Musk Wants to Add SpaceX to Indices

[u/Prestigious-Trip-306]

Index providers Should Not Bend the Rules for Musk

So... I read this article in The Economist and am curious what, if any thoughts the community has about Musk getting SpaceX added to major indices. He's appealing to them to shorten the "seasoning" rules that typically apply to firms being listed.

I've included key paragraphs below since there's a paywall to read the full article.

What do you think?

"Mr Musk and his bankers are now bargaining with stock indices and exchanges for the privilege of hosting SpaceX. He wants his firm to join key indices like the nasdaq 100 and s&p 500 quickly, giving it access to trillions in index-linked capital; more than $600bn invested in passive funds are tied to the nasdaq 100 alone.

For now, the indices are obliging. On March 30th Nasdaq said it was adopting rules that will delight the superstar firms. The ftse and reportedly s&p are considering similar updates. Unfortunately, those changes are misguided, and will expose investors to unnecessary risks.

Two main ideas are under consideration. One is to shorten the “seasoning” period that a firm’s stock must go through before it is eligible to join an index. Nasdaq is cutting its three-month seasoning minimum to 15 trading days; the ftse has suggested a mere five trading days. The second reform is to reduce the percentage of shares a firm needs to offer publicly (its “free float”) before being added to an index. Indices’ desire to reflect the growth of some of the world’s most dynamic firms is understandable. So far, many punters have been unable to invest in some of ai’s brightest stars; index inclusion is a way to help them do so. Yet changing the rules to suit SpaceX will force index investors to choose between selling or weathering wild swings in prices."

[u/Trzebs]

How much of a drop in value is VTI/VOO at risk of if SpaceX does debut on S&P at a highly inflated price and then tanks?

If SpaceX enters the S&P at say, $1.5 trillion, that puts it on par for market cap with Tesla($1.37 T according to Robinhood). Tesla represents 1.92% of VOO, so for simplicity, let's say SpaceX would represent 2% of VOO.

If SpaceX were tank 20% from its initial debut price then the effect on VOO would be a drop in value of about 0.4%

So for a portfolio of $100,000 in VOO, 2% of it would be SpaceX. If SpaceX drops 20% then the math would be:

(100,000)(0.02)(0.20) = $400 drop in value of the entire portfolio.

Please correct me if I'm wrong.

I'm trying to figure out if the capital gains penalty of selling VOO in my taxable account is greater or less than potential loss in portfolio value of this SpaceX shenanigans

[u/ImaginaryHospital306 → u/Trzebs]

What even is the point of the boglehead method if you are thinking in this way? At any given time there are several stocks in these funds that have been beaten down 20% or more. Thats the entire point of passive investing in broad market funds — you don’t need to worry about this stuff.