Now, a stock is eligible for fast-track inclusion after just 15 trading days, with almost no float if its market capitalization places it among the top 40 holdings of the Nasdaq-100.
...
With only a thin slice of equity available, SpaceX’s price discovery process may be driven less by fundamentals and more by supply-demand imbalances. A relatively small number of buyers and sellers will effectively determine the valuation of a multi-trillion-dollar company.
One of the reasons I'm not a fan of passive investing. Passive investing only works under the assumption that there are enough active investors out there properly pricing in information and applying rational analysis to the market. If enough people are passively investing, then you'll lose a lot of rational price discovery. Some will say that this is naturally self-correcting, since active investors will always be able to profit off irrational valuations. But, if the market doesn't correct for longer than you can stay solvent or, in the less extreme case, stay within an acceptable band of performance, then your clients will take their wealth to another fund. Add in post-2008 moral hazard (or as Buffet has called it, the "too big to fail" paradigm), the growth of unsophisticated retail investing, and rational investors trading off expectations of irrationality within the market, it becomes harder to impossible to make sustained bets on truly fundamental rational analysis. And, once the canonical valuation models start to fail or underperform, the game theory starts to really favor trading off of momentum and sentiment over true fundamentals.
SpaceX's plan is to create an absurdly high valuation through a small portion of the market that's highly risk-loving, cynical, and/or irrational, then to stabilize that price through an accelerated entry into the Nasdaq-100.
On a related note, I found this excerpt a little funny:
Still, even with the perceived misalignment, some rules probably did need to change.Taking a $200 million company public is different from $2 trillion one. SpaceX is not the only company that stayed private for a long time period as it grew. When these large entities do go public, the initial float must be small. The IPO would be too large for the market to digest.
The rule changes include letting IPOs enter the index six months after their debut on an eligible index instead of a 12-month period, according to current rules.
The index also proposed eliminating a minimum Investable Weight Factor (IWF) of 0.10 for megacap companies. The IWF is a methodology used to calculate the number of shares of a company available to trade on the market.
Notably, the proposed rule changes also eliminate profitability requirements for megacap companies. Current rules require a company to be profitable on a GAAP basis for 12 months to be considered for the index, but that rule could be eliminated.
For the Nasdaq, the company that makes the list is the Nasdaq stock exchange and they benefit if SpaceX lists its stock on their exchange, so they’re doing it to get the business.
For the S&P 500, it’s not just about SpaceX. OpenAI and Anthropic are going to be very large and unprofitable when they go public too. The size of these IPO’s is unprecedented. The stated justification for the S&P 500 is that they want to include all the largest public companies:
There is a strange logic at play, where large cap stocks that are highly overvalued in the medium term benefit both from greater access to borrowing at lower rates and from the "too big to fail" paradigm, which in turn translates to real long-term gain for the company. This isn't something I'd want to support.
What does that have to do with what Nasdaq decides with its own index?
This isn't something I'd want to support.
Sure. That’s why you shouldn’t buy QQQ. They put it to vote, QQQ owners voted for it, kinda is what it is at that point. Just get VTI or another total market fund if you don’t want shenanigans.
Ideally, our major financial institutions should care about financial integrity and whether stocks are priced at their true economic value. I care about stocks being properly valued because it otherwise undermines the degree to which ordinary consumers can decide winners and losers in the economy through their consumption, and it also incentivizes government bailouts of some form or the other down the line when there's an impending correction. Of course, people can vote with their wallets and this discussion is to highlight what Nasdaq is doing.
[OP] thearctic | 21 hours ago
One of the reasons I'm not a fan of passive investing. Passive investing only works under the assumption that there are enough active investors out there properly pricing in information and applying rational analysis to the market. If enough people are passively investing, then you'll lose a lot of rational price discovery. Some will say that this is naturally self-correcting, since active investors will always be able to profit off irrational valuations. But, if the market doesn't correct for longer than you can stay solvent or, in the less extreme case, stay within an acceptable band of performance, then your clients will take their wealth to another fund. Add in post-2008 moral hazard (or as Buffet has called it, the "too big to fail" paradigm), the growth of unsophisticated retail investing, and rational investors trading off expectations of irrationality within the market, it becomes harder to impossible to make sustained bets on truly fundamental rational analysis. And, once the canonical valuation models start to fail or underperform, the game theory starts to really favor trading off of momentum and sentiment over true fundamentals.
SpaceX's plan is to create an absurdly high valuation through a small portion of the market that's highly risk-loving, cynical, and/or irrational, then to stabilize that price through an accelerated entry into the Nasdaq-100.
On a related note, I found this excerpt a little funny:
"Too large to digest" = bullshit valuation.
skybrian | 20 hours ago
Other indexes have different rules. Looks like the S&P 500 might have a rule change, though not as extreme:
Elon Musk's SpaceX Could Be Fast-Tracked Into S&P 500 After IPO Under Proposed Rule Changes
first-must-burn | 18 hours ago
So if I understand this, it's basically going to screw passive investors into overpaying for the tesla holdings? The grift is getting pretty brazen.
vord | 15 hours ago
Having the biggest stock indexes bend their rules to suit you is the biggest red flag.
What purpose does it serve outside of falsely legitimizing its valuation? It's not like stocks outside of those magically disappear.
It'd be like if Enron started lobbying to ban criminal prosecution of executives in 2000.
skybrian | 4 hours ago
For the Nasdaq, the company that makes the list is the Nasdaq stock exchange and they benefit if SpaceX lists its stock on their exchange, so they’re doing it to get the business.
For the S&P 500, it’s not just about SpaceX. OpenAI and Anthropic are going to be very large and unprofitable when they go public too. The size of these IPO’s is unprecedented. The stated justification for the S&P 500 is that they want to include all the largest public companies:
https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20260430-1483123/1483123_spdji-us-indices-megacaps-consult-20260430.pdf
Index investing isn’t about what companies are “legitimate.” It’s about having investments in all of them in case they go up.
skybrian | 4 hours ago
Tesla was added to the S&P 500 in 2020. This is about SpaceX.
stu2b50 | 4 hours ago
Idk, if you “passively” invest in QQQ you’d probably want this, because you think spacex will moon. QQQ ain’t exactly VOO or VTO.
xk3 | 3 hours ago
VTI typo?
[OP] thearctic | 23 minutes ago
There is a strange logic at play, where large cap stocks that are highly overvalued in the medium term benefit both from greater access to borrowing at lower rates and from the "too big to fail" paradigm, which in turn translates to real long-term gain for the company. This isn't something I'd want to support.
stu2b50 | 16 minutes ago
What does that have to do with what Nasdaq decides with its own index?
Sure. That’s why you shouldn’t buy QQQ. They put it to vote, QQQ owners voted for it, kinda is what it is at that point. Just get VTI or another total market fund if you don’t want shenanigans.
[OP] thearctic | 9 minutes ago
Ideally, our major financial institutions should care about financial integrity and whether stocks are priced at their true economic value. I care about stocks being properly valued because it otherwise undermines the degree to which ordinary consumers can decide winners and losers in the economy through their consumption, and it also incentivizes government bailouts of some form or the other down the line when there's an impending correction. Of course, people can vote with their wallets and this discussion is to highlight what Nasdaq is doing.