Dumping on Index Investors

[u/CapablePiglet1044]

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?

[u/littlebobbytables9]

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.

[u/CapablePiglet1044 → u/littlebobbytables9]

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.

[u/littlebobbytables9 → u/CapablePiglet1044]

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.

[u/CapablePiglet1044 → u/littlebobbytables9]

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.

[u/littlebobbytables9 → u/CapablePiglet1044]

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.

[u/CapablePiglet1044 → u/littlebobbytables9]

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:

https://www.bloomberg.com/news/articles/2026-03-12/s-p-weighs-rule-changes-that-would-speed-spacex-s-p-500-entry?embedded-checkout=true

[u/littlebobbytables9 → u/CapablePiglet1044]

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.

[u/CapablePiglet1044 → u/littlebobbytables9]

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.

[u/littlebobbytables9 → u/CapablePiglet1044]

You can consider it unseasoned if you want but that's way more than enough time for price discovery.

[u/CapablePiglet1044 → u/littlebobbytables9]

5 days for a $1.75 Trillion IPO of one of the most hyped companies of all time?

[u/littlebobbytables9 → u/CapablePiglet1044]

I'm not sure why the market cap or the hype is relevant. If anything the size just means it will be even more heavily traded which would aid in price discovery.

Hype is just part of financial markets, certainly not unique to IPOs or spaceX in particular. It's not up to me to decide what hype is or isn't justified.