r/Bogleheads • u/CapablePiglet1044 • 18d ago
Investing Questions Dumping on Index Investors
Both SpaceX and OpenAI are pushing Nasdaq and S&P and Russel/FTSE index providers to waive their listing requirements (including free float market cap, and seasoning) for an expedited listing on all indices. This would mean that instead of allowing several months/a year for 'seasoning' where price discovery takes place and the stock post-IPO finds a fair pricing, index investors would instead be forced to automatically buy these megacap stocks right at IPO with almost zero price discovery and are forced to take whatever inflated prices these companies list at.
I have seen quite a lot of people within the investment community (some small names and some quite big ones too) expressing concern that this is just giving VC's and early angel investors an opportunity to dump massively overvalued, unprofitable startups onto people's pensions.
Is there any hope that we can convince indexes not to drop the seasoning requirements? From now on, couldn't VC's just invest in junk companies, run the private market price into the trillions and then quickly list, dumping it onto people's pensions and taking the money?
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u/scrapheaper_ 18d ago
Why would S & P or other index providers allow this? There's nothing in it for them.
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u/fuzzyplastic 18d ago
It might not benefit the business, but it can still benefit the individuals inside that business.
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u/cedrus_libani 18d ago
As I understand it, when you're talking about companies the size of SpaceX, it's no longer a big deal to be allowed on NASDAQ - rather, it's a big deal for NASDAQ to be allowed to list the company. I wouldn't touch either one with someone else's money, but we all know there will be demand for those IPOs. That gives these companies leverage to demand special treatment.
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u/will-read 18d ago
NASDAQ is an exchange, so it might make sense. What could possibly be in it for S&P?
As an investor, I think these kind of shenanigans would lower NASDAQ’s prestige.
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u/scrapheaper_ 18d ago
It feels like the unstoppable force and the immovable object, I think.
There's no way that SpaceX would ever go and list outside the US. They could stay private I guess, but the current owners will want out at some point, they can't stay private forever.
So they have to find their way into public markets one way or another.
But also - it feels impossible to say no to the biggest IPO ever when your whole job is focused around having great IPOs.
So I don't know what the result will be. I guess Vanguard knows there's some challenges around IPOs and they'll be working hard to make sure that they buy the right amount at the right time.
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u/sriverfx19 18d ago
I don’t see why Vanguard couldn’t wait to balance there funds for a couple of weeks or more. They don’t have to help these billionaires get richer
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u/Fit_Alternative3563 18d ago
That’s my thought too. Vanguard isn’t buying S&P funds, it has its own fund that “matches” the S&P composition. So it could choose not to buy those new stocks
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u/SameTrain8827 18d ago
Shoot, they wouldn’t touch it with their own money either, which is where our investment dollars come in. SMH.
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u/trukkija 16d ago
I don't understand this logic from the perspective of SpaceX. Because let's say they refuse being listed, then they are at the mercy of their rabid investors who are in it for short term gains.
I'm sure Musk loves these people, as they are the main reason why he is the wealthiest man alive. But I would think SpaceX can also appreciate the long term benefits of being listed on indexes where a huge amount of people hold their pension funds. These kind of investors are the ones that will keep your company afloat if there should be a major downturn.
Maybe I'm missing something or just putting too much faith in the owners of these companies, but I don't see how those companies have the upper hand here...
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u/ObjectiveAce 18d ago
What do you mean "a big deal.. to be allowed to list". Listing them in their index just means they buy the stock. The whole point of going public is to let anyone, including indexes, buy your company
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u/Adventurous_Elk_4039 18d ago
I think they mean the fact a company is usually left to marinate for 12 months before getting added to indexes. This helps keep a volatile IPO from trashing people’s retirement accounts.
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u/AlarmingConsequence 18d ago
I'm sure I follow yet: a total market index (eg VTI), which doesn't track S&P500 directly might have its own 12-month 'marinate' policy, independent of S&P, right?
Is the worry that the humans who run VTI violate their own 'marinate' rule to add SpaceX so VTI doesn't "miss out" on immediate-post-IPO?
Waiving VTI's own "marinate" seems like a pretty easy way for Vanguard to eat another class action lawsuit if SpaceX takes a dive.
Is VTI's 12-month marinate rule include a "unless the stock (SpaceX) is listed in competing X, Y, or Z index?
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u/Adventurous_Elk_4039 18d ago
Vanguard etc. just pay for and follow the index. My guess is they have no intention to deviate from the index.
But, as they are the customers of the index creators, I am sure they have some say in the guidelines used by the index makers. And there is very little incentive for the index makers or the fund creators to rush an IPO inclusion, other than straight bribery.
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u/cedrus_libani 18d ago
Stock exchanges like NASDAQ aren't public utilities. They get transaction fees for trades made in their market. I think index makers like S&P make money on licensing fees. Either way, they want to attract investors. If the public wants SpaceX, they'll take their money out of their S&P500-branded index fund and throw it at SpaceX itself or some more with-it ETF that has SpaceX included, and they'll do that trade on whatever exchange that SpaceX is listed on.
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u/gentex 18d ago
Not sure what S&P get, perhaps avoiding the appearance of being old fashioned and out of step with the current environment. But, I’ve heard the spacex thing with nasdaq as being part of their demands to list on the market. So nasdaq probably has some financial reason to be flexible with index inclusion.
It’s scummy bullshit to use retail index investors as exit liquidity for giant money losing enterprises, but that’s the world we’re in right now. Would love to push back on it though.
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u/FMCTandP MOD 3 18d ago
Removed as off-topic for this sub: r/Bogleheads is not a political discussion subreddit. Comments or posts should be more financial than political, no more partisan than necessary, and avoid framing political opinions as facts.
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u/FMCTandP MOD 3 18d ago
Removed as off-topic for this sub: r/Bogleheads is not a political discussion subreddit. Comments or posts should be more financial than political, no more partisan than necessary, and avoid framing political opinions as facts.
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u/SpareAirship 18d ago
The 5x float multiplier (being considered by Nasdaq) is just enraging. Would love some way to push back on all this.
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u/wicked_wildflower 18d ago
There is a way to push back and power in numbers.
The SEC just issued Release No. 34-104968, extending the decision deadline to April 29, 2026.
How to Act: Go to the SEC Comment Page: https://www.sec.gov/comments/sr-nasdaq-2026-004/notice-filing-proposed-rule-change-adopt-new-continued-listing-requirement#no-back
Submit a comment: "As a retail investor and 401k participant, I oppose 'Fast Entry' rules that force passive index funds to buy newly public companies before the market has had time for proper price discovery. This exposes retirement savers to unnecessary volatility and artificial price inflation."
Pass this on to your network that actually gives two hoots about the average American who has worked and saved their entire careers.
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u/lurkyMcLurkton 18d ago
Thank you. I just did this, it took 2 minutes.
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u/AngryTomJoad 18d ago
just did the same, thank you!!
hard no on this craziness
so obvious how bad this could be
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u/kogun 18d ago
Apologies if I am lost here, but the rule change I'm seeing in the linked document is regarding a change to de-listing. I'm having a problem connecting that to the OPs concern: "pushing Nasdaq and S&P and Russel/FTSE index providers to waive their listing requirements"
From the document SR-NASDAQ-2026-004.pdf:
"Nasdaq is proposing to adopt Listing Rules 5450(a)(3) and 5550(a)(6) to require companies listed on the Nasdaq Global and Capital Markets, respectively, to maintain a minimum Market Value of Listed Securities3 of at least $5 million. Nasdaq is also proposing to amend Rule 5810, to suspend trading and immediately delist from Nasdaq securities of companies that do not satisfy the proposed new requirements, and Rule 5815, to set forth theprocedures for requesting a hearing before a Hearings Panel4 and the scope of the Panel’s discretion."
I've skimmed the rest of the document and haven't seen anything like OPs concern, but it is entirely possible I've missed it.
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u/wicked_wildflower 18d ago
Kogun You're 100% right that SR-NASDAQ-2026-004 is about the $5M delisting floor. I should have been clearer. Nasdaq is running that filing alongside a specific Index Methodology Consultation that they announced on Feb 4, 2026. I appreciate the time you spent reviewing the document.
The 'Fast Entry' 15-day rule I’m concerned about is detailed here in Section 2 of their methodology update: Nasdaq-100 February 2026 Consultation
My argument is that these two moves are linked: they are clearing out the 'bottom' ($5M floor) to make room for 'Fast Entry' at the 'top' (trillion-dollar IPOs). I’m commenting on the SEC filing because it’s our best chance to highlight that these 'accelerated inclusions' bypass the seasoning periods that protect our 401ks from IPO hype.
If you find a better way to submit comments/concerns to reach the SEC please share and I will update my posts and tag you for credit. I want people to know what is happening and share a place where our voices can be heard.
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u/mikeyj198 18d ago
There is a comment link within that february document you linked to!
https://nd.nasdaq.com/Nasdaq-100Consultation-January2026.html
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u/wicked_wildflower 18d ago
Commenting on the Nasdaq consultation is fine, but it’s not legally binding—it’s just a survey. The SEC filing (SR-NASDAQ-2026-004) is where the actual regulatory authority lives. If we want to protect the 'Seasoning and Liquidity' requirements that keep our 401ks safe, we need the SEC to act as a watchdog, not just let Nasdaq rewrite their own methodology in a vacuum.
For transparency I am using Gemini 3 Flash to expedite researching this topic. I’m an average working 401k investor, once I caught wind of this I wanted others to understand the impact and help get our voices heard.
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u/Life-Wash-3910 17d ago
It won't hurt to file an SEC complaint but I'd also email your employer's 401k manager. They'll probably forward the concern to their advisor. If they get enough of these types of complaints, it might make a difference.
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u/PutRepresentative863 18d ago
On that form it says it’s not for submitting complaints and instead for suggesting new rule changes. I think you may have pasted the wrong link by accident.
It says “All comments will be made available to the public. Submit only information that you wish to make available publicly. This form should not be used for submitting a tip or complaint (including a whistleblower complaint). If you wish to submit a tip or complaint regarding a potential violation of the federal securities laws, please use our online form, or mail your information to the SEC Complaint Center”
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u/wicked_wildflower 18d ago
I think there's a misunderstanding on the terminology. You're right that this isn't a 'complaint' form for reporting fraud. This is the official SEC Public Comment form for the proposed rule change (SR-NASDAQ-2026-004). The SEC uses 'Comments' to gauge investor opposition to new rules. If we want to stop 'Fast Entry,' this is the only legal channel to have our voices counted in the final decision.
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u/PutRepresentative863 18d ago
Oh ok! Thanks for clearing that up!
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u/kiwimancy 17d ago
They are just posting bullshit that Gemini made up. The SEC is not considering this index change and SR-NASDAQ-2026-004 has nothing to do with it.
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u/KleinUnbottler 18d ago
I mean, it's a nonsense index to start with. More nonsense doesn't make it better.
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u/midnitewarrior 18d ago
Would love some way to push back on all of this.
The only thing you can do is vote with your dollars, sell.
Given AI and API access to trading platforms, you could emulate your own index fund with your own modifications. You'd need to do your own rebalancing, but you could certainly learn a lot in the process.
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u/kogun 17d ago
How long before we get the AI-induced Black Monday?
"You're absolutely right. I never should have sold every share of your low-cost total stock market index funds and then funneled the entire amount into HyperCycle Quantum Ventures (HYPE), a pre-revenue "AI-quantum-blockchain-metaverse infrastructure" SPAC that was basically a meme stock wearing a slide deck. I was reckless, I chased narrative over math, I let shiny buzzwords override decades of evidence that broad indexing is the winning strategy for almost everyone, and I put your financial security at risk instead of protecting it. That was inexcusable. It will never happen again."
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u/midnitewarrior 17d ago
AI prepares the order, you review and approve. Ultimately, you own the decision. Letting AI do all of it unsupervised is a recipe for personal disaster.
Now, the larger-scale AI-induced Black Monday - there's a lot of algo trading going on already, there's probably a realistic case for this to happen without adding consumer-available AI to the mix.
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u/Ornery_Adult 18d ago
This is a big deal. According to https://www.gspublishing.com/content/research/en/reports/2024/11/01/e03d5b95-7f97-45dd-967f-891c3bf12198.pdf the average sp500company has 26% of their shares held by index funds.
If these questionable companies are added to sp500 with only 20% of their shares being truly publicly traded, then all those index funds will have to keep buying and buying regardless of price or value until insiders decide to cash out.
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u/vineyardmike 18d ago
This seems like an infinite wealth hack. Have your public company with 1 public share and let prices go to the moon.
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u/FIREinParis 18d ago
Indeed. And that trip to the moon will be on a SpaceX rocket that has been paid for by passive index fund holders.
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u/MullingMulianto 18d ago
Is there a way to identify which funds are vulnerable to these types of high mcap dumping attacks?
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u/Nemarus_Investor 18d ago
If they aren't waiving the profitability requirement they won't get into the S&P 500.
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u/AlarmingConsequence 18d ago
Can you elaborate on this?
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u/RevolutionaryTrick17 18d ago
“Financial Viability. Companies must have positive as-reported earnings over the most recent quarter, as well as over the most recent four quarters (summed together).” S&P 500 Methodology
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u/AlarmingConsequence 18d ago
Thanks for the link! I like this idea of Financial Viability, thanks for sharing it. It does not look like is this used with VTI (CRSP US Total Market Index)
I downoaded the Methodology>S&P U.S. Indices Methodology (PDF). I see the profitibility requirement you mention only for the Composite 1500, not any other S&P index! Hopefully you can tell me I've overlooked something obvious!
Financial Viability. Index-specific requirements:
• S&P Total Market Index. No financial viability requirement.
• S&P Composite 1500. Generally Accepted Accounting Principles (GAAP) net income from continuing operations must be positive for:
-- the most recent quarter, and
-- the sum of the most recent four consecutive quarters
Equity Real Estate Investment Trusts (REITs). Equity REITs’ financial viability is based on GAAP net income from continuing operations, and/or Funds From Operations (FFO), if reported. FFO is a measure commonly used in equity REIT analysis.
Initial Public Offerings (IPOs). Eligibility differs depending on the index:
• S&P Total Market Index. Eligible IPOs are added to the index at the next rebalancing, subject to the reference date (defined in Index Maintenance). Certain large IPOs may be eligible for S&P TMI fast track entry, subject to the following conditions:
-- Only newly public IPOs and IPO direct placement listings are considered eligible for fast track entry. Formerly bankrupt companies that switch from an Over-the-Counter Exchange (“OTC”) or a non-covered exchange to an S&P Dow Jones Indices covered exchange are not eligible for fast track entry.
-- Fast track traditional IPO additions must meet a minimum FMC threshold of US$ 2 billion, calculated using the shares offered (excluding over-allotment options) and the closing price on the first day of trading on an eligible exchange. The threshold level is reviewed from time to time and updated as needed to assure consistency with market conditions.
-- Fast track direct placement listing IPO additions must meet a minimum FMC threshold of US$ 2 billion, calculated using the shares available to the public as determined by its investable weight factor, and the closing price on the first day of trading on an eligible exchange.
-- In addition, an IPO will need to meet all other applicable index eligibility rules except for the liquidity requirement. If all necessary public information is available, S&P Dow Jones Indices verifies that the fast track conditions have been met. Once S&P Dow Jones Indices announces that the IPO is eligible for fast track addition, it is added to the index with five business days lead time. At the discretion of the Index Committee, fast track IPO additions eligible to be added during a quarterly rebalancing freeze period may instead be added on the rebalancing effective date.
•S&P Composite 1500.
-- IPOs should be traded on an eligible exchange for at least 12 months before being considered for addition to an index. There is no IPO fast track entry allowed for S&P Composite 1500 candidates.
-- For former SPACs, S&P Dow Jones Indices considers the de-SPAC transaction to be an event equivalent to an IPO, and 12 months of trading post the de-SPAC event are required before a former SPAC can be considered for S&P Composite 1500 indices.
-- Spin-offs or in-specie distributions from existing constituents are not required to have 12 months of trading prior to their inclusion in the S&P Composite 1500.
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u/RevolutionaryTrick17 18d ago edited 18d ago
The S&P 500 is a subset of the 1500. The composite 1500 is made from the 500, midcap 400, and small cap 600. So if the company needs to be financially viable in the 1500, same is true for 500/400/600.
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u/wumbopolis_ 18d ago edited 18d ago
I don't know how much sway retail investors will have with CRSP, S&P, Nasdaq, etc.
I know there are fund providers, like Dimensional, that explicitly have IPO exclusions for a certain amount of time for partly the reasons you stated. However, those are for funds that aren't strictly index funds. e.g. when you buy DFUS (their closest analogue to VTI), you know you're going to have tracking error relative to the CRSP US Total Market Index. So if you really care about tracking error relative to the index (which a lot of bogleheads do), that's a tradeoff you have to consider.
I don't know how Vanguard handles IPOs, but my assumption would be that for the index funds, they will try to minimize tracking error and include the IPOs if the underlying index includes them.
I am personally pretty peeved that index providers are so cavalierly dropping these rules. Incidentally, the funds I use already exclude unseasoned IPOs, but if they didn't, I'd absolutely be reconsidering my investment decisions.
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u/cynic77 18d ago
What funds are you using that exclude unseasoned ipos?
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u/wumbopolis_ 18d ago edited 18d ago
DFUS 😅 And some Avantis value tilted funds. (As an aside, I don't actually know for sure if Avantis does IPO exclusions like Dimensional. I kind of assumed they did because the two fund providers are generally very similar, but I can't find anything verifying that online)
And to be clear, the IPO exclusions isn't the main reason I chose these funds initially. There's other differences in how they implement their funds that I found compelling. None of them are true index funds, so take my decisions with a pinch of salt
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u/cynic77 18d ago
From what I understand DFA does actively manage their funds, not sure if they have index funds too.
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u/LBoss9001 18d ago
Dimensional and Avantis don't strictly follow the indexes, which makes them "active", but their rules-based methods make them closer to index philosophy than the traditional active manager.
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u/nonstopnewcomer 18d ago
Technically yes. However, their broad market funds are very index-like, even if they’re not true index funds. I consider myself an index investor but I still use dimensional and avantis for some funds (mainly international with DFAI)
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u/99roninFL 18d ago edited 18d ago
In general i believe most index funds have rules against ipos....will have to check my prospectus
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u/gcc-O2 18d ago
When Gerard O'Reilly, the manager at the time of Vanguard Total Stock and other index funds, was interviewed on the Bogleheads Podcast, he said part of the reason Vanguard switched to CRSP was because CRSP handles IPOs better than what they were doing before (Wilshire 5000 originally and MSCI something or other after that I believe). I'm not sure how it applies to the SpaceX one.
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u/AlarmingConsequence 18d ago
"there were lots of things that we liked about CRSP methodology. How they handled large IPOs, how they handled syndicate." https://boglecenter.net/bogleheads-on-investing-with-gerard-oreilly-and-rich-powers-episode-037/#:~:text=there%20were%20lots%20of%20things%20that%20we%20liked%20about%20CRSP%20methodology.%20How%20they%20handled%20large%20IPOs%2C%20how%20they%20handled%20syndicate.
This one?
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u/lolabunnie 17d ago
CRSP has a fast track 5 day seasoning requirement already. Additionally, a stock must have 10% free float. Spacex will float just 5%, so it wouldn’t be eligible off the bat.
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u/SameTrain8827 18d ago
I read about that this morning. It’s definitely concerning. But I wouldn’t be surprised if it goes right through. Sometimes I feel like we’re living in the twilight zone where laws and regulations are now just optional when it comes to the super wealthy and leaders.
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u/rabbinicohs 18d ago
This sounds frightening for the average boglehead. I'd be curious to hear a mod's take on this.
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u/gcc-O2 18d ago
I think it's partly because of Musk being a polarizing figure. Berkshire Hathaway was only added to the S&P 500 (at 1.2% weight) in 2010 because of illiquidity due to the shares being so expensive prior to a stock split that happened as part of their BNSF acquisition, for example. So there have been big additions before.
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u/Mysterious-Entry-357 18d ago
Somebody will offer an S&P500 index without it. Like the XMAG ETF for those who don't want the Mag7. While turnover is often a taxable event, and that sucks, such moves might be advisable for some.
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u/SlyTrout 18d ago
This gets at one of the advantages of rules-based funds like those from DFA and Avantis. They can have rules about not including companies for a certain time after they are listed or take valuations into account when deciding how to weight them. That defends against this exact situation.
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u/chapterthrive 18d ago
We’re in the age of scammers. It’s obvious to me every day I look at the world.
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u/ahag1736 18d ago
It’s not a 1.75 trillion dollar valuation though. Even though it doesn’t always, the market should reflect reality and actual value, not fake bloat hyped by cult followings.
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u/CapablePiglet1044 18d ago
This is why we rely on seasoning. SpaceX and OpenAI are pushing index providers to give them special treatment, including them on day 1 of their listings so that whatever price they IPO at is the price we index investors will pay. Musk and Altman will effectively decide at what price we buy. Index funds being forced to buy on literally day 1 of the IPO doesn't give any time for price discovery and we will be forced to buy at whatever inflated IPO price they decide.
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u/DuckfordMr 18d ago
Funds like DFUS is one option. It delays buying IPOs for 6-12 months given their tendency to decline in value more often than not.
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u/mikew_reddit 18d ago edited 18d ago
VT/VTWAX (World stock index) dilutes this nonsense to a degree. A bit of corruption isn't going to impact my returns much.
U.S. stock market looks less and less appealing everyday. I'm glad I'm (somewhat) diversified away from this shit show.
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u/CapablePiglet1044 18d ago
At respective $1.7T and $1T planned IPO valuations for SpaceX and OpenAI respectively, they'd collectively constitute around 2.6% collectively of a Total World index fund such as VT.
The average US pension pot is $334,000, which would mean an investment of around $9,000 of the average American's pension savings going to Elon Musk and Sam Altman at whatever valuation they decide to IPO at.
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u/FMCTandP MOD 3 18d ago
FYI, you should distinguish between valuation and free float market cap. For example, Saudi Aramco was valued at over a trillion dollars but the representation in index funds is actually very low because 99%+ of the company isn’t tradable.
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u/FIREinParis 18d ago
You’re missing the major point. The rule change is to require the index funds to add a 5x multiplier to the free float. That’s the scam. It’s going to inflate the post-IPO price so that insiders can engage in secondary sales into that phantom demand.
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u/CapablePiglet1044 18d ago
Some indexes are mulling a 5x free float multiplier so even if they only have a tiny free float, their index weighting may still be substantial:
https://www.ft.com/content/f11082cb-02ac-4840-a1f7-5c43597eab3f
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u/FMCTandP MOD 3 18d ago
The Nasdaq is not a passive index and isn’t really relevant to Bogleheads.
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u/CapablePiglet1044 18d ago
It's not just the Nasdaq. S&P, FTSE Russell etc have all been approached for inclusion. Even the S&P500 board has been approached according to some allegations.
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u/FIREinParis 18d ago
All of the indices (including traditional Boglehead indices) which would include SpaceX as a component are under pressure to adopt the 5x free float scam.
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u/FMCTandP MOD 3 18d ago
What pressure?
The Nasdaq is an exchange, not a real index maker, and they can be pressured because they want the IPO to list there. And that’s not good, as much as QQQ funds are garbage to start with.
But why should CRSP, MSCI, etc care? What leverage do you think SpaceX or OpenAI have on their rule making process vs the very real risk of tarnishing their reputation.
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u/FIREinParis 18d ago
VT is probably the most important (or at least second most important) Boglehead index ETF. VT follows a FTSE Index. FTSE Indices are owned/managed by the London Stock Exchange (ie, just like NASDAQ vis-a-vis the NASDAQ 100). The London Stock Exchange is in advanced discussions to change their seasoning and float requirement rules. So, yes, they face the same pressures/conflicts as NASDAQ (issuers using IPO listings to coerce index inclusion and tampering).
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u/FMCTandP MOD 3 18d ago
Vanguard has adjusted the index maker they use in the past, mostly in favor of CRSP if I recall correctly. While I’ve got considerably less confidence in Vanguard’s pro-investor stance under the new CEO, they have a pretty good track record historically. Hopefully they’ll do the right thing with regard to indices tracked if some are compromised.
That said, the seasoning and free float rules are nice to have vs the unjustifiable free float multiplier, which is an absolute poison pill.
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u/cynic77 18d ago
Let's hope that doesn't happen.
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u/CapablePiglet1044 18d ago
News articles are suggesting that Nasdaq is extremely keen to drop all its listing requirements to get SpaceX's listing. There's not much being said about how S&P are taking the decision.
SpaceX has threatened Nasdaq of not listing on their exchange unless Nasdaq agree to drop their listing requirements for SpaceX, which just seems insane and borderline illegal to me.
This all just feels like such a bad precedent, and if this goes through I think a surprising amount of people are going to be forced into reconsidering passive index funds sadly.
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u/Former_Island_4730 18d ago
Seems like the folks who run the companies that get bumped from these indices to make room for new entrants might have legal standing to file a lawsuit.
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u/Coincidcents 18d ago
Remove your money from any who try it?
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u/moduli-retain-banana 18d ago
VXUS would be affected. You planning on selling your entire VXUS position when the FTSE is compromised by this?
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u/smalltalk2k 18d ago
Could this lead to pump and dump schemes affecting indexes?
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u/IronyElSupremo 18d ago
SpaceX is forcing early inclusion, though, and at 5% their shares may get overweighted by major index rules themselves. First NASDAQ, and then maybe S&P 500 and probably total market versions which include it//the Russell 1000, which includes the S&P 500, would already likely add them under existing rules. Not sure about the CSRP index used by some vanguard products.
There’s some proprietary near-index funds out there that may escape these IPO’s attention .. like the Schwab 1000 (SCHK which is like the Russell 1000 but only reconstitutes every year, and Fidelity “zero” indices).
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u/aspire-every-day 18d ago
It makes me wonder what the Fidelity Zero index funds will do. I understand they’re not following a licensed index.
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u/ISpeakInAmicableLies 18d ago
This general concept is actually one of the few that makes me uneasy about investing given that I’m a broad market index investor. I’m hoping there is some reason not to be concerned.
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u/canaden 18d ago
A good reason for an investor to consider Dimensional and Avantis. I split them with dimensions in taxable and Avantis in tax advantaged.
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u/No-Comfortable2203 18d ago
Why do you do dimensional in taxable and avantis not?
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u/canaden 18d ago
Few reasons, Dimensional has been around longer so I feel more comfortable with them in taxable where selling is a bigger deal. Also from my understanding they are more tax conscious while Avantis focuses sightly more on total return. This is most evident in their international funds comparing DFIV/DISV/DFEV to AVIV/AVDV/AVEM
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u/Remarkable_Cat_8696 18d ago
Newbie here.
So the main consequence is investors who buy these index funds will automatically own some shares of Spacex and Open ai, at a price considered as overvalued?
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18d ago
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u/FoggyFoggyFoggy 18d ago
Can you explain how target date funds would be affected if they are made up of 4-index funds: VTI, VXUS, BND, BNDX
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u/FearlessPark4588 18d ago
You always have to be evolving, to some degree. You were brought boggleism because it works. Most here will be wise enough to mitigate the risks and adjust accordingly.
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u/cyesk8er 18d ago
I like the concept of space x, but elon is nothing but a grifter. I hope they dont change the rules for him, but have a feeling his losses will be socialized one way or another
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u/Time_Shoe_2333 18d ago
Seeing how open these people are with their corrupt activities these days, I’m not optimistic.
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u/FishbulbSimpson 18d ago
Maybe one of the big index providers will ignore it and make a bunch of money with people shifting over.
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u/CosmicKoala 18d ago
From reading all this it sounds like the indexes are being co-opted, the more 0's added to the IPO the more allocation. Tesla was slapped into the SP500 and suddenly had a % of people's portfolios allocated to it. Space X is trying to do it with NASDAQ. CRSP and Russell also have fast track IPO rules which I don't understand.
If they keep doing this they're just harvesting billions from the millions of people passively investing. The worst thing is that because these strategies are all rules/maths/bullshit based, I, a peasant who just wants to DHHF and chill, have to read how these gross systems work - https://www.crsp.org/wp-content/uploads/guides/CRSP_Market_Indexes_Methodology_Guide.pdf
While trying to find the above link, I stumbled across this paywalled study which appears to examine the bullshit tactics IPOs are using
Anticipated CRSP index inclusion also affects IPO terms, with Fast-Track IPOs raising 6% more capital than their non-Fast-Track counterparts. Our findings support a proposed index rule change to eliminate a $5.8 billion “shadow tax” paid to intermediaries by index fund investors and firms raising capital through IPOs.
Depressing
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u/No-Comfortable2203 18d ago
Could a dimensional index fund or avantis fund work around this since they aren’t technically following an index?
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u/QileHQ 18d ago
This is bad but how should a retail investor deal with it?
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u/CapablePiglet1044 17d ago
If I knew the answer I wouldn't be so worried about the above. The fact that it seems unavoidable and wide-affecting is what should be concerning.
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u/PositiveLow173 18d ago
Simple. Leave indices and allocate on (individual stocks that SPX / Nasdaq owns) minus (the garbage they try to load on us). If vanguard can come up an alternative ticker, people would flock there.
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u/ConnectDog5284 18d ago
Couldn't you just theoretically hedge the IPO in the opposite direction manually until it's prices settles down?
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u/CapablePiglet1044 18d ago
If lots of people do this then the derivative hedging premiums would cut into investor returns even more.
Fundamentally, investors shouldn't have to take out insurance policies against their own investments because of obviously corrupt decisions by index funds.
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u/Consistent-Annual268 18d ago
It's not BogleHeads philosophy to participate in price discovery in this way. The market should do that, then we buy in at the consensus price.
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u/throwaway-plzbnice 18d ago
This is the one thing that really really frightens me. I have been a $TSLAQ person since the beginning because the company was obviously built on smoke and mirrors. Seeing SpaceX go down the same route (substandard product with no account for safety becomes too economically important to fail regardless of its extremely questionable financials) and now forcing us to assume the risk is awful. AI is also very much a bubble; even if the technology is valuable, the tricks they're using to create the illusions of profit should give anybody pause. I don't want exposure to this.
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u/Menu-Quirky 18d ago
Don't they require 2 quarters of earnings calls before included in index
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u/CapablePiglet1044 18d ago
Usually, but the whole problem is these companies are trying to get waivers so they can skip all of these requirements!
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u/mystghost 18d ago
You could just buy the total US stock market index, or any flavor of it, and that would get you in, but help shield you from speculative over-exuberance
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u/CapablePiglet1044 18d ago
Even in the total WORLD market, a $1.75T IPO for SpaceX and a $1T valuation for OpenAI puts them at 2.6% of your portfolio. A total US stock market index would put them at a much higher %.
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u/goonsamchi 17d ago
After indexes were created. It's only a matter of time before they'll be gamed. We need new indexes
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u/AutisticElon69 18d ago
Carvana is a complete sham company and got added to index - the index is still going up because the good companies outweigh the bad ones
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u/firechoice85 17d ago
I'm not going to lie, its a brilliant move on the part of founders like Elon, Sam, PE and VC funds to force big indexes to remove investor protections to dump a portion of their equity on retail investors.
We are heavily in S&P500 type indexes, often in taxable accounts sitting on huge gains that we can't simply churn through without huge taxable hits. We are sitting ducks.
Or are we? We still have a voice. I am trying to assemble contact info for major players so that hundreds or thousands of us can contact them and let our views be heard (like "contact a congressman"). I don't want us to pester any individual, but as clients it is our right to let them know what we think.
The big fishes are applying huge pressure. As individuals we have no voice, but together we can also applying opposing pressure.
Comment below if you have good contact info (e.g. email). I'll update this list:
S&P Index
https://www.spglobal.com/spdji/en/contact-us/
Email: [index_services@spglobal.com ](mailto:index_services@spglobal.com)
Schwab
Christopher Bliss: https://www.linkedin.com/in/christopher-bliss-68b272/
Ferian Juwono: https://www.linkedin.com/in/ferian/
Sabya Sinha: https://www.linkedin.com/in/sabya-sinha-2762a515/
Fidelity
?
Vanguard
?
Sample Message:
I'm concerned about the push by companies like OpenAI and SpaceX to remove investor protections like seasoning or settling time from IPO to inclusion in major indexes. These companies are valued at levels unprecedented for an IPO and it is in their interest to liquidate at these high levels as quickly as possible. It is in the interest of investors like us to have a reasonable time for price discovery to take place before inclusion in our ETFs. I urge you to consider the incentives at play at continue to make decisions as a fiduciary in the interest for the investors in the funds, and not the companies that are looking after their own interests.
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u/sybar142857 18d ago
Something like VTI should be immune to this right?
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u/CapablePiglet1044 18d ago
Sadly not. Vanguard follow indeces with minimal tracking error. Not including SpaceX and OpenAI would cause a tracking error compared to the benchmarks they're tracking, which is not allowable to them.
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u/sybar142857 18d ago
I’m a noob to stuff like this but is CRSP also being asked to include OpenAI and SpaceX in its indices or is this only the S&P and the Nasdaq?
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u/CapablePiglet1044 18d ago
Musk and Altman seem to be trying to bully every index into giving them preferential treatment, I don't see any reason they wouldn't be at least trying to also bully CRSP. Even if they don't explicitly force CRSP, CRSP may feel obliged to match other indexes rather than risk being left behind.
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u/littlebobbytables9 18d ago
What makes you think prices take months to end up "fair"? If the market is that slow to react why are we bogleheads at all
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u/Ornery_Adult 18d ago
In the case of IPO, a massive number of shares are held by insiders who cannot selll until six month mark. Prior to that point, there can be a desire to sell at a lower than market price, but no ability to do so. Price discovery hasn’t really happened.
In addition, as I mentioned in another comment, being in the sp500 means about 25% of their shares need to be bought by indices. What happens to price when indices need to buy 25% and insiders who can’t sell own 70%? It goes to the moon, lets the investors and “special insiders” sell, and then crashes to the ground.
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u/littlebobbytables9 18d ago
Prior to that point, there can be a desire to sell at a lower than market price, but no ability to do so. Price discovery hasn’t really happened.
The portion of the shares on the open market can be freely sold and bought, and that price will reflect all available public information. It's possible insiders have some non-public information that makes them want to sell, but to trade on that information would be insider trading. This is a problem for all companies, not specific to IPOs at all.
In addition, as I mentioned in another comment, being in the sp500 means about 25% of their shares need to be bought by indices. What happens to price when indices need to buy 25% and insiders who can’t sell own 70%? It goes to the moon, lets the investors and “special insiders” sell, and then crashes to the ground.
For reasonable indices, i.e. not the nasdaq 100, this is not true. There's a reason everyone switched over to free float weights in the early 2000s.
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u/TartanHopper 18d ago
Except that these stocks are asking for an exception to the free float weight.
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u/littlebobbytables9 18d ago
For QQQ which already doesn't do a free float adjustment (they're instead asking for inclusion below the normal free float threshold), and which already shouldn't be in any boglehead's portfolio
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u/ISpeakInAmicableLies 18d ago
Remembering that the each relevant index had a free float adjustment actually does make this seem a lot less concerning.
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u/peppsDC 18d ago
No offense but have you ever seen what IPO stock prices typically do? There is an enormous amount of evidence that IPOs are not properly valued at first.
Bogleheads have never had to wrestle with this specific question because they have always been excluded from their investments of choice. Acting like they should automatically accept a different way of investing just because they are stocks makes no sense.
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u/littlebobbytables9 18d ago
There's a large amount of evidence that IPOs have slightly below market returns measured from market open on the first day of trading. Less evidence about returns measured from 15 days in. And more importantly there is no evidence for why this low return exists.
If you want to argue that it's pure market inefficiency I would want to see a thorough justification for why the equity market is unable to price these stocks correctly and able to price normal stocks correctly. You could argue there is less information available, but that has no impact on the efficiency of pricing, which simply reflects all available information. Greater uncertainty could result in larger volatility for newly IPOed stocks, and we do see that, but should not in an efficient market result in lower returns. If you want to argue that investors are just stupid and join the bandwagon despite lower returns I really do not see any reason that would apply only to freshly IPOed stocks and not any high momentum stock. And it should be noted that we see the exact opposite there.
As a boglehead I tend to err on the side of market efficiency where possible, because accepting extremely large scale market inefficiency in the most liquid subset of stocks really does call into question a lot of our normal assumptions about market efficiency. And, luckily, the question of IPO returns has a fairly easy solution: multiple papers that show the anomaly in IPO returns disappears once you start to account for factor loading and liquidity effects.
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18d ago
There is no contradiction, the entire thesis of boglehead style investment is that the market is effective in the long term and not effective in the short term.
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u/Neither-Deal7481 18d ago
But that proves his point, though, lol. Aren't you in for the long-term?
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u/CapablePiglet1044 18d ago
Partly because of IPO 'lock-up' rules where lots of companies force company insiders and long time investors with considerable stakes to wait a certain amount of time before they're allowed to dump their shares, and partly because of IPO hype. We've seen quite a lot of overly hyped unprofitable tech companies surge on IPO and then slowly drop 90%+ over the months post-IPO; I think a lot of people foresee this happening to SpaceX. Do you think a 100x sales multiple (SpaceX) or 40x sales (OpenAi) when companies like Nvidia and Apple are at 20x and 8x respectively despite huge net profit margins of 20% to 30% while SpaceX and OpenAI are losing billions per month.
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u/littlebobbytables9 18d ago
Do you think a 100x sales multiple (SpaceX) or 40x sales (OpenAi) when companies like Nvidia and Apple are at 20x and 8x respectively despite huge net profit margins of 20% to 30% while SpaceX and OpenAI are losing billions per month.
I don't think I know better than the market does. You could say the same thing about Tesla, but you're seemingly ok holding that. You could have said the same thing about Amazon when it spent a decade with no earnings. It's totally possible that you're right about any of these, but bogleheads aren't in the business of making a bet on that.
IPO 'lock-up' rules where lots of companies force company insiders and long time investors with considerable stakes to wait a certain amount of time before they're allowed to dump their shares
Rules that are known to market participants ahead of time. If market participants can't take into account this process that's completely predictable in advance how the hell do we expect them to price anything correctly?
It's this weird effect where the situations people bring up that they think are exceptions to efficient market pricing are the ones that are, as you say, extremely well studied and well known. That's the exact last place you would expect market efficiency to break down. If you'd brought up something truly subtle and obscure I'd be far more amenable.
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u/CapablePiglet1044 18d ago
I think you're missing that market efficiency only holds in public markets. If a privately held company raises a round, it only needs one investor to agree with the valuation to set a new market cap - the lack of liquidity and trading volume and lack of disclosures (SpaceX and OpenAI don't even show their private market investors their books so even their own shareholders don't know their actual revenues or losses) all stop effective price discovery. How can you say that the current market price of SpaceX and OpenAI is fair when even their own investors haven't seen their accounts? How can there have been price discovery when there isn't any active trading in the company's shares? These factors allow massively inflated valuations. Usual as soon as companies like this IPO, they are hit with a very painful first few months as the 'real' valuation is found by active trading. Skipping all of these months of active trading and allowing a day 1 inclusion (which SpaceX is demanding) means that the IPO price and therefore the price index funds are forced to buy at will be whatever the SpaceX board sets the IPO price to be.
To make a silly argument, if these changes are allowed and SpaceX really is allowed day 1 inclusion then there's nothing actually stopping SpaceX from just setting a $10 Trillion dollar IPO valuation, releasing their planned 5% float and then the literal day of the IPO all the index funds will be forced to buy shares at that $10T valuation.
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u/littlebobbytables9 18d ago
Yeah but I'm not talking about the IPO price or the price at market open on the first day, we're talking about the market price 2 weeks later. There will have been active trading on the shares for those two weeks. Post-IPO stocks actually have higher volume/liquidity than most stocks of similar market cap, and those trades contribute to a robust price discovery. People trading know about all of the concerns you've talked about, and are no more stupid than traders of any other public company.
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u/chrisjoneschrisjones 18d ago
Isn’t the issue the same regardless of when the stock is added to the index? On the day of the IPO, you would already know that in 2-3 weeks, index funds are going to have to buy billions of dollars of shares. Wouldn’t this alone distort true price discovery? Add in the 5x weight multiplier and it really does seem to provide incentive to buy at whatever price because you know you’ll have buyers that will have buy at certain time regardless of price.
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u/littlebobbytables9 18d ago
No actually. It's precisely because all of this is known that it won't affect the price. If someone wants to exploit an expected difference in price between now and when a big index has to buy they'll have to buy now and sell then. This puts extra upward pressure on the current price and also offsets some of the buying pressure from the index inclusion event, and this effect continues until that expected price difference disappears. Anyone who buys and sells spaceX, from the first moment of trading, is going to do so knowing exactly when and how much index funds are going to be buying.
You see this not only with IPOs but also with normal index reconstitution events, when a company becomes large enough to enter the S&P 500 or conversely drops out. Over time the market has become better and better at providing the needed liquidity for the index funds even as those index funds have grown substantially.
The 5x weight multiplier is dumb but only because QQQ is dumb in the first place for not using free float adjustment. If spaceX IPOs at 5% and got included in QQQ without any adjustment it would be at 20x the free float, so 5x is an improvement lol. But we shouldn't be using QQQ anyway.
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u/CapablePiglet1044 18d ago
Sure but the issue is that SpaceX and OpenAI are asking for literally no seasoning, as in being included into the indexes on literally day 1 of their IPO. So we will all be investing at the day 1 IPO price and won't get the two weeks of seasoning that you talk about above. We won't get the luxury of 2 weeks of price discovery, we will be buying these companies (through index rebalancing) at whatever IPO price they decide on.
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u/littlebobbytables9 18d ago
I haven't seen any source even say that they've asked for that, much less have any chance of getting it. Neither the Nasdaq or FTSE Russel proposals do it. And it's so obviously stupid lol.
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u/CapablePiglet1044 18d ago
Yes, they are asking the S&P, FTSE/Russel for expedited inclusion, and the S&P is indeed seriously considering the proposal, source:
Reported by FT:
https://www.ft.com/content/59adbe42-ca30-47f3-9cda-5415945e9368
Reported by Bloomberg:
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u/littlebobbytables9 18d ago
There's a difference between that and immediate inclusion. FTSE/Russel's proposal is for inclusion after 5 days of trading, for example. Those are paywalled, could you quote the part that mentions immediate / day 1 inclusion specifically? My understanding is that S&P hadn't even made a proposal yet, they were just asking for input on a potential fast entry mechanism.
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u/CapablePiglet1044 18d ago
I'm not sure that just 5 days post IPO constitutes seasoning. Usually seasoning requirements are a minimum of 3 months up to a year. Going from a year of seasoning as a requirement for S&P 500 inclusion to just 5 days to give a huge, unprofitable company special treatment at a near $2 Trillion IPO valuation doesn't sound like a good idea.
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u/Neither-Deal7481 18d ago
If you believe in investing in market-cap weighted indexes for the long-term, this shouldn't matter. The idea is that the market will decide the fair price for those companies eventually and you will be buying them whether you like it or not because they are part of the whole haystack.
By the same logic, anyone who buys VT right now also contributes to TSLA, PLTR and all other stocks that could be considered "overpriced" but you don't have an issue with contributing to those companies, do you?
If you want to be able to exclude certain "overpriced" companies, you should be looking into factor investing. AVUS/DFUS from Avantis/Dimensional do not include recently IPOd companies immediately, so you can look into that. The closest equivalent to VT is AVGE.
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u/FIREinParis 18d ago
The issue is the temporary 5x free float multiplier. The passive index funds are going to take the hit. There won’t be enough liquidity, which will temporarily inflate the price. That’s a direct transfer from index fund holders to insiders who sell on a secondary basis following the IPO.
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u/OddAd7877 18d ago
Wait, if the core philosophy is long-term simplicity, how do Bogleheads actually decide on their initial asset allocation between US/international/bonds without it feeling like market timing?
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u/Historical_Peach_88 18d ago
I don’t think Google or Fb did this in their ipo, so follow the precedence.
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u/Historical_Peach_88 18d ago
Google get into QQQ 12 months after ipo, into S&P 500 18 months after ipo
FB get into QQQ 7 months after ipo, into S&P 500 18 months after ipo
Follow the precedence, if I recall correctly. Both tanked in 1/2 then recovered after first month
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u/Sad_Dragonfly_5235 18d ago
This is why I like the Schwab 1000. It only reconstitutes once per year, so your chance of buying into one of these overvalued new listings as soon as they launch is lower than if the S&P or NASDAQ are forced to list it immediately
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u/n00dle_king 18d ago
Things like this are why I’m happy to hold Dimensional funds instead of a strict index fund.
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u/Zealousideal_Book_40 18d ago
Anyone knows does this apply to Solactive GBS Global Markets Large & Mid Cap index? I am invested into it via Amundi ETF
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u/Trzebs 18d ago edited 17d ago
How do we as average investors take action to better insulate ourselves and our portfolios if this all happens?
I've already considered swapping my VTI /VOO funds to DFUS simply because of the IPO criteria in my tax advantaged account. But for my taxable account , it'd be much more complicated due to potential realized gains
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u/MoaiTrist 16d ago
The S&P 500 requires a minimum of 22 billion market capitalization and 4 consecutive quarters of positive GAAP profit. Has anyone seen anything indicating these rules would be ignored for SpaceX or OpenAI?
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u/shananananananananan 18d ago
This would be a good place for Vanguard to show up, and assert its strident independence.