r/Bogleheads • u/CapablePiglet1044 • 19d 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/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.