4 ms·

Soon to be part of your portfolio if you hold Nasdaq 100 or S&P 500 trackers line QQQ or SPY.

by henry2023 5mo ago

seydor 5mo ago
What will managed funds do? Are we now suggesting people get out of index funds? Worse, will this and spacex ipo destroy the index funds?
- karmakurtisaani 5mo ago
  Destroy is a strong word. Rather, it will make the pension funds and passive investors the bag holders for the oligarchs.
  - andsoitis 5mo ago
    > Rather, it will make the pension funds and passive investors the bag holders for the oligarchs. Care to explain the mechanics? I’m an investor (both in passive and more active vehicles) and don’t understand what you mean.
    - jddj 5mo ago
      Index funds buy companies, for the most part, according to their market capitalisation. They own more of bigger companies than small. There's the option of "equal weight" or other strategies but the overwhelming majority is market cap weighted. Index funds are also really, really big now and contain a lot of money earmarked for retirement/pensions. In theory if you had a temporarily very frothy market into which you could sell a part of your unprofitable company to some people at a very high valuation, index funds would then mechanically move in and need to purchase and add significant support for insiders to sell into.
      - karmakurtisaani 5mo ago
        In this case, Elon has moved the wildly unprofitable XAI into SpaceX. SpaceX will IPO with a trillion dollar valuation, while only releasing a small number of shares for public trading. Due to the high valuation, index funds are required to buy SpaceX stock, which Elon will presumably slowly sell them in order not to crash the stock. The funds will be left holding the stock, while eventually the price will crash, because the company will simply not make enough money to justify the valuation.
        andsoitis 5mo ago
        > Elon will presumably slowly sell them in order not to crash the stock. The funds will be left holding the stock, while eventually the price will crash, because the company will simply not make enough money to justify the valuation. Musk owns about 50% of SpaceX. You are saying he is planning to sell the vast majority of that holding at a gradual pace that will not be noticed by anyone but fast enough to get a high price?
        karmakurtisaani 5mo ago
        I'm sure there are multiple ways to profit from the situation. Even having just a small fraction of the shares publicly traded, while the index funds keep the price high is a huge win for him, as his net worth will be extreme on paper.
      - andsoitis 5mo ago
        Ok, but how does this "hold the bag for the oligarchs"? And which specific oligarchs do you have in mind when you say this? Are you thinking of Sam Altman and Dario Amodei and Elon Musk?
        lpcvoid 5mo ago
        All of the mentioned will dump their overhyped and overvalued trash onto retail investors which are forced to buy it due to it being part of the NASDAQ. It will tank in value afterwards due to public scrutiny revealing thr fiscal unprofitability. Retirement funds will be ripped apart, trust in the financial system will evaporate, people will be left holding the bag on a scale that makes Lehman brothers seem like a trial run.
        Danox 5mo ago
        They (everyone) are not forced to buy it. They’re buying it on the hype. Tesla for example is done worldwide aside from the USA, but it still has a cult and hype behind it, if you are a smart early investor, you have already sold all your shares in Tesla and moved on because they will never be as big as they were five years ago. Tesla’s done BYD has seen to that. Many investors haven’t figured that out yet but they will eventually and they will be the ultimate bag holders once the bubble bursts for Tesla for good. There are other companies that are remnants of what they were but they still survive on hype. It just takes a long time for them to die. Another example of that is IBM. They are functionally done in the tech world. It just takes a long time to die other companies that fit that mold is Xerox and Kodak still floating at a much lower level, but they are functionally done.
        karmakurtisaani 5mo ago
        > They (everyone) are not forced to buy it. They’re buying it on the hype. But they are and that's the key part of the scam. The index funds will have to buy these, since they are so highly valued. Index funds in turn are very popular investment devices used by pension funds, banks, individuals etc.
        5mo ago
- eloisant 5mo ago
  The important thing to remember is: - With the SP500 you're not that diversified because you're very exposed to the tech sector - With a world ETF like MSCI World you're still extremely exposed to US stocks (about 70%) and of course the tech sector
coliveira 5mo ago
ETFs are a trap. Put most of your money in single stocks. It is ok to diversify, you don't need an ETF for this.
- sentientslug 5mo ago
  This is terrible advice, are you buying and self balancing hundreds of different stocks?
  - NewJazz 5mo ago
    Direct indexing is a thing.
    - ifwinterco 5mo ago
      It’s a thing but your order execution won’t be as efficient as an ETF, so you will be losing a non-negligible amount each year in slippage from the large number of small transactions
      - cheinic6493 5mo ago
        > It’s a thing but your order execution won’t be as efficient as an ETF, so you will be losing a non-negligible amount each year in slippage from the large number of small transactions Not necessarily ETF managers execute block trades outside the normal market, sometimes through dark pools, not even reported to the public. Fidelity, Vanguard, etc ask JPMorgan, Goldman to execute these block trades and pay them a fee. This fee can exceed the “slippage” a retail investor can face.
      - tasuki 5mo ago
        You don't have to do the large number of small transactions, you know? Just diverge from the index, it's fine!
        NewJazz 5mo ago
        If you are making regular contributions to an account, then you may be able to rebalance via purchases alone.
derwiki 5mo ago
Upside of robo advisors?
sixhobbits 5mo ago
Afaik, Nasdaq removed the seasoning rules to include it from the start, S&P would usually be only a year after IPO but they are also discussing changes
eclipsetheworld 5mo ago
Collectively, Alphabet (Google), Amazon, Microsoft, and Nvidia already own approximately 25 - 35% of OpenAI and Anthropic respectively. They already are a part of your portfolio.
- bob1029 5mo ago
  This kind of indirect exposure might look good on paper but it's never even remotely a linear mapping in practice. Holding the underlying directly is the best bet if you want to minimize the possibility of getting screwed over by external factors while maximizing your practical exposure. It really sucks to be right and still get punished for it because Xbox or windows shit the bed last quarter.
  - throwaway-away 5mo ago
    Agreed. The mere "mass" of these companies dampen any movement that the underlying asset has. I mean, in a earning call it might just be a line item in the "Others" section. And even if they made/lost billions it is a small % of the quarterly profits of such companies.
juleiie 5mo ago
So these extremely risky companies will become a big part of American retirement funds. I am sure nothing bad will happen
gpt5 5mo ago
Note that index funds don't hold companies in proportion to their market cap, but in proportion to their free float (shares available to purchase on the market). Both SpaceX and OpenAI's estimated free float are around 4-5% of their shares at IPO. This means that we really are talking about companies in the sub $100M valuation in term of index fund impact (assuming under $2T for each).
- nly 5mo ago
  "free-float adjusted" is the key term
- FireBy2024 5mo ago
  5% of 2T would be $100B, not $100M.
- psvv 5mo ago
  That's true for the S&P but not nasdaq, nasdaq is market cap weighted. There used to be a limit that the available float couldn't go below something like 20%. (This is because 5% float available but 100% market cap would cause a huge supply/demand mismatch). But for spacex they changed the rule so there's no minimum, it's just that below 20% float, companies would be weighted at 5x the float instead of 100% of market cap. If spacex is planning on something like 5% float, it would be weighted around 25% of market cap with only 5% of float available to buy. But it gets worse because when the lock-up period expires in 180 days after ipo (currently scheduled right before quarterly index rebalancing), it's possible that frees up more than 20% of float and it suddenly has to be weighted at the full 100% of market cap -- triggering additional automatic buying. It certainly seems like it's set up for our retirement accounts to be the insider's exit liquidity.
  - zozbot234 5mo ago
    > it's possible that frees up more than 20% of float and it suddenly has to be weighted at the full 100% of market cap In your scenario, that 100% cap would by definition be less than 5x float so it shouldn't trigger any more buying than the lock-up expiration itself did.

Soon to be part of your portfolio if you hold Nasdaq 100 or S&P 500 trackers line QQQ or SPY.

What will managed funds do? Are we now suggesting people get out of index funds? Worse, will this and spacex ipo destroy the index funds?

karmakurtisaani 5mo ago
Destroy is a strong word. Rather, it will make the pension funds and passive investors the bag holders for the oligarchs.
- andsoitis 5mo ago
  > Rather, it will make the pension funds and passive investors the bag holders for the oligarchs. Care to explain the mechanics? I’m an investor (both in passive and more active vehicles) and don’t understand what you mean.
  - jddj 5mo ago
    Index funds buy companies, for the most part, according to their market capitalisation. They own more of bigger companies than small. There's the option of "equal weight" or other strategies but the overwhelming majority is market cap weighted. Index funds are also really, really big now and contain a lot of money earmarked for retirement/pensions. In theory if you had a temporarily very frothy market into which you could sell a part of your unprofitable company to some people at a very high valuation, index funds would then mechanically move in and need to purchase and add significant support for insiders to sell into.
    - karmakurtisaani 5mo ago
      In this case, Elon has moved the wildly unprofitable XAI into SpaceX. SpaceX will IPO with a trillion dollar valuation, while only releasing a small number of shares for public trading. Due to the high valuation, index funds are required to buy SpaceX stock, which Elon will presumably slowly sell them in order not to crash the stock. The funds will be left holding the stock, while eventually the price will crash, because the company will simply not make enough money to justify the valuation.
      - andsoitis 5mo ago
        > Elon will presumably slowly sell them in order not to crash the stock. The funds will be left holding the stock, while eventually the price will crash, because the company will simply not make enough money to justify the valuation. Musk owns about 50% of SpaceX. You are saying he is planning to sell the vast majority of that holding at a gradual pace that will not be noticed by anyone but fast enough to get a high price?
        karmakurtisaani 5mo ago
        I'm sure there are multiple ways to profit from the situation. Even having just a small fraction of the shares publicly traded, while the index funds keep the price high is a huge win for him, as his net worth will be extreme on paper.
    - andsoitis 5mo ago
      Ok, but how does this "hold the bag for the oligarchs"? And which specific oligarchs do you have in mind when you say this? Are you thinking of Sam Altman and Dario Amodei and Elon Musk?
      - lpcvoid 5mo ago
        All of the mentioned will dump their overhyped and overvalued trash onto retail investors which are forced to buy it due to it being part of the NASDAQ. It will tank in value afterwards due to public scrutiny revealing thr fiscal unprofitability. Retirement funds will be ripped apart, trust in the financial system will evaporate, people will be left holding the bag on a scale that makes Lehman brothers seem like a trial run.
        Danox 5mo ago
        They (everyone) are not forced to buy it. They’re buying it on the hype. Tesla for example is done worldwide aside from the USA, but it still has a cult and hype behind it, if you are a smart early investor, you have already sold all your shares in Tesla and moved on because they will never be as big as they were five years ago. Tesla’s done BYD has seen to that. Many investors haven’t figured that out yet but they will eventually and they will be the ultimate bag holders once the bubble bursts for Tesla for good. There are other companies that are remnants of what they were but they still survive on hype. It just takes a long time for them to die. Another example of that is IBM. They are functionally done in the tech world. It just takes a long time to die other companies that fit that mold is Xerox and Kodak still floating at a much lower level, but they are functionally done.
        karmakurtisaani 5mo ago
        > They (everyone) are not forced to buy it. They’re buying it on the hype. But they are and that's the key part of the scam. The index funds will have to buy these, since they are so highly valued. Index funds in turn are very popular investment devices used by pension funds, banks, individuals etc.
        5mo ago
eloisant 5mo ago
The important thing to remember is: - With the SP500 you're not that diversified because you're very exposed to the tech sector - With a world ETF like MSCI World you're still extremely exposed to US stocks (about 70%) and of course the tech sector

coliveira 5mo ago

ETFs are a trap. Put most of your money in single stocks. It is ok to diversify, you don't need an ETF for this.

sentientslug 5mo ago
This is terrible advice, are you buying and self balancing hundreds of different stocks?
- NewJazz 5mo ago
  Direct indexing is a thing.
  - ifwinterco 5mo ago
    It’s a thing but your order execution won’t be as efficient as an ETF, so you will be losing a non-negligible amount each year in slippage from the large number of small transactions
    - cheinic6493 5mo ago
      > It’s a thing but your order execution won’t be as efficient as an ETF, so you will be losing a non-negligible amount each year in slippage from the large number of small transactions Not necessarily ETF managers execute block trades outside the normal market, sometimes through dark pools, not even reported to the public. Fidelity, Vanguard, etc ask JPMorgan, Goldman to execute these block trades and pay them a fee. This fee can exceed the “slippage” a retail investor can face.
    - tasuki 5mo ago
      You don't have to do the large number of small transactions, you know? Just diverge from the index, it's fine!
      - NewJazz 5mo ago
        If you are making regular contributions to an account, then you may be able to rebalance via purchases alone.

derwiki 5mo ago

Upside of robo advisors?

sixhobbits 5mo ago

Afaik, Nasdaq removed the seasoning rules to include it from the start, S&P would usually be only a year after IPO but they are also discussing changes

eclipsetheworld 5mo ago

Collectively, Alphabet (Google), Amazon, Microsoft, and Nvidia already own approximately 25 - 35% of OpenAI and Anthropic respectively. They already are a part of your portfolio.

bob1029 5mo ago
This kind of indirect exposure might look good on paper but it's never even remotely a linear mapping in practice. Holding the underlying directly is the best bet if you want to minimize the possibility of getting screwed over by external factors while maximizing your practical exposure. It really sucks to be right and still get punished for it because Xbox or windows shit the bed last quarter.
- throwaway-away 5mo ago
  Agreed. The mere "mass" of these companies dampen any movement that the underlying asset has. I mean, in a earning call it might just be a line item in the "Others" section. And even if they made/lost billions it is a small % of the quarterly profits of such companies.

juleiie 5mo ago

So these extremely risky companies will become a big part of American retirement funds. I am sure nothing bad will happen

gpt5 5mo ago

Note that index funds don't hold companies in proportion to their market cap, but in proportion to their free float (shares available to purchase on the market). Both SpaceX and OpenAI's estimated free float are around 4-5% of their shares at IPO. This means that we really are talking about companies in the sub $100M valuation in term of index fund impact (assuming under $2T for each).

nly 5mo ago
"free-float adjusted" is the key term
FireBy2024 5mo ago
5% of 2T would be $100B, not $100M.
psvv 5mo ago
That's true for the S&P but not nasdaq, nasdaq is market cap weighted. There used to be a limit that the available float couldn't go below something like 20%. (This is because 5% float available but 100% market cap would cause a huge supply/demand mismatch). But for spacex they changed the rule so there's no minimum, it's just that below 20% float, companies would be weighted at 5x the float instead of 100% of market cap. If spacex is planning on something like 5% float, it would be weighted around 25% of market cap with only 5% of float available to buy. But it gets worse because when the lock-up period expires in 180 days after ipo (currently scheduled right before quarterly index rebalancing), it's possible that frees up more than 20% of float and it suddenly has to be weighted at the full 100% of market cap -- triggering additional automatic buying. It certainly seems like it's set up for our retirement accounts to be the insider's exit liquidity.
- zozbot234 5mo ago
  > it's possible that frees up more than 20% of float and it suddenly has to be weighted at the full 100% of market cap In your scenario, that 100% cap would by definition be less than 5x float so it shouldn't trigger any more buying than the lock-up expiration itself did.