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On a fundamental level, the S&P 500 index is meant to be a benchmark of the market. Journalists, policymakers, investment managers, politicians, regular investo

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 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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.
        tristanj 5mo ago
        Per the S&P 500 website, the claimed subset of the market is "U.S. large-cap equities". S&P claims their index is "best single gauge of U.S. large-cap equities". But, it's clear that given the current iteration of the rules, none of the major upcoming IPOs of Spacex, Anthropic, or OpenAI are eligible for S&P500 inclusion, and they likely will not be for years. Claiming to have the "best single gauge of U.S. large-cap equities", yet having rules that exclude three of the top 20 largest U.S large-cap equities which make up ~5% of the total market cap of the U.S. stock market, means your benchmark is inaccurate by my book.
        tankenmate 5mo ago
  - rileymat2 5mo ago
    What is it a benchmark for? All investable public stocks or the economy writ large?
    - tristanj 5mo ago
      [dead]
    - ywvcbk 5mo ago
      Neither? What makes you think it was supposed to be a benchmark for either. Amongst other thing weights are based on the value of shares that are traded publicly, not market cap.
  - lelanthran 5mo ago
    > S&P rules are supposed to make the index reflect the market. Where did you find that? Link? I ask because common understanding is that the index is a stable tracker of the market, specifically to exclude volatility. IOW, it reflects a smoothed market, not a point-in-time-with-daily-granularity market. I would really like to know where you read what you read.
    - tristanj 5mo ago
      The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI. All three companies are in the top 10 largest companies in the US by market cap, based on their current valuations. If these companies maintain their valuations over the next year, they'd still be ineligible under current rules. Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability. A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously. https://www.spglobal.com/spdji/en/brochure/article/sp-500-brochure-the-gauge-of-the-us-large-cap-market/ https://www.spglobal.com/spdji/en/brochure/article/sp-500-br...
      - ywvcbk 5mo ago
        S&P 500 weights are based the value of shares available on the public market not the market cap. Based on that SpaceX will be nowhere near the top 10. Do you think their valuations wouldn't fall dramatically if they were willing to float a significant proportion of their shares on the market anytime soon.
        tristanj 5mo ago
        I addressed that exact point here https://news.ycombinator.com/item?id=48407542 https://news.ycombinator.com/item?id=48407542 Based on previous IPOs, SpaceX will grow to ~40% float by 12 months, thus if it keeps its current valuation unchanged, will remain near the top 10 spot.
MobiusHorizons 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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 5mo ago
    [deleted]
  - ozozozd 5mo 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 5mo 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 5mo ago
usef- 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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 5mo ago
  Yes, Matt Levine said that, but he also argued the other side's point of view, as he regularly does.
- tristanj 5mo 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 5mo 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 5mo ago
onion2k 5mo 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 5mo 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 5mo 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 5mo 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.

lovich 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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.
      - tristanj 5mo ago
        Per the S&P 500 website, the claimed subset of the market is "U.S. large-cap equities". S&P claims their index is "best single gauge of U.S. large-cap equities". But, it's clear that given the current iteration of the rules, none of the major upcoming IPOs of Spacex, Anthropic, or OpenAI are eligible for S&P500 inclusion, and they likely will not be for years. Claiming to have the "best single gauge of U.S. large-cap equities", yet having rules that exclude three of the top 20 largest U.S large-cap equities which make up ~5% of the total market cap of the U.S. stock market, means your benchmark is inaccurate by my book.
        tankenmate 5mo ago
- rileymat2 5mo ago
  What is it a benchmark for? All investable public stocks or the economy writ large?
  - tristanj 5mo ago
    [dead]
  - ywvcbk 5mo ago
    Neither? What makes you think it was supposed to be a benchmark for either. Amongst other thing weights are based on the value of shares that are traded publicly, not market cap.
- lelanthran 5mo ago
  > S&P rules are supposed to make the index reflect the market. Where did you find that? Link? I ask because common understanding is that the index is a stable tracker of the market, specifically to exclude volatility. IOW, it reflects a smoothed market, not a point-in-time-with-daily-granularity market. I would really like to know where you read what you read.
  - tristanj 5mo ago
    The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI. All three companies are in the top 10 largest companies in the US by market cap, based on their current valuations. If these companies maintain their valuations over the next year, they'd still be ineligible under current rules. Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability. A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously. https://www.spglobal.com/spdji/en/brochure/article/sp-500-brochure-the-gauge-of-the-us-large-cap-market/ https://www.spglobal.com/spdji/en/brochure/article/sp-500-br...
    - ywvcbk 5mo ago
      S&P 500 weights are based the value of shares available on the public market not the market cap. Based on that SpaceX will be nowhere near the top 10. Do you think their valuations wouldn't fall dramatically if they were willing to float a significant proportion of their shares on the market anytime soon.
      - tristanj 5mo ago
        I addressed that exact point here https://news.ycombinator.com/item?id=48407542 https://news.ycombinator.com/item?id=48407542 Based on previous IPOs, SpaceX will grow to ~40% float by 12 months, thus if it keeps its current valuation unchanged, will remain near the top 10 spot.

MobiusHorizons 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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 5mo ago
  [deleted]
- ozozozd 5mo 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 5mo 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 5mo ago

usef- 5mo 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 5mo 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 5mo 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 5mo 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 5mo 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 5mo ago
Yes, Matt Levine said that, but he also argued the other side's point of view, as he regularly does.
tristanj 5mo 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 5mo 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 5mo ago

onion2k 5mo 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 5mo 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 5mo 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 5mo 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.