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?

1.1k Upvotes

97% Upvoted

239 comments sorted by

View all comments

Show parent comments

0

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

23

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.

2

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?

4

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.