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Comment by benl | Hacker News Reader

If whole market means whole market, then such investments are exposed to companies who are fairly valued, companies who are massively overvalued, and companies who are massively undervalued, and the whole range in between.

If you want to start picking and choosing which companies are overvalued and which are undervalued, don’t invest in whole market funds. But most people are not good at that!

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the problem:

The Nasdaq 100 and FTSE Russell made a rule change that allows SpaceX to enter index without mormal time for price discovery. Most index funds have rebalance day just 5 days after IPO. S&P also made rule change for S&P Total Market Index and Dow Jones US Total Stock Market Index, but left SP500 intact.

Nothing wrong with SpaceX or Anthropic getting into indexes with fair rules, this rule change is pure creed+corruption.

Those funds are not whole market funds.

But there are things to say about your point too. I’ve commented on that in other threads.

I mean these rule changes have been a long time coming. SpaceX was just the straw that broke the camels back here. These major index's want to stay relevant and cutting out some of the biggest companies in the market just opens the way for a "true" NASDAQ 100 that is actually market cap weighted rather then some arbitrary rules cutting somethings out.

Are there really 10-100x undervalued companies listed on indexes that haven’t been noticed?

Yes. There are probably a dozen or more across the SP500 and Russel 2000 that will 10-100x in the next 5-10 years. The trick is to be able to identify them!

There's a difference between "will go 10x in the next 10 years" vs "is 10x undervalued right now".

I don't understand this logic. Does whole market mean scamming companies too?

Yes. That’s what passive investing is. You give money to the passive fund, the passive fund buys the market. No regard to price or any other metric.

Fun fact, both Enron and Lehman Brothers were in the S&P 500 when they went bankrupt. So yes, the whole market or even the market of the largest companies, includes some that may not be great companies. The beauty of the index is you don't have to know or care, since it'll take care of itself over time.

>The beauty of the index is you don't have to know or care, since it'll take care of itself over time

As long as there are active investors in the market conducting price discovery. Which there always will be, just pointing out that someone has to care, even if you don’t

> As long as there are active investors in the market conducting price discovery. Which there always will be,

Passive funds dominate ow, don't they?

Depends on what you consider passive, I think index funds specifically are only 20% but if you add other low cost ETFs it’s probably about half the market. I don’t think there’s any way to know for sure at what point passive funds become distortionary, but it should be self correcting to some degree. If active funds are able to provide a substantially better return than passive funds, even with management fees, people will migrate back to them.

> it'll take care of itself over time

At least until it doesn't. If this spacex venture succeeds because it got propped up by index funds, then that's a decent indicator that more will follow.

It stands to reason that active investing will be more valuable as a result

Laying the blame for the transparent financial manipulation we are observing at the feet of regular people (who are putting their savings into their pension funds, a system that we incentivize because of its pro social outcomes) and saying they should just opt out because they should know better, is at best callous, most people should not have to think about that issue at all.

You seem to have misunderstood my comment.

Also, there’s a long history of companies that people yell about being overvalued being the drivers of index returns, because one of the major drivers is growth rate, whereas retail investors tend to look mostly at current state.

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