4 ms·

This seems a sensible thing to do. If you change the rules on how things end up on your index, you force everyone using that index to reevaluate it. Your index

by stubish 4mo ago

This seems a sensible thing to do. If you change the rules on how things end up on your index, you force everyone using that index to reevaluate it. Your index is now perceived as more volatile (and probably is), and all the finance people need to reevaluate the risk of their index funds and decide if it is now 'growth', 'high growth' or whatever bucket it belongs in based on the new risk profile. And then all the portfolios need to be rebalanced. Which all takes time, more time than was being proposed. The sensible thing to do is to create a new index with the new rules.

JumpCrisscross 4mo ago
> sensible thing to do is to create a new index with the new rules It depends. Indices aren’t funds. They aren’t meant to balance investor interests. They’re meant to communicate some metric about the market. The S&P tells you how big companies are doing in an index optimized to balance representation against trading cost. So in 2005, float was taken into account for weighting (versus just market cap). This made sense. Also, since the start, the S&P 500 has been a committee-based index. Not rule based. This has made it successful; if you want stable and unchanging, you never went for the S&P 500.
- jmyeet 4mo ago
  The market cap of the S&P 500 according to Google is ~$65T. Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. That's a big deal. The rules around index inclusion exist for a reason. Too much control in one person's hands (which SpaceX has), too small a float (so you don't get price discovery), lack of a history of financial performance and minimal trading days just don't give investors confidence and, like it or not, investment decisions are made based on the index. If you want to argue against passive investment, well, good luck with that. I think a lot of people have this weird idea that what we need is some theoretically unfettered market for "true" price discovery when it's actually regulations like this that create markets. It's like a libertarian brain worm. I don't think anybody wants these mega-companies out of the index, specifically. They just don't see why rules that exist for a reason should be suspended when the net effect of that is that investors have less information and there is a lot of forced purchasing. If you have confidence in your IPO, let the market decide what it's worth without trying to fix the price because what they seem to want is for insider lock-ups to end about the time we'd otherwise be getting normal price discovery. Kinda weird. Investor confidence needfs to be managed by creating a stable, regulated market.
  - bdangubic 4mo ago
    except $4T is a made up number, a complete fantasy not rooted in any reality. it us more like $750bn (this is also made up number) :)
    - lotsofpulp 4mo ago
      All valuations are “made up” numbers.
      - tasuki 4mo ago
        Some are more made up than others though!
      - Retric 4mo ago
        Price discovery isn’t “making up” a number it’s discovering a number that meets a specific criteria. Critically it’s not simply averaging a bunch of made up numbers. I may think gold is worth 1,000$/kg but if nobody is willing to sell me gold at that price then my “made up” number has zero effect on the market price.
    - fragmede 4mo ago
      The 409a has a lot of words and numbers to justify a particular valuation. It's not made up from the ether based on nothing. You can disagree with their reasoning and come to a different number, but you need to show your work if you want anyone to give a shit about your made up number. How many satellites have you launched this year? What's the going rate for a kilogram to LEO? Who are the competitors and what do they charge? Things like that which aren't magic made up numbers.
      - nixon_why69 4mo ago
        Oh come on. They absolutely have to target a valuation that's profitable for previous rounds, any reasoning is subservient to that imperative.
      - jkestner 4mo ago
- btown 4mo ago
  The S&P 500 may not be a fund itself, but Standard & Poor's is a business whose ability to sell services is correlated with the continued relevance of the S&P 500. It absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis. It seems entirely reasonable to say: "if we make a certain decision, we correlate both our reputation and a nontrivial portion of the U.S. economy with the whims of one of the most volatile personalities in industry, and we should likely pay attention to this trial balloon that shows such anticipatory fear of the decision that we might lose our reputation as an index altogether."
  - JumpCrisscross 4mo ago
    > absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis As a business, sure. As a committee, it’s still a deeply technical process. I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. > and a nontrivial portion of the U.S. economy This vastly overstates the amount of assets tied to the S&P 500. It’s a lot. But it’s a strong minority of equity exposures.
    - snypher 4mo ago
      There's overlap between strong minority and nontrivial, so not sure how it can be vastly overstated. Do you have numbers you can add to this, or any explanation of equity exposure etc?
    - lmm 4mo ago
      > I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. How can you possibly know that? Do the people on that committee have a cast-iron tenure guarantee?
      - JumpCrisscross 4mo ago
        > How can you possibly know that? I know folks who have been on these. They don’t have tenure. But they’re basically emeritus. If S&P wanted to do something that would cause chaos, it would be fucking with those folks because they made a decision that looks bad.
- wiwiw1 4mo ago
  an etf that tracks the S&P 500 is what then? This is a big win for many S&P 500 etf holders
  - stvltvs 4mo ago
    Exactly. The S&P 500 isn't a fund, but let's not pretend that inclusion in the index doesn't mean real money is at stake.
    - JumpCrisscross 4mo ago
      > let's not pretend that inclusion in the index doesn't mean real money is at stake Straw man. Nobody claims this. The point is (a) the state of decisionmaking was misrepresented for clicks and (b) the effects of a decision one way or the other way way overblown. Hating on Musk sells subs. That's fair and, frankly, deserved. It doesn't mean we need to get misled chasing that high.
- themafia 4mo ago
  > They’re meant to communicate some metric about the market. Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.
  - JumpCrisscross 4mo ago
    > Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? Yes. There are more indices than there are stocks. Publishing an index is, business wise, a game of getting funds to license them.
  - fragmede 4mo ago
    I mean, they get paid for it, sometimes quite a lot, for this "broadcasting". $100mm of AUM gets you like $200k profit/yr. (Like $500k minus fees)
  - mamonster 4mo ago
    Once you have an index, you can offer all sorts of products around it. -You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc) -A fund manager can use it as his benchmark and you get to see if he is good or not. -If its a factor index you can now use it for risk management and return attribution. The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.
- forlorn_mammoth 4mo ago
  Indexes are not funds, correct. However, the SP500 index is one of the few indices that is strongly represented in 401K plan options. That changes its role from "communicate some metric about the market" to forced buying of the metric. which makes changing the metric, especially in such a drastic way, consequential.
tristanj 4mo ago
At a fundamental level, an index is supposed to reflect the market. If the current market is IPO-ing unprofitable companies at absurd multipliers, the index should reflect that. Because that is the market. The longer major indexes exclude these companies, the further the index strays from representing the market, and the worse they do their core job of tracking it. It's not the index's fault that market is pushing out overpriced and unprofitable companies.
- pdpi 4mo ago
  Indices are supposed to reflect a part of the market. That's why you have all of S&P500, the Dow, NYSE Composite, and Nasdaq Composite (and several others) in the US — They each reflect different attributes of the market as a whole. As it stands, it's clear that the users of S&P500 are not interested in the performance of the parts of the market made up of overpriced (and potentially highly volatile) IPOs.
  - tristanj 4mo ago
    The problem with your framing of "users of S&P500 are not interested overpriced IPOs" is that it conflates two fundamentally different things: what an index describes vs what investors prefer. The moment you start filtering out parts of the market based on investor appetite vs market reality, you stop building an index and instead start creating an actively managed product. That's active investing. It's no longer an index. The S&P 500 is used as the benchmark of the market by practically everyone. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know. If the benchmark that everyone uses as a market proxy is systematically excluding a substantial part of the market, then the gap betweeen "the index" and "the market" has real consequences. You can't have it both ways: Either the S&P 500 is a market proxy, in which excluding parts of the market is a problem; or it's a curated slice, in which everyone needs to stop it as the default benchmarket for the market.
    - f33d5173 4mo ago
      An index is an index. It works fine as an index if it excludes one or two stocks. People seem to forget as well that this is a question of waiting a single year before it including the stock. It is literally just long enough to make sure the price settles, it's not some catastrophic thing.
impure 4mo ago
They have to be rebalanced every quarter regardless. And I'm not sure how many people would actually sell due to the inclusion of a single company. They're very loud about it, but no evidence that this is causing a significant amount of selling.
- XorNot 4mo ago
  Because it hasn't happened yet, and now, won't. So by that metric the very loud people succeeded: these new IPOs will enter the index under the established rules and time-frames.
skeptic_ai 4mo ago
Sp500 is not passive. Keeps updating the rules every few years. https://www.reddit.com/r/stocks/comments/1tvuhgy/sp500_100_years_of_changes_how_significant_is_the/ https://www.reddit.com/r/stocks/comments/1tvuhgy/sp500_100_y... See top relevant changes in 100 years
- NewJazz 4mo ago
  Fyi reddit is now consistently authwalled on mobile (at least for me). You may want to extract any meaningfully information and rehost it.

by stubish 4mo ago

JumpCrisscross 4mo ago

> sensible thing to do is to create a new index with the new rules It depends. Indices aren’t funds. They aren’t meant to balance investor interests. They’re meant to communicate some metric about the market. The S&P tells you how big companies are doing in an index optimized to balance representation against trading cost. So in 2005, float was taken into account for weighting (versus just market cap). This made sense. Also, since the start, the S&P 500 has been a committee-based index. Not rule based. This has made it successful; if you want stable and unchanging, you never went for the S&P 500.

jmyeet 4mo ago
The market cap of the S&P 500 according to Google is ~$65T. Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. That's a big deal. The rules around index inclusion exist for a reason. Too much control in one person's hands (which SpaceX has), too small a float (so you don't get price discovery), lack of a history of financial performance and minimal trading days just don't give investors confidence and, like it or not, investment decisions are made based on the index. If you want to argue against passive investment, well, good luck with that. I think a lot of people have this weird idea that what we need is some theoretically unfettered market for "true" price discovery when it's actually regulations like this that create markets. It's like a libertarian brain worm. I don't think anybody wants these mega-companies out of the index, specifically. They just don't see why rules that exist for a reason should be suspended when the net effect of that is that investors have less information and there is a lot of forced purchasing. If you have confidence in your IPO, let the market decide what it's worth without trying to fix the price because what they seem to want is for insider lock-ups to end about the time we'd otherwise be getting normal price discovery. Kinda weird. Investor confidence needfs to be managed by creating a stable, regulated market.
- bdangubic 4mo ago
  except $4T is a made up number, a complete fantasy not rooted in any reality. it us more like $750bn (this is also made up number) :)
  - lotsofpulp 4mo ago
    All valuations are “made up” numbers.
    - tasuki 4mo ago
      Some are more made up than others though!
    - Retric 4mo ago
      Price discovery isn’t “making up” a number it’s discovering a number that meets a specific criteria. Critically it’s not simply averaging a bunch of made up numbers. I may think gold is worth 1,000$/kg but if nobody is willing to sell me gold at that price then my “made up” number has zero effect on the market price.
  - fragmede 4mo ago
    The 409a has a lot of words and numbers to justify a particular valuation. It's not made up from the ether based on nothing. You can disagree with their reasoning and come to a different number, but you need to show your work if you want anyone to give a shit about your made up number. How many satellites have you launched this year? What's the going rate for a kilogram to LEO? Who are the competitors and what do they charge? Things like that which aren't magic made up numbers.
    - nixon_why69 4mo ago
      Oh come on. They absolutely have to target a valuation that's profitable for previous rounds, any reasoning is subservient to that imperative.
    - jkestner 4mo ago
btown 4mo ago
The S&P 500 may not be a fund itself, but Standard & Poor's is a business whose ability to sell services is correlated with the continued relevance of the S&P 500. It absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis. It seems entirely reasonable to say: "if we make a certain decision, we correlate both our reputation and a nontrivial portion of the U.S. economy with the whims of one of the most volatile personalities in industry, and we should likely pay attention to this trial balloon that shows such anticipatory fear of the decision that we might lose our reputation as an index altogether."
- JumpCrisscross 4mo ago
  > absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis As a business, sure. As a committee, it’s still a deeply technical process. I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. > and a nontrivial portion of the U.S. economy This vastly overstates the amount of assets tied to the S&P 500. It’s a lot. But it’s a strong minority of equity exposures.
  - snypher 4mo ago
    There's overlap between strong minority and nontrivial, so not sure how it can be vastly overstated. Do you have numbers you can add to this, or any explanation of equity exposure etc?
  - lmm 4mo ago
    > I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. How can you possibly know that? Do the people on that committee have a cast-iron tenure guarantee?
    - JumpCrisscross 4mo ago
      > How can you possibly know that? I know folks who have been on these. They don’t have tenure. But they’re basically emeritus. If S&P wanted to do something that would cause chaos, it would be fucking with those folks because they made a decision that looks bad.
wiwiw1 4mo ago
an etf that tracks the S&P 500 is what then? This is a big win for many S&P 500 etf holders
- stvltvs 4mo ago
  Exactly. The S&P 500 isn't a fund, but let's not pretend that inclusion in the index doesn't mean real money is at stake.
  - JumpCrisscross 4mo ago
    > let's not pretend that inclusion in the index doesn't mean real money is at stake Straw man. Nobody claims this. The point is (a) the state of decisionmaking was misrepresented for clicks and (b) the effects of a decision one way or the other way way overblown. Hating on Musk sells subs. That's fair and, frankly, deserved. It doesn't mean we need to get misled chasing that high.
themafia 4mo ago
> They’re meant to communicate some metric about the market. Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.
- JumpCrisscross 4mo ago
  > Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? Yes. There are more indices than there are stocks. Publishing an index is, business wise, a game of getting funds to license them.
- fragmede 4mo ago
  I mean, they get paid for it, sometimes quite a lot, for this "broadcasting". $100mm of AUM gets you like $200k profit/yr. (Like $500k minus fees)
- mamonster 4mo ago
  Once you have an index, you can offer all sorts of products around it. -You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc) -A fund manager can use it as his benchmark and you get to see if he is good or not. -If its a factor index you can now use it for risk management and return attribution. The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.
forlorn_mammoth 4mo ago
Indexes are not funds, correct. However, the SP500 index is one of the few indices that is strongly represented in 401K plan options. That changes its role from "communicate some metric about the market" to forced buying of the metric. which makes changing the metric, especially in such a drastic way, consequential.

tristanj 4mo ago

At a fundamental level, an index is supposed to reflect the market. If the current market is IPO-ing unprofitable companies at absurd multipliers, the index should reflect that. Because that is the market. The longer major indexes exclude these companies, the further the index strays from representing the market, and the worse they do their core job of tracking it. It's not the index's fault that market is pushing out overpriced and unprofitable companies.

pdpi 4mo ago
Indices are supposed to reflect a part of the market. That's why you have all of S&P500, the Dow, NYSE Composite, and Nasdaq Composite (and several others) in the US — They each reflect different attributes of the market as a whole. As it stands, it's clear that the users of S&P500 are not interested in the performance of the parts of the market made up of overpriced (and potentially highly volatile) IPOs.
- tristanj 4mo ago
  The problem with your framing of "users of S&P500 are not interested overpriced IPOs" is that it conflates two fundamentally different things: what an index describes vs what investors prefer. The moment you start filtering out parts of the market based on investor appetite vs market reality, you stop building an index and instead start creating an actively managed product. That's active investing. It's no longer an index. The S&P 500 is used as the benchmark of the market by practically everyone. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know. If the benchmark that everyone uses as a market proxy is systematically excluding a substantial part of the market, then the gap betweeen "the index" and "the market" has real consequences. You can't have it both ways: Either the S&P 500 is a market proxy, in which excluding parts of the market is a problem; or it's a curated slice, in which everyone needs to stop it as the default benchmarket for the market.
  - f33d5173 4mo ago
    An index is an index. It works fine as an index if it excludes one or two stocks. People seem to forget as well that this is a question of waiting a single year before it including the stock. It is literally just long enough to make sure the price settles, it's not some catastrophic thing.

impure 4mo ago

They have to be rebalanced every quarter regardless. And I'm not sure how many people would actually sell due to the inclusion of a single company. They're very loud about it, but no evidence that this is causing a significant amount of selling.

XorNot 4mo ago
Because it hasn't happened yet, and now, won't. So by that metric the very loud people succeeded: these new IPOs will enter the index under the established rules and time-frames.

skeptic_ai 4mo ago

Sp500 is not passive. Keeps updating the rules every few years. https://www.reddit.com/r/stocks/comments/1tvuhgy/sp500_100_years_of_changes_how_significant_is_the/ https://www.reddit.com/r/stocks/comments/1tvuhgy/sp500_100_y... See top relevant changes in 100 years

NewJazz 4mo ago
Fyi reddit is now consistently authwalled on mobile (at least for me). You may want to extract any meaningfully information and rehost it.