard there is AI, and that seems especially dangerous to project long-term revenue from their current performance: xAI is barely in the market except renting capacity to Anthropic, so you’re gambling that they’ll continue to pay $1¼B/month for what is largely a commodity offering. Even if you’re bullish on Anthropic, that doesn’t mean xAI gets part of their profits, and given the way they blindsided the local authorities there’s a substantially greater than zero chance that they’ll get a major setback if the neighbors win their lawsuits. That doesn’t mean they’re doomed, but anyone estimating their future performance has to factor in some real risks.
Actually irrelevant to an index calculation. If your index manufacturer is taking this into account at any level, they're actively managing. S&P predates the modern active-versus-passive dichotomy, but it functions within it in practice, and despite being a leader of committee-based indexing philosophy, they've broadly found success by also being champions of passive management. And part of doing that is rejecting judgement over how the market is weighing this or that.
All we have at the moment is just Elon saying "I think this is worth $1.5T, convincing a small subset of people to buy shares, and then because of this change, market following funds will be forced to pile in before the market has had time to discover the actual true fair price, thus artificially propping up the price until Elon has had time to unload a load more shares. The rule changes serve only Elon, not regular investors.
Historically, the share price falls sharply after an IPO in the vast majority of cases. In this case, with the asking price masssively over earnings, significantly more than any other company, it should be expected that the price will fall significantly in the weeks after IPO.
Shortening the window before it gets included in the index is a cheap trick to force passive investors to pile in at the inflated prices, in an attempt to artificially boost demand and prop up the share price.
If the company genuinely was worth the valuation being asked for in the IPO, they would have no problems with just waiting a few months before it would be included under the existing rules.
I see others are listening to the Money Stuff podcast ;)
Could woulda shoulda. Mate they didn’t. Moreover if they had, the existing investors would’ve got a shittier exit.
The existing investors don't have liquidity. I can't buy a house or pay my bills with shares I'm not allowed to sell. A better exit later is worthless if I starve to death before the exit.
Did mom and pop invest..? No they did not. The investors who did knew the long time horizon they were committing to.
They could’ve gone public earlier - they chose not to and venture capitalists were happy to keep supplying the funding.
Also lol @ using that act to explain why people take longer to ipo. Lest we forget how deep venture capital has become. Hahahha
Nitpick: It’s still a passive fund, just that the index constituents are decided actively by a committee rather than by a simple criterion. As you no doubt already know, S&P500 isn’t just taking U.S. companies publicly traded on an exchange, sorting them by market cap, and then truncating the list to the first 500.
HN has been speculating on how wealth would be extracted from 401k and IRAs at least since the November elections in 2024.
Far before any influencers even thought this would be a thing.
I thought forced cryptocurrency funds, but it turned out to be something else.
Sure. Nobody was properly making this distinction in social media, including on HN. Particularly with respect to the differences in scale and purpose between the NASDAQ 100 and S&P 500.
In addition, that's just the initial IPO free float value, and other shareholders will be free to shed their shares after IPO (and presumably, that's where the bulk of index investment funds will actually buy from), so the free float will be higher, pushing up that share even higher.
Sure, in terms of overall market fluctuations, 0.5% is significantly less than a typical day of market volatility, but on the other hand in terms of my current portfolio, as a dollar amount that's significantly more than my monthly expenditure when I'm not vacationing. I don't particularly want to be funding Elon's exit strategy when I already believe it to be a scam. Thanks to S&P's decision, about 25% of my investments are safe, but approximately 60% of my funds are linked to FTSE World indicies, which is changing the rules.
As I stated in another post, this is just a cheap stunt to force passive investors to prop up the price before it has a chance to settle. The majority of IPOs settle on a price below the IPO price in the months afterwards, and never before have we seen an IPO with such a high P/E ratio. This is literally unprecedented, and the sensible thing to do would be to stick to the old rules to allow the market time to discover the true value before inclusion in the indices. At the moment, the valuation is just a number in Elon's head rather than a fair market valuation. Forcing index-following funds to purchase it at the artificially high price is reckless at best and profiteering at worst.
In addition, it's not just 0.5%. It's 0.5% now, and then the same for Anthropic, and then the same for OpenAI, then all the other IPOs in the future. To put that into perspective, most investors would baulk at 0.38% TER for a passive fund and move to 0.12% TER. 0.5% isn't nothing.
I would. I know some of the people. And NASDAQ 100-tracking funds have seen inflows, not outflows, as a result of the flip.
S&P management wanted the flip. The econometricians said no, because they're that sort of folk. The influencers get to entertain and drive some fraction of listeners to churn, which I guess keeps the ecosystem fed through commissions and management fees.
That the rule change was a done deal. The pitch was some shadowy financial cabal forcing everyone’s retirement savings into SpaceX (which would not have been true even if S&P voted to include, but that’s a separate topic).
The top comment and most of its subthreads are run-of-the-mill alarmism.
Worth considering:
* https://en.wikipedia.org/wiki/Prevention_paradox
And the rules for the NASDAQ 100 were changed, as were MSCI and CRSP:
* https://www.schwab.com/learn/story/some-indexes-accelerate-e...
The doomsaying was around most retirement assets. Which don’t follow any single index. But to the extent they do, follow the S&P 500.
The market wasn’t pricing in any rebalancing. Commenters were screaming bloody murder about it. In the middle, I’m sure some numpties generated trading and management fees by switching target funds.
This is not misinformation. Misinformation is saying the proposed rule change and their proximity to trillion dollar IPOs introduced no risk. Please do not spread such misinformation.
Yes, which is why the news that S&P isn't changing their rules is kind of notable. Vanguard's S&P 500, $VOO, just hit US$ 1 trillion AUM; the next biggest, $IVV, is just over $800B; $SPY is just under $800B.
* https://etfdb.com/compare/market-cap/
* https://www.tradingview.com/markets/etfs/funds-largest/
That's about USD 2.5T.
> That the rule change was a done deal.
What are you talking about? The rule has already been changed in the NASDAQ. That makes it a done deal.
Anything changed can always be undone, but to be clear it has already happened. That makes it a done deal.
Two other indices changed their rules to allow these companies specifically. Pensions and retirement funds rely on these indices to have continual, stable growth. Often the people whose money is being invested don't even have control over its allocation into these funds.
Coupled with the precarious state of the economy due to all the money already flowing through AI, changing the rules to throw retirement fund money into brand new extremely highly valued stocks with P/E ratios in the hundreds seems like a recipe for disaster. It reminds me of subprime mortgages.
One of which is the NASDAQ 100, marketed for decades as a tech-focused index.
> Pensions and retirement funds rely on these indices to have continual, stable growth
Pensions build their own benchmarks. About 10 to 20% of retirement assets follow these indices directly for a variety of purposes. The S&P 500 aims for continuous large-cap growth, but that isn’t true for most indices, which seek to replicate something random.
> changing the rules to throw retirement fund money into brand new extremely highly valued stocks with P/E ratios in the hundreds seems like a recipe for disaster
The NASDAQ 100 has seen practically no net outflows due to this decision. And most retirement assets don’t blindly follow any index, let alone any single one. I opposed the rule changes at S&P. But the catastrophising was made for clicks and views. Not to inform anyone.
Like, anyone who actually acted on that brouhaha changed out of an index that isn’t going include SpaceX, incurring transaction fees and potentially tax hits (for non-retirement accounts) in the process, and probably cycling into a higher-fee fund.
So why change? You're not building a case for why this change is needed. Is there even another Nasdaq 100 company like SpaceX? Probably not because it would be an obvious point of discussion. So now we need to add a new 'thing' to our definition of tech, then change our funds to adopt our new definition. To what end, with this haste?
> The NASDAQ 100 has seen practically no net outflows
Is it a fund or just an index? If an index, what are you monitoring when you cite 'no outflows'?
It has changed loads of times. Nobody noticed any time. Including this one. (Look at flows into and out of related funds.)
> Is there even another Nasdaq 100 company like SpaceX?
Right now? No. Including SpaceX. By the end of the year? Probably a few.
> Is it a fund or just an index? If an index, what are you monitoring when you cite 'no outflows'?
Covered assets. Indices license their indices. Funds pay that royalty.
So you are happy with this outcome, but also so upset at the people that evangelized your preferred policy position that you think HN readers should cut them from the information diet?
Seems most likely that the public outcry actually influenced this outcome, so I don't see why the nuances of alarmism about it (imminent decision vs fait accomplit) should nix an entire information source.
I'm fine with this outcome. I genuinely don't care about HN readers' opinions on this. I posted the original consultation to HN to crickets [1]. It's abundantly clear that people want to use this as a useless vector for griping.
> most likely that the public outcry actually influenced this outcome
Nope. Lots of reasons to show how and why that is the case. From personal connections to the timeline of the decision making. But I'm sure that's how the same YouTube commentors who misled the first time will spin it to great effect...
> I don't see why the nuances of alarmism about it (imminent decision vs fait accomplit) should nix an entire information source
Because they're bad information sources. They're terrific entertainment. And if you recognise that, keep subscribing. But this is in line with the numpties who listen to All In like it's the gospel.
Nope. S&P management probably wanted the rule changes passed.
Great advice.
I could kind of agree with the argument that "well these companies stay private longer so they are more mature" but the float exemption with the seemingly arbitrary calculation to figure out weights completely belies that argument.
It wasn't. It's dumb. But that's different from shady. At the end of the day, the market never priced in the S&P making this decision because the default understanding was a public consultation by S&P goes nowhere. Influencers ran with a consultation being a fait accompli and now anyone saying otherwise is licking billionaire balls.
My prediction is that this will overall end up costing index holders money though. They will ultimately get a worse entry price for SpaceX and the other mega IPOs. Only time will tell.
The misinformation was almost certainly not taken into account, and it shouldn’t have been.
> everyone would be saying I told you so and screaming
Influencers will scream regardless. It’s what they’re paid to do. The NASDAQ 100 made these changes and is doing just fine.
> will overall end up costing index holders money though. They will ultimately get a worse entry price for SpaceX and the other mega IPOs
There are lots of indices. S&P largely targets those built around mature companies. If you want a total-market index, those exist and tend to rapidly incorporate IPOs.
The reality is something like 96% of public companies underperform treasuries.
ref: https://paretoinvestor.substack.com/p/why-96-of-stocks-are-d...
>I rely on the Center for Research in Securities Prices (CRSP) monthly stock return database, which contains all common stocks listed on the NYSE, Amex, and NASDAQ exchanges. Of all monthly common stock returns contained in the CRSP database from 1926 to 2016, only 47.8% are larger than the one-month Treasury rate in the same month. In fact, less than half of monthly CRSP common stock returns are positive. When focusing on stocks’ full lifetimes (from the beginning of the sample in 1926 or first appearance in CRSP through the 2016 end of the sample or delisting from CRSP), just 42.6% of common stocks, slightly less than three out of seven, have a buy-and-hold return (inclusive of reinvested dividends) that exceeds the return to holding one-month Treasury Bills over the matched horizon. More than half of CRSP common stocks deliver negative lifetime returns. The single most frequent outcome (when returns are rounded to the nearest 5%) observed for individual common stocks over their full lifetimes is a loss of 100%.
>Individual common stocks tend to have rather short lives. The median time that a stock is listed on the CRSP database between 1926 and 2016 is seven and a half years. To assess whether individual stocks generate positive returns over the full ninety years of available CRSP data, I conduct bootstrap simulations. In particular, I assess the likelihood that a strategy that holds one stock selected at random during each month from 1926 to 2016 would have generated an accumulated 90-year return (ignoring any transaction costs) that exceeds various benchmarks. In light of the well-documented small-firm effect (whereby smaller firms earn higher average returns than large, as originally documented by Banz, 1980) it might have been anticipated that individual stocks would tend to outperform the value-weighted market. In fact, repeating the random selection process many times, I find that the single stock strategy underperformed the value-weighted market over the full ninety years in ninety six percent of the simulations. The single-stock strategy underperformed the one-month Treasury bill over the 1926 to 2016 period in seventy three percent of the simulations.
>The fact that the overall stock market generates long term returns sufficiently large to be referred to as a puzzle, while the majority of individual stocks fail to even match Treasury bills, can be attributed to the fact that the distribution of stock returns is positively skewed. Simply put, large positive returns to a few stocks offset the modest or negative returns to more typical stocks.
https://obj.portfolioconstructionforum.edu.au/articles_persp...
Compare this to the blog post:
>The implication is devastating for index fund orthodoxy: When you own a broad market index, you’re mathematically forcing yourself to hold the 96.6% of stocks that create no value while simultaneously diluting your exposure to the 3.4% that generate all returns.
The professor just told you that investing in any individual stock is a terrible decision and that investing in more stocks means having greater exposure to the stocks that do net a return, creating a puzzle, where diversification doesn't reduce yields, in fact it did the opposite: it increases the yields.
There's also a general fallacy that any index (directly referred to as index orthodoxy) has to be a "broad market index", when in reality there are many competing indices. If someone came up with an index that would follow any investment strategy the blog post suggests and it turns out to work reliably, then people would switch part of their portfolio to that index. "Index othrodoxy" would prevail, because people just need a better index rather than abandoning the idea of an index altogether.
It's also difficult to reconcile with the fact that after fees, most active funds have failed to net higher returns to their investors. This random blog post is basically delivering an active investment strategy on a silver platter that will make fund managers and the people investing into it rich, is this believable? Consider that it's written in a "shocking" AI style, trying to sell you something.
Funnily enough, the ad in the middle of the blog post "The U.S. Treasury collapse is HERE!" is incompatible with the premise of the article, that 96% of stocks are worse than treasuries.
>But even if we use the more moderate 80/20 framing, the strategic implication is identical: If 80% of market returns come from 20% of stocks, why would you construct a portfolio that treats all five hundred stocks in the S&P 500 equally?
The thing is, you don't have to do that, like at all. There are indices like the S&P 500 Pure Value and S&P 500 Enhanced Value that are known to outperform the regular S&P 500. The problem is that they have done so over the long term and long term really means long term. There have been decades where they underperform.
Also, the article is three times as long as it needs to be, it's clearly AI generated.
Edit: Invesco renamed their ETF to S&P 500 Concentrated QVM.
You can just wait for the price to drop post ipo as it usually does if you actually want to invest.