> What's the urgency to bend the rules?
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.
Yeah, but is SpaceX actually worth $1T or does Elon just think that because of how Tesla investors value Tesla?
> is SpaceX actually worth $1T
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.
That would be true IF the stock was already being traded.
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.
If someone is trying to bend the rules of my passively managed index fund to their will, are they trying to actively manage my passively managed index ETF ?
Only Elon is allowed to actively manage my passively managed fund. The fund manager shouldn't be allowed to do it!
Historically a $1T market cap with a PE of 20.0 would be achievable with a $50B/yr profit. That seems easily achievable eventually for SpaceX, as it has actual hardware and services and IP.
> Historically a $1T market cap with a PE of 20.0 would be achievable with a $50B/yr profit. That seems easily achievable eventually for SpaceX, as it has actual hardware and services and IP.
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.
I didn't say that at all. I said it was achievable for SpaceX eventually. It's not a $1T company yet. Reading comprehension, people.
It's years away from $50B/year profit, if it ever gets there. The IPO valuation is insane.
Plus they now also have to compensate for the giant money fire called xai and the nazi cuddle huddle X/Twitter.
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.
It does have real hardware, but it’s not in wild growth areas. They’re making their most consistent money from Starlink, which is a solid product but has growth limited by competitors from conventional ISPs with far-superior fiber networks, and the space launch business is similarly not the kind of thing where you get Google/Facebook-level growth curves. That’s not a slight, it’s just different industries: advertising companies can grow rapidly because scaling customers is so much easier than launching cargo into orbit.
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.
Yet, I, a relative peasant financially has been hit by 3 different brokers that I'm eligible to participate in the offering. I would hazard a guess they are not getting the uptake in institutional money they were hoping for.
“ Historically, companies like SpaceX would have gone public earlier”
Could woulda shoulda. Mate they didn’t. Moreover if they had, the existing investors would’ve got a shittier exit.
Yes, they did. In the wake of Enron, Sarbanes-Oxley was passed, for which the 2nd order effect was that companies take years and years longer to IPO. 10-17 years on average since 2010 (it used to be lower). (There are other reasons, it's not purely due to SOX.
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.
“ The existing investors don't have liquidity.”
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
> You’re investing in an actively-managed fund.
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.
Not really. The underlying rules for Nasdaq has changed.
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.
Yeah, the rules have kind of made the passive investment active. I don't understand OPs point at all. I don't understand why we suddenly change the rules and rush things, and OP has provided 0 justification for that.
>I don't understand why we suddenly change the rules and rush things
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?
Because the rules are clearly going to result in lots of buying pressure from passive indexes on a large stock with little time for price discovery.
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.
> You’re investing in an actively-managed fund.
I see others are listening to the Money Stuff podcast ;)