S&P 500 rejects SpaceX, also blocking entry for OpenAI and Anthropic

It seems obvious in retrospect, but the fact that SpaceX will be "valued" at $1.75 trillion after the IPO is irrelevant when only $75 billion worth of its stock will be publicly traded.

$75 billion in float-adjusted market cap puts it around 180-190th in the S&P 500. So sure, it will likely get in there eventually, but there's no rush to bend the rules to get it in right away.

> To join the S&P 500, a company must demonstrate positive GAAP net income in both its most recent quarter and the sum of the trailing four consecutive quarters

(I also don't want them to create special exceptions. The S&P 500 has pre-existing inclusion criteria, and I'm glad they're sticking to their rules.)

That's like saying that if Nvidia performs way better than an index fund, then the index fund will shift to consist only of Nvidia.

In any given year, there are plenty of index funds that outperform the S&P 500. They don't freak out over it.

S&P 500 is volatile over 5 years - I'd argue even over 10 years (see the charts at https://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-i...). The whole point of investing in it is for much longer windows.

So yeah, perhaps after 10 years they'll change once they'll see other index funds doing better, and have data to back up that in the long term, early inclusion didn't hurt.

Any individual can buy as much as they want.

Anyway, if other indexes add it, and it fails spectacularly, money will shift to those funds that do better.

I'm not disagreeing that people invest this way, but I'd like to point out that past performance does not imply future performance, and that investors should consider factors other than just past returns.

Neither SpaceX, OpenAI or Anthropic have a future. What's a shame is that had Elon not merged SpaceX with xAI it might've actually had a future - but he had to go and ruin it.

What an idiot.

And there are other reasons to be cautious. Many passive funds don't license the SP500 and instead mirror it with their own synthetic index. They are not bound to respect this decision.

The S&P recovered from Dotcom bottom in ~7 years while the Nasdaq-100 took 15 years. Likewise Nasdaq took 3.5 years and the AI hype to recover back to its COVID highs in 2024 while S&P had the same recovery in about 2 years.

This is the downside to Nasdaq having higher returns in tech bull markets.

So the indices have a very different volatility profile by design, we should be happy to have the choice rather than have them all converge to the same product.

I have 1 trillion shares, and I sold 1 to a mate for a dollar.

Total company revenue is like 50 bucks a month and profits are nil.

Can I be in the S&P 500 too?

And on the same note, regardless of how many transactions there are, how come people are unaware about some of them? How does that happen? Do you have loan payments you take and then pay monthly but then get a 29 day amnesia every month on schedule? Were they banned by their bank from the banking app or something? I have ADHD (real, shittier one, not an Instagram version) which makes me forget both long term and short term things all the time, for decades. It doesn't prevent me remembering which big transfers I need to do, or done already, and what is the balance now or typically end of month. Just what kind of financial empire with offshore tax evasion accounts necessitates some 3rt party "audit" of one's individual finances?

Do we need that software so fast? We are able to manage our complex world just fine with support people answering questions within next 48 hours.

So a PE of 500 means it would take 500 years for the earnings of the company to equal the current market cap (price per share X number of shares). This implies absurd (almost certainly impossible) growth over the next 500 years. Of course anyone expecting to pull their investment out and spend it on retirement can’t be looking at a 500-year investment horizon. I suppose the 1% can, though. What the hell else are they going to spend their cash on?

Like many other sectors quality is gradually turning to slops as people “let the AI do it”.

Then a big "risks" section is added basically excusing all the authors of responsibility when something "unexpected" happens.

Since the start, the S&P 500 has had a simple and consistent profitability screen. Your company must be GAAP profitable in the past quarter, as well as for your past four quarters when summed up.

The S&P 500 committee isn’t targeting these companies. They are simply choosing to keep the rules they’ve had in the beginning. And when these companies can deliver one year of profitability, like every single company added to the S&P 500 since inception, they too can join the index.

Refusing to change longstanding rules that make sense (remember: companies are supposed to be profitable!!) isn’t unfair.

It’s not active rejection, they simply don’t meet the criteria to join the S&P 500 yet. The inclusion rules don’t completely prevent garbage stocks from being added, but it helps keep out the most egregious frauds, but even then an Enron will happen every so often.

If somebody comes up to you on the street and claims to be the wallet inspector, should I cry “guilty until proven innocent!” when you refuse to hand yours over?

These rules ensure some stability before a company gets included in an index. That’s all. No company has a right to be included just because of their valuation at some moment.

The rebalancing required to maintain equal weights means constantly selling your winners and buying more of your losers. That creates volatility drag. Stock returns are highly skewed: only about 4% of stocks outperform the market, and are responsible for most of its gains. By keeping your allocation to those stocks small through constant rebalancing, you are missing out on a large part of their gains. The vast majority of stocks underperform.

Maintaining the equal weighting also requires constant trading, which generally means higher fees. A market weighted fund, in contrast, naturally maintains its desired balance in response to price movements, without any trading.

Also, the equal weighting ignores the amount of outstanding float for each company. If the fact that NASDAQ has not (historically) been float-adjusted (a common anti-SpaceX talking point) gave you concern, this is even worse, due to the multiple orders of magnitude difference between the largest and smallest companies in the S&P. If enough money enters the equal-weight index, this can spark large amounts of buying in (relatively) small companies that is divorced from their economic performance.

The equal-weight index has outperformed the market-weighted index in some periods (not in recent memory), but with higher volatility (so worse risk-adjusted returns). That outperformance can mostly be explained by factor tilts implicit in the equal weighting (e.g., a higher allocation to mid-cap value stocks).

You would probably be better off with a mix of market-weighted funds explicitly designed to give you the factor tilts and risk exposure you want.

If the SEC was doing it's job, there would sanctions or jail time for those numbers.

And if you had seen it what would have that pricing looked like?

What performance? None of these companies have established "performance" and they are all still burning money in a race to be the industry leader.

There is no evidence these companies can be profitable without some kind of significant hardware advance.

Also, S&P500 has a current market cap of $67 trillion, 0.3% of that is some $200billion. That is essentially a wealth transfer to the rich. They don't need it.

That's one way to look at it. At a personal level, it's a small sliver and if it were to drop, its influence on your balance isn't much. So that's true.

Another way to look at it is that with ~200 million people owning index funds, all their funds balances together, even a tiny fraction of a percent is a massive amount of money being force-fed into spacex, which is to say, mostly into Elon's pocket (since he owns vast majority of the shares).

So why is it fair to change the rules to give this massive wealth transfer to Musk, who certainly does not need the extra money?

If it is not the end of the world, cover my losses.

"Smarts" has nothing to do with anything there and never has, so at least IMO, it's noteworthy that they didn't just sell out the index.

S&P - https://en.wikipedia.org/wiki/S%26P_Global - is a business intel & analytics firm, not an investment firm. Their S&P 500 list just one of many datasets that they manage and sell. Cleverly trying to pick future winners and losers has little potential upside for them, and could put them into direct competition with many of their customers.

This is a ridiculous situation, a ridiculous valuation, and a very risky business (data centers in space? c'mon, be serious).

People don't buy the S&P 500 because they buy the index because it spreads risk. That they won't get maximum returns is the intended risk tradeoff they want.

That people consider the S&P 500 as a vehicle for "maximum money" is precisely why it should be considered in a bubble. And why actions like the NASDAQ's fast-track exceptions are so concerning.

The moment you start making exceptions to the rules because "gotta push the stock index higher", it's game over for the entire economy.

A conservative 10% return on a 2 million dollar investment is a very nice 200 000. A conservative 10% return on a 20 000 dollar investment is just 2000.

If you're not born rich in this world, there are but a few doors that are open to you to try to improve your station in life. Hard work will never help you out of the hole. Not even dangerous work. Nor will an education. At least with high risk investment you have a fair chance, and at worst you loose your savings and are back where you started. You're not going to lose your life or your limbs.

I don’t disagree with your basic idea, but not being able to articulate alternatives so that you know when they make sense is going to hurt you.

We are possibly seeing a major failure mode for passive for the first time.

So, no weapons for Ukraine?

What is naive in a completely different set of ways. We really don't need more instability coming from your side.

Breaking the rules but it does feel very much like Facebook or Reddit where there are distinct hive minds on topics and it just becomes a pissing match between brain-dead individuals.

Also, how would you even know the deterioration? You have been barely 2 years on this website. Once again you gave away your shill nature.

This fatigue also causes a lot of readers to skip the AI threads, meaning less self-moderation of the forum through voting.

Absolutely agree with your statement. Most top comments are just upvoted from the hivemind. Elon topics are always the worst because nobody even uses critical thinking and will just upvote/downvote based on the theme of Elon = Good or Bad.

Wasn't this after their entry into the index?

S&P requires GAAP profits, i.e. net income. EBITDA is above that.

(now, large growing companies need public investment in order to grow, so it might be said that there is some value to regulations as a cudgel, "no access to public capital markets if you don't open yourselves up more," but again, we can still rely on market pricing once decisions like that are made)

NVIDIA is something like 8% of the S&P 500, and these companies are projected to be higher: you can't ignore sectors like that if you believe in diversification to squelch unrewarded risk

But I assume at least it's based on the free-float market cap?

Also, since when is it appropriate/intellectually OK to respond to allegations of corruption by saying ‘stop freaking out, it’s only a small amount of corruption PER PERSON’.

Telling that among OECD countries, the US is an outlier in having a much lower average funding ratio, and this despite the fantastic performance of the US stock market over the last 15 years.