10 ms·

Good. Indexes are supposed to be slow-moving, precisely due to their entry requirement of sustained profitability that skews towards mature companies. All tha

by rchaud 4mo ago

Good. Indexes are supposed to be slow-moving, precisely due to their entry requirement of sustained profitability that skews towards mature companies. All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. SpaceX and OAI stock will be available through Robinhood, Questrade and all the other retail investor markets. Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say.

tristanj 4mo ago
On a fundamental level, the S&P 500 index is meant to be a benchmark of the market. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know all use the S&P 500 as the benchmark of the US stock market. If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.
- lovich 4mo ago
  It’s a benchmark of the market under certain rules, like having multiple quarters of earnings for the market to value them at. These companies want special exceptions. If you are an exception why should you be included in a benchmark? At best they should have an asterisk against their name like Sammy Sosa or Mark McGuire if they are not following the same rules.
  - tristanj 4mo ago
    Your baseball cheating analogy makes no sense here. Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. S&P rules are supposed to make the index reflect the market. Totally different. The profitability requirement is something made up by the S&P committee. If that rule ends up excluding trillions in market cap, the rule has defeated its own purpose. The 12 months of profitability requirement punishes high-growth companies that invest their FCF into growing the business vs taking profits. It excludes companies like Amazon, which when ran by Bezos, was famously unprofitable and invested all free cash flow into growing the business and never turned a significant profit until >20 years after its founding.
    - lovich 4mo ago
      > Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. > The profitability requirement is something made up by the S&P committee. Those are both equally made up. In this case the rules are being changed for new entrants into the market such as SpaceX for the Nasdaq and other benchmarks that are allowing it for that none of the previous companies in said index were allowed to get in under. And since it’s 15 days and I know most companies have lockout terms on the order of months for various levels of stock, I’m hesitant to believe this won’t modify the benchmarks beyond what has happened with previous inclusions. `JumpCrisscross’s reply to one of my other comments on this thread in regards to the S&P being a committee based decision actually has had me pause to think, but your argument that the rules are arbitrary so it can’t be cheating like my baseball analogy fails to land.
      - tristanj 4mo ago
        Baseball rules exist to prevent cheating. The S&P rules exist so the index can accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions in real market cap, that means the rules are badly designed and broken by its own standard. You're trying to compare updating badly written S&P 500 rules to cheating, which makes no sense at all. They are completely different. And calling out how the rules are being changed for new entrants into the market such as SpaceX on Nasdaq proves my point. Index providers are already quietly admitting their criteria are too rigid. Even S&P adjusted their rules to allow SpaceX into the index, although only for the total market index. https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-Consultation-on-Treatment-of-MegaCap-Companies-Results https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-...
        tankenmate 4mo ago
        "The S&P rules exist so the index can accurately reflect the market", the rules exist to reflect a subset of the market, and the committee chooses that subset. It's their subset so they get to set the rules, you don't have to use it if you don't want to. If you don't like that subset then create your own index. Then you just need to convince others to use it.
- MobiusHorizons 4mo ago
  It may be used as a benchmark, but that’s not actually the purpose of it. The purpose is to serve as a way for people to invest in a representative sample of the market. It can still be a representative sample with safeguards. If you want a benchmark without safeguards, you can calculate one without risking millions of people’s life savings.
  - tristanj 4mo ago
    You have your history backwards. The S&P 500 was created in 1957 as a benchmark. The first investable index fund tracking it (Vanguard's) wasn't created created until 1976. Vanguard created their fund to track the benchmark, not the other way around. And if you need a second, different index to function as the true market benchmark because the S&P 500 no longer reflects the actual market, then you just agreed the S&P 500 is no longer an adequate benchmark. You just agreed with my point.
    - phlakaton 4mo ago
      Because it's selective, the S&P by definition does not reflect the actual market. It reflects a subset of it. If you're comfortable with this notion of what the S&P does, then you ought to be comfortable with S&P applying the same methodology they've always used. There are other indexes you can reference if this particular sampling of the market isn't to your personal liking.
      - tristanj 4mo ago
        The S&P's historical inclusion criteria were designed to filter out unstable, illiquid questionable companies to get a view of large-cap US equities. That logic worked when every major American company was public and profitable. That's not true any more. Today we have multiple giga-caps (SpaceX, Anthropic, OpenAI) vying to IPO, all of which potentially in the top 20 largest companies in the US market, all ineligible for S&P 500 inclusion because of the 12-month profitability rule. You claim S&P can "apply the same methodology they've always used" but this is just factually wrong. The inclusion criteria are not sacred rules set in stone and S&P has rewrote them multiple times. For example, they banned dual-class share structures in 2017 to stop SNAP from joining the index, but reversed it in 2023 because they excluded too many companies. The rules get rewritten when the market changes, and it's clear the current market environment has changed. Meanwhile, Nasdaq changed their rules to handle this situation. And S&P changed the inclusion criteria for the S&P Total Market Index so SpaceX would be included. It's clear these inclusion rules are changing.
- majormajor 4mo ago
  > If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark. So what's the reason for fast entry specifically? If it's a significant portion of the market and will remain so, it doesn't need an accelerated entry. A benchmark should be conservative about new entrants so that it doesn't turn from a market benchmark to a trend/fad benchmark. If time validates the valuations the entry will come in time, just like for previous entries.
  - tristanj 4mo ago
    Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the next 5 years. These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.
    - deleted 4mo ago
      [deleted]
    - ozozozd 4mo ago
      But it is not 1-2% of the total US market cap, is it? It aspires to be that way. The market decides, and it hasn’t decided yet. Am I missing something?
    - thesmtsolver2 4mo ago
      > If a company is 1-2% of the total US market cap Over what time horizon should that number be computed? Every day? Every second? Every month/quarter? It is not as simple as it seems.
    - phlakaton 4mo ago
- usef- 4mo ago
  S&P500 is not a total market index. It tracks a specific kind of large firm, with certain filters. Fast tracking means that the market likely wont have enough time to find the settled price (especially with the knowledge that passive funds are about to buy), and including a mispriced thing does not necessarily make the benchmark more accurate.
  - tristanj 4mo ago
    Those filters for S&P 500 inclusion criteria have changed many times. They are not sacred nor set in stone. The question is, do those filters, which were designed for GAAP profitable traditional companies & discriminate against fast growing cash-flow-reinvesting startups that prioritize growth over profit, unnecessarily exclude major players in the U.S. stock market? The S&P inclusion criteria reward companies that prioritize profit over growth. SpaceX, Anthropic, and OpenAI are all giga-caps preparing to IPO, and none of them will be eligible for S&P inclusion because of the 12-month profitability requirement. At current valuations, all are part of the top 20 largest companies in the US. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability. And you are vastly overstating the effect of S&P500 fast track inclusion, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.
    - jurgenburgen 4mo ago
      > Under current rules, these fast-growing companies would be excluded from the S&P500 for potentially years, until they reach 12 months of profitability. > And you are vastly overstating the effect of S&P500 fast tracking, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price. They might never reach 6 months of profitability, let alone 12 months.
    - ywvcbk 4mo ago
      > which is more than enough time for the market to find a price The price markets find would still inevitably be influence by the knowledge that the demand would increase massively in a few months. > inclusion criteria reward companies that prioritize profit over growth Or stable and sustainable growth. Whatever else SpaceX, OpenAI, Anthropic valuations are price in extremely optimistic growth. But yeah, I do see a point that including adequately priced growth stocks could be a net benefit but of course accouting for the actual valuation would turn index funds into managed ones. Thankfully its not an issue at all since there is Nasdaq 100.
- matwood 4mo ago
  Matt Levine, who probably knows more about finance than anyone on this site, has said the same thing. He’s also talked about all the hate mail he gets. Large market etfs like VTI or VOO are supposed to track the market. It would be weird if they ignored trillion+ market cap companies. If the market decides to dump these companies then they’ll fall out of the index. Index criteria have also changed many times over the years, and they are changing again to deal with later stage companies coming to the market with already huge valuations.
  - baobabKoodaa 4mo ago
    Yes, Matt Levine said that, but he also argued the other side's point of view, as he regularly does.
  - tristanj 4mo ago
    I completely agree. People have parroted the benefits of passive investing and blindly following the benchmark index for decades, yet the instant some overpriced turds (Anthropic, OpenAI, and SpaceX) are considered being adding to the benchmark, they backtrack and fight tooth and nail against including them. All three companies are large enough by market cap ($1T+) to qualify for the S&P 500 benchmark, which claims to track the top 500 largest U.S. large-cap equities. They have a point (not wanting to invest in overpriced equities), but if you don't like the companies that surface through passive investing then don't be a passive investor. It sounds like these people want active investing instead. If that's your position, just buy actively invested funds, not ruin the benchmark for everyone. S&P is caught in a bind, because if they add these companies to the index, it would aggravate millions of passive investors.
    - CuriouslyC 4mo ago
      I don't care about being forced to own SpaceX if it's in the index, I do care about it being forced into the index before it's had a chance to settle, so that private investors can dump on me.
      - tristanj 4mo ago
- onion2k 4mo ago
  If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark. If you change a benchmark whenever you think it'll be 'wrong', then it becomes a measure of the heuristics you use to predict what'll impact the benchmark rather than a benchmark in its own right.
  - tristanj 4mo ago
    S&P claims their S&P 500 product is the "best single gauge of U.S. large-cap equities". For this benchmark to be accurate, at a fundamental level, this benchmark has to follow the market and reflect current market conditions. The market decides what the large-cap U.S. equities are, not S&P. If S&P excludes some of the largest U.S. companies, which based on their current rules, will exclude all of Anthropic, SpaceX, and OpenAI; then they do a poor job reflecting the benchmark they claim to follow. It's not S&P's fault that market conditions have changed.
    - onion2k 4mo ago
      this benchmark has to follow the market and reflect current market conditions Sure, but right now they don't know how the market will react, so changing the index rules before there's any data would be a measure of their heuristics (e.g. what they believe the market will do), not a measure of what the market is actually doing.
      - tristanj 4mo ago
        The core issue is that S&P requires companies to be profitable for 12-months to get included in the index. Yet all of SpaceX, OpenAI, and Anthropic are highly unprofitable, because they are prioritizing investing all free-cash-flow into growth instead of returning money to shareholders. These companies likely will not be profitable for years, and without a rule change it's unlikely they will be included in the index anytime soon. Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index.
vannevar 4mo ago
>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. Carvana is the poster child for this. It's astonishing that a company with a history of shady practices, and that has yet to offer a convincing explanation for why it is not a scam, is part of the S&P 500.
- rtpg 4mo ago
  what's the argument for it being a scam?
  - hnav 4mo ago
    shady debt offloading onto its sibling financing entity, which is run by Carvana CEO's father, a man convicted of fraud
    - maest 4mo ago
      > a man convicted of fraud Most practitioners in the field see that as a very strong signal of future fraud.
      - rubyfan 4mo ago
        At that level they call it financial engineering.
    - ChrisMarshallNY 4mo ago
      > financing entity, which is run by … a man convicted of fraud I didn’t think that was allowed.
      - hnav 4mo ago
        Commander in chief got convicted in NY before being re-elected, I think everything's allowed these days.
  - 4mo ago
DeathArrow 4mo ago
>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. The purpose of an index is to provide a benchmark of the market, not to build funds that follow the index.
- ywvcbk 4mo ago
  > The purpose of an index is to provide a benchmark of the market Usually a subset of the market based on specific criteria. Total market indexes and funds exist, maybe there is a reason S&P 500 despite its "strict" inclusion criteria is more popular than them?
d--b 4mo ago
It’s important to note that index funds will eventually get in, so it’s not like 401k will never be holding these stocks. It would be silly to assume that the stock is going to tank that much on day 1, on the asumption that there are not enough investors to buy the big three IPOs that are coming out this year. There is plenty of money in the market, and everyone knows index funds will buy these stocks when the companies get in, so everyone will be able to dump them if needed in a year or so. Btw I don’t really know how index funds work, but if they need to track the index as closely as possible, they will all have to buy those stocks on a certain day, no? There will be a crazy price hike when they do so. Or maybe they have terms that let them smoothen their trading around entry and exit?
- rsynnott 4mo ago
  > It’s important to note that index funds will eventually get in S&P500 at least requires profitability, so these stocks may not make it in anytime soon.
- dmurray 4mo ago
  To a first approximation, yes, the index funds all need to buy the stock on the same day. An unexpected surge of buying like this should lead to a big price hike. But everyone knows it's happening, so you'd expect every hedge fund and proprietary firm in the world to buy the day before the index funds buy, and sell into the price hike. So in fact the price hike will be a day earlier than expected. But wait, anyone smart enough to see that should buy the previous day... In this way the "smoothing" of the trading at entry and exit gets passed on to intermediaries: other market participants who are expert at this. This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor. And huge index events like this are a particular bonanza for these traders. But it probably costs less than you think. Ultimately it's a highly competitive market: the slippage from this approaches the extent to which the prop traders have a higher cost of capital, plus a small risk premium. And remember that they don't have to find "extra" money to fund this trade. When they buy SpaceX they will sell 499 other stocks, doing the same trade there in reverse. Here's a study that approximates the effect at 0.86%[0]. By comparison, the banks underwriting the IPO typically take around 6% [1]. Though this will be smaller for a huge IPO like SpaceX, while the index arb trade will be bigger. [0] https://www.eastspring.com/hk/insights/deep-dives/navigating-index-rebalancing-effects-key-insights-for-smarter-execution https://www.eastspring.com/hk/insights/deep-dives/navigating... [1] https://www.pwc.com/us/en/services/consulting/deals/library/cost-of-an-ipo.html https://www.pwc.com/us/en/services/consulting/deals/library/...
ano-ther 4mo ago
Also worth noting that other index providers are less principled. > Nasdaq changed its rules recently so SpaceX can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days
- infecto 4mo ago
  There are so many indexes these days and they all have different angles. I don’t see this as being less principled and more it’s the nasdaq 100.
- misiti3780 4mo ago
  if i had to short 1 of the 3, it would be OpenAI
  - root-parent 4mo ago
    The company with the best model by far?
    - ben_w 4mo ago
      Well, joint best. At the target market caps people are talking about, I wouldn't blame anyone who shorts all three: even if you're optimistic about the value of the tech, monetising is hard, and competition reduces profits.
    - maplethorpe 4mo ago
      Have you tried Claude Opus 4.7
    - misiti3780 4mo ago
      anthropic's products are much better, anthropic and google will win the AI race, we wont even be talking about OpenAI in a few years when they run out of $ or compute and get acquired. They will be remembered by their Wikipedia page(s).
kortilla 4mo ago
No, indexes are meant to track something. The Russel 2000 index has very different criteria for the S&P 500 index. The Dow Jones is yet another one. The criteria for none of the above is “slow moving”, far from it. Those are all expected to be high growth vehicles for retirement. Safe stuff is bond blended. Plenty of people at shit in the GFC being invested in “slow moving” S&P 500 companies like Lehman Brothers, WaMu, AIG, GM, etc. “Was profitable for a while” != “safe” nor is it necessarily good to park money there. You need explosive growth companies that invest rather than profit (like Amazon) being in the S&P 500 are a critical part of its performance. If retirements only tracked stable mature companies that would be utilities and other stuff that doesn’t actually get you to retirement.
tcp_handshaker 4mo ago
At this moment, there is so so much, publicly available information [1] on the fact the SpaceX IPO is the biggest scandal in the long history of Wallstreet insiders fleecing the "Johns". A scandal orchestrated and cheered on by the NASDAQ, as well as Goldman Sachs and JP Morgan the underwriters, that if you spend any money on it, you deserve to be parted with your money. And if you have a 401k...you are forced to buy no questions asked. This will become such a disaster for retail, that hopefully Goldman Sachs and JP Morgan and the NASDAQ too, will spend their next 10 years in court defending action group lawsuits. [1] - https://www.instagram.com/reel/DWzTFAEAhSe/ https://www.instagram.com/reel/DWzTFAEAhSe/ "SpaceX IPO retail offering is worrying" - https://youtu.be/T8e2FbwN7dw https://youtu.be/T8e2FbwN7dw "SpaceX IPO: Nice Try Though" - https://youtu.be/IHD8BDFYyGI https://youtu.be/IHD8BDFYyGI "SpaceX IPO Scandal" - https://youtu.be/8rS3fTbC7TE https://youtu.be/8rS3fTbC7TE "Anthropic, OpenAI Should Not Be Allowed to IPO, Says Ed Zitron" - https://youtu.be/zbKDmkJPVvI https://youtu.be/zbKDmkJPVvI
- vessenes 4mo ago
  For your own safety do not read or be advised by Ed Zitron. By all means skip the SpaceX ipo if you like: makes sense. But Ed is neither perceptive nor correct historically. Case in point: a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers: it adds liquidity to a major cliff every IPO company faces: liquidity seeking by insiders on a schedule. Now it may be bad for axed buyers like pension funds but buy side liquidity coming in to a company is always good for existing shareholders. Reading Ed would make you think the opposite.
  - tcp_handshaker 4mo ago
    >> a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers I cant believe you wrote this. You are making Ed Zitron case for him. And the lockup period in this case has been reduced to 15 days or less: https://youtu.be/T8e2FbwN7dw?t=96 https://youtu.be/T8e2FbwN7dw?t=96 https://youtu.be/T8e2FbwN7dw?t=123 https://youtu.be/T8e2FbwN7dw?t=123
  - 3ashg 4mo ago
infecto 4mo ago
Good for the SP500 but I don’t think it’s true that indexes need to be slow moving. They can serve any purpose! Comparatively I think it makes sense Nasdaq100 would want to include it earlier. Not all indexes need to be slow moving or representative of a buy and hold type strategy. Maybe you only want to capture the highest volume in daily activity for example.
- deleted 4mo ago
  [deleted]
btian 4mo ago
> Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say. Are you suggesting index funds need unanimous consent from all owners before a company can be added or removed?
- nchmy 4mo ago
  That's not even slightly what they said. They said that people can trade the stock directly if they want to, rather than have it essentially forced upon them by inclusion in an index
- pnt12 4mo ago
  Indexes have rules for entry, so people using them supposedly agree with them. On the other hand, they were talking about opening exceptions for these companies, which was not part of the initial rules.
barfingclouds 4mo ago
Thank god

by rchaud 4mo ago

tristanj 4mo ago

On a fundamental level, the S&P 500 index is meant to be a benchmark of the market. Journalists, policymakers, investment managers, politicians, regular investors, everyone I know all use the S&P 500 as the benchmark of the US stock market. If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark.

lovich 4mo ago
It’s a benchmark of the market under certain rules, like having multiple quarters of earnings for the market to value them at. These companies want special exceptions. If you are an exception why should you be included in a benchmark? At best they should have an asterisk against their name like Sammy Sosa or Mark McGuire if they are not following the same rules.
- tristanj 4mo ago
  Your baseball cheating analogy makes no sense here. Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. S&P rules are supposed to make the index reflect the market. Totally different. The profitability requirement is something made up by the S&P committee. If that rule ends up excluding trillions in market cap, the rule has defeated its own purpose. The 12 months of profitability requirement punishes high-growth companies that invest their FCF into growing the business vs taking profits. It excludes companies like Amazon, which when ran by Bezos, was famously unprofitable and invested all free cash flow into growing the business and never turned a significant profit until >20 years after its founding.
  - lovich 4mo ago
    > Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. > The profitability requirement is something made up by the S&P committee. Those are both equally made up. In this case the rules are being changed for new entrants into the market such as SpaceX for the Nasdaq and other benchmarks that are allowing it for that none of the previous companies in said index were allowed to get in under. And since it’s 15 days and I know most companies have lockout terms on the order of months for various levels of stock, I’m hesitant to believe this won’t modify the benchmarks beyond what has happened with previous inclusions. `JumpCrisscross’s reply to one of my other comments on this thread in regards to the S&P being a committee based decision actually has had me pause to think, but your argument that the rules are arbitrary so it can’t be cheating like my baseball analogy fails to land.
    - tristanj 4mo ago
      Baseball rules exist to prevent cheating. The S&P rules exist so the index can accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions in real market cap, that means the rules are badly designed and broken by its own standard. You're trying to compare updating badly written S&P 500 rules to cheating, which makes no sense at all. They are completely different. And calling out how the rules are being changed for new entrants into the market such as SpaceX on Nasdaq proves my point. Index providers are already quietly admitting their criteria are too rigid. Even S&P adjusted their rules to allow SpaceX into the index, although only for the total market index. https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-Consultation-on-Treatment-of-MegaCap-Companies-Results https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-...
      - tankenmate 4mo ago
        "The S&P rules exist so the index can accurately reflect the market", the rules exist to reflect a subset of the market, and the committee chooses that subset. It's their subset so they get to set the rules, you don't have to use it if you don't want to. If you don't like that subset then create your own index. Then you just need to convince others to use it.
MobiusHorizons 4mo ago
It may be used as a benchmark, but that’s not actually the purpose of it. The purpose is to serve as a way for people to invest in a representative sample of the market. It can still be a representative sample with safeguards. If you want a benchmark without safeguards, you can calculate one without risking millions of people’s life savings.
- tristanj 4mo ago
  You have your history backwards. The S&P 500 was created in 1957 as a benchmark. The first investable index fund tracking it (Vanguard's) wasn't created created until 1976. Vanguard created their fund to track the benchmark, not the other way around. And if you need a second, different index to function as the true market benchmark because the S&P 500 no longer reflects the actual market, then you just agreed the S&P 500 is no longer an adequate benchmark. You just agreed with my point.
  - phlakaton 4mo ago
    Because it's selective, the S&P by definition does not reflect the actual market. It reflects a subset of it. If you're comfortable with this notion of what the S&P does, then you ought to be comfortable with S&P applying the same methodology they've always used. There are other indexes you can reference if this particular sampling of the market isn't to your personal liking.
    - tristanj 4mo ago
      The S&P's historical inclusion criteria were designed to filter out unstable, illiquid questionable companies to get a view of large-cap US equities. That logic worked when every major American company was public and profitable. That's not true any more. Today we have multiple giga-caps (SpaceX, Anthropic, OpenAI) vying to IPO, all of which potentially in the top 20 largest companies in the US market, all ineligible for S&P 500 inclusion because of the 12-month profitability rule. You claim S&P can "apply the same methodology they've always used" but this is just factually wrong. The inclusion criteria are not sacred rules set in stone and S&P has rewrote them multiple times. For example, they banned dual-class share structures in 2017 to stop SNAP from joining the index, but reversed it in 2023 because they excluded too many companies. The rules get rewritten when the market changes, and it's clear the current market environment has changed. Meanwhile, Nasdaq changed their rules to handle this situation. And S&P changed the inclusion criteria for the S&P Total Market Index so SpaceX would be included. It's clear these inclusion rules are changing.
majormajor 4mo ago
> If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark. So what's the reason for fast entry specifically? If it's a significant portion of the market and will remain so, it doesn't need an accelerated entry. A benchmark should be conservative about new entrants so that it doesn't turn from a market benchmark to a trend/fad benchmark. If time validates the valuations the entry will come in time, just like for previous entries.
- tristanj 4mo ago
  Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the next 5 years. These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.
  - deleted 4mo ago
    [deleted]
  - ozozozd 4mo ago
    But it is not 1-2% of the total US market cap, is it? It aspires to be that way. The market decides, and it hasn’t decided yet. Am I missing something?
  - thesmtsolver2 4mo ago
    > If a company is 1-2% of the total US market cap Over what time horizon should that number be computed? Every day? Every second? Every month/quarter? It is not as simple as it seems.
  - phlakaton 4mo ago
usef- 4mo ago
S&P500 is not a total market index. It tracks a specific kind of large firm, with certain filters. Fast tracking means that the market likely wont have enough time to find the settled price (especially with the knowledge that passive funds are about to buy), and including a mispriced thing does not necessarily make the benchmark more accurate.
- tristanj 4mo ago
  Those filters for S&P 500 inclusion criteria have changed many times. They are not sacred nor set in stone. The question is, do those filters, which were designed for GAAP profitable traditional companies & discriminate against fast growing cash-flow-reinvesting startups that prioritize growth over profit, unnecessarily exclude major players in the U.S. stock market? The S&P inclusion criteria reward companies that prioritize profit over growth. SpaceX, Anthropic, and OpenAI are all giga-caps preparing to IPO, and none of them will be eligible for S&P inclusion because of the 12-month profitability requirement. At current valuations, all are part of the top 20 largest companies in the US. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability. And you are vastly overstating the effect of S&P500 fast track inclusion, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.
  - jurgenburgen 4mo ago
    > Under current rules, these fast-growing companies would be excluded from the S&P500 for potentially years, until they reach 12 months of profitability. > And you are vastly overstating the effect of S&P500 fast tracking, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price. They might never reach 6 months of profitability, let alone 12 months.
  - ywvcbk 4mo ago
    > which is more than enough time for the market to find a price The price markets find would still inevitably be influence by the knowledge that the demand would increase massively in a few months. > inclusion criteria reward companies that prioritize profit over growth Or stable and sustainable growth. Whatever else SpaceX, OpenAI, Anthropic valuations are price in extremely optimistic growth. But yeah, I do see a point that including adequately priced growth stocks could be a net benefit but of course accouting for the actual valuation would turn index funds into managed ones. Thankfully its not an issue at all since there is Nasdaq 100.
matwood 4mo ago
Matt Levine, who probably knows more about finance than anyone on this site, has said the same thing. He’s also talked about all the hate mail he gets. Large market etfs like VTI or VOO are supposed to track the market. It would be weird if they ignored trillion+ market cap companies. If the market decides to dump these companies then they’ll fall out of the index. Index criteria have also changed many times over the years, and they are changing again to deal with later stage companies coming to the market with already huge valuations.
- baobabKoodaa 4mo ago
  Yes, Matt Levine said that, but he also argued the other side's point of view, as he regularly does.
- tristanj 4mo ago
  I completely agree. People have parroted the benefits of passive investing and blindly following the benchmark index for decades, yet the instant some overpriced turds (Anthropic, OpenAI, and SpaceX) are considered being adding to the benchmark, they backtrack and fight tooth and nail against including them. All three companies are large enough by market cap ($1T+) to qualify for the S&P 500 benchmark, which claims to track the top 500 largest U.S. large-cap equities. They have a point (not wanting to invest in overpriced equities), but if you don't like the companies that surface through passive investing then don't be a passive investor. It sounds like these people want active investing instead. If that's your position, just buy actively invested funds, not ruin the benchmark for everyone. S&P is caught in a bind, because if they add these companies to the index, it would aggravate millions of passive investors.
  - CuriouslyC 4mo ago
    I don't care about being forced to own SpaceX if it's in the index, I do care about it being forced into the index before it's had a chance to settle, so that private investors can dump on me.
    - tristanj 4mo ago
onion2k 4mo ago
If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark. If you change a benchmark whenever you think it'll be 'wrong', then it becomes a measure of the heuristics you use to predict what'll impact the benchmark rather than a benchmark in its own right.
- tristanj 4mo ago
  S&P claims their S&P 500 product is the "best single gauge of U.S. large-cap equities". For this benchmark to be accurate, at a fundamental level, this benchmark has to follow the market and reflect current market conditions. The market decides what the large-cap U.S. equities are, not S&P. If S&P excludes some of the largest U.S. companies, which based on their current rules, will exclude all of Anthropic, SpaceX, and OpenAI; then they do a poor job reflecting the benchmark they claim to follow. It's not S&P's fault that market conditions have changed.
  - onion2k 4mo ago
    this benchmark has to follow the market and reflect current market conditions Sure, but right now they don't know how the market will react, so changing the index rules before there's any data would be a measure of their heuristics (e.g. what they believe the market will do), not a measure of what the market is actually doing.
    - tristanj 4mo ago
      The core issue is that S&P requires companies to be profitable for 12-months to get included in the index. Yet all of SpaceX, OpenAI, and Anthropic are highly unprofitable, because they are prioritizing investing all free-cash-flow into growth instead of returning money to shareholders. These companies likely will not be profitable for years, and without a rule change it's unlikely they will be included in the index anytime soon. Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index.

vannevar 4mo ago

>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. Carvana is the poster child for this. It's astonishing that a company with a history of shady practices, and that has yet to offer a convincing explanation for why it is not a scam, is part of the S&P 500.

rtpg 4mo ago
what's the argument for it being a scam?
- hnav 4mo ago
  shady debt offloading onto its sibling financing entity, which is run by Carvana CEO's father, a man convicted of fraud
  - maest 4mo ago
    > a man convicted of fraud Most practitioners in the field see that as a very strong signal of future fraud.
    - rubyfan 4mo ago
      At that level they call it financial engineering.
  - ChrisMarshallNY 4mo ago
    > financing entity, which is run by … a man convicted of fraud I didn’t think that was allowed.
    - hnav 4mo ago
      Commander in chief got convicted in NY before being re-elected, I think everything's allowed these days.
- 4mo ago

DeathArrow 4mo ago

>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. The purpose of an index is to provide a benchmark of the market, not to build funds that follow the index.

ywvcbk 4mo ago
> The purpose of an index is to provide a benchmark of the market Usually a subset of the market based on specific criteria. Total market indexes and funds exist, maybe there is a reason S&P 500 despite its "strict" inclusion criteria is more popular than them?

d--b 4mo ago

It’s important to note that index funds will eventually get in, so it’s not like 401k will never be holding these stocks. It would be silly to assume that the stock is going to tank that much on day 1, on the asumption that there are not enough investors to buy the big three IPOs that are coming out this year. There is plenty of money in the market, and everyone knows index funds will buy these stocks when the companies get in, so everyone will be able to dump them if needed in a year or so. Btw I don’t really know how index funds work, but if they need to track the index as closely as possible, they will all have to buy those stocks on a certain day, no? There will be a crazy price hike when they do so. Or maybe they have terms that let them smoothen their trading around entry and exit?

rsynnott 4mo ago
> It’s important to note that index funds will eventually get in S&P500 at least requires profitability, so these stocks may not make it in anytime soon.
dmurray 4mo ago
To a first approximation, yes, the index funds all need to buy the stock on the same day. An unexpected surge of buying like this should lead to a big price hike. But everyone knows it's happening, so you'd expect every hedge fund and proprietary firm in the world to buy the day before the index funds buy, and sell into the price hike. So in fact the price hike will be a day earlier than expected. But wait, anyone smart enough to see that should buy the previous day... In this way the "smoothing" of the trading at entry and exit gets passed on to intermediaries: other market participants who are expert at this. This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor. And huge index events like this are a particular bonanza for these traders. But it probably costs less than you think. Ultimately it's a highly competitive market: the slippage from this approaches the extent to which the prop traders have a higher cost of capital, plus a small risk premium. And remember that they don't have to find "extra" money to fund this trade. When they buy SpaceX they will sell 499 other stocks, doing the same trade there in reverse. Here's a study that approximates the effect at 0.86%[0]. By comparison, the banks underwriting the IPO typically take around 6% [1]. Though this will be smaller for a huge IPO like SpaceX, while the index arb trade will be bigger. [0] https://www.eastspring.com/hk/insights/deep-dives/navigating-index-rebalancing-effects-key-insights-for-smarter-execution https://www.eastspring.com/hk/insights/deep-dives/navigating... [1] https://www.pwc.com/us/en/services/consulting/deals/library/cost-of-an-ipo.html https://www.pwc.com/us/en/services/consulting/deals/library/...

ano-ther 4mo ago

Also worth noting that other index providers are less principled. > Nasdaq changed its rules recently so SpaceX can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days

infecto 4mo ago
There are so many indexes these days and they all have different angles. I don’t see this as being less principled and more it’s the nasdaq 100.
misiti3780 4mo ago
if i had to short 1 of the 3, it would be OpenAI
- root-parent 4mo ago
  The company with the best model by far?
  - ben_w 4mo ago
    Well, joint best. At the target market caps people are talking about, I wouldn't blame anyone who shorts all three: even if you're optimistic about the value of the tech, monetising is hard, and competition reduces profits.
  - maplethorpe 4mo ago
    Have you tried Claude Opus 4.7
  - misiti3780 4mo ago
    anthropic's products are much better, anthropic and google will win the AI race, we wont even be talking about OpenAI in a few years when they run out of $ or compute and get acquired. They will be remembered by their Wikipedia page(s).

kortilla 4mo ago

No, indexes are meant to track something. The Russel 2000 index has very different criteria for the S&P 500 index. The Dow Jones is yet another one. The criteria for none of the above is “slow moving”, far from it. Those are all expected to be high growth vehicles for retirement. Safe stuff is bond blended. Plenty of people at shit in the GFC being invested in “slow moving” S&P 500 companies like Lehman Brothers, WaMu, AIG, GM, etc. “Was profitable for a while” != “safe” nor is it necessarily good to park money there. You need explosive growth companies that invest rather than profit (like Amazon) being in the S&P 500 are a critical part of its performance. If retirements only tracked stable mature companies that would be utilities and other stuff that doesn’t actually get you to retirement.

tcp_handshaker 4mo ago

At this moment, there is so so much, publicly available information [1] on the fact the SpaceX IPO is the biggest scandal in the long history of Wallstreet insiders fleecing the "Johns". A scandal orchestrated and cheered on by the NASDAQ, as well as Goldman Sachs and JP Morgan the underwriters, that if you spend any money on it, you deserve to be parted with your money. And if you have a 401k...you are forced to buy no questions asked. This will become such a disaster for retail, that hopefully Goldman Sachs and JP Morgan and the NASDAQ too, will spend their next 10 years in court defending action group lawsuits. [1] - https://www.instagram.com/reel/DWzTFAEAhSe/ https://www.instagram.com/reel/DWzTFAEAhSe/ "SpaceX IPO retail offering is worrying" - https://youtu.be/T8e2FbwN7dw https://youtu.be/T8e2FbwN7dw "SpaceX IPO: Nice Try Though" - https://youtu.be/IHD8BDFYyGI https://youtu.be/IHD8BDFYyGI "SpaceX IPO Scandal" - https://youtu.be/8rS3fTbC7TE https://youtu.be/8rS3fTbC7TE "Anthropic, OpenAI Should Not Be Allowed to IPO, Says Ed Zitron" - https://youtu.be/zbKDmkJPVvI https://youtu.be/zbKDmkJPVvI

vessenes 4mo ago
For your own safety do not read or be advised by Ed Zitron. By all means skip the SpaceX ipo if you like: makes sense. But Ed is neither perceptive nor correct historically. Case in point: a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers: it adds liquidity to a major cliff every IPO company faces: liquidity seeking by insiders on a schedule. Now it may be bad for axed buyers like pension funds but buy side liquidity coming in to a company is always good for existing shareholders. Reading Ed would make you think the opposite.
- tcp_handshaker 4mo ago
  >> a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers I cant believe you wrote this. You are making Ed Zitron case for him. And the lockup period in this case has been reduced to 15 days or less: https://youtu.be/T8e2FbwN7dw?t=96 https://youtu.be/T8e2FbwN7dw?t=96 https://youtu.be/T8e2FbwN7dw?t=123 https://youtu.be/T8e2FbwN7dw?t=123
- 3ashg 4mo ago

infecto 4mo ago

Good for the SP500 but I don’t think it’s true that indexes need to be slow moving. They can serve any purpose! Comparatively I think it makes sense Nasdaq100 would want to include it earlier. Not all indexes need to be slow moving or representative of a buy and hold type strategy. Maybe you only want to capture the highest volume in daily activity for example.

deleted 4mo ago
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btian 4mo ago

> Individuals can make an informed choice to trade it there, rather than have it automatically added to their index fund without having any say. Are you suggesting index funds need unanimous consent from all owners before a company can be added or removed?

nchmy 4mo ago
That's not even slightly what they said. They said that people can trade the stock directly if they want to, rather than have it essentially forced upon them by inclusion in an index
pnt12 4mo ago
Indexes have rules for entry, so people using them supposedly agree with them. On the other hand, they were talking about opening exceptions for these companies, which was not part of the initial rules.

barfingclouds 4mo ago

Thank god