If whole market means whole market, then such investments are exposed to companies who are fairly valued, companies who are massively overvalued, and companies who are massively undervalued, and the whole range in between.

If you want to start picking and choosing which companies are overvalued and which are undervalued, don’t invest in whole market funds. But most people are not good at that!

Also, there’s a long history of companies that people yell about being overvalued being the drivers of index returns, because one of the major drivers is growth rate, whereas retail investors tend to look mostly at current state.

I don't understand this logic. Does whole market mean scamming companies too?

Fun fact, both Enron and Lehman Brothers were in the S&P 500 when they went bankrupt. So yes, the whole market or even the market of the largest companies, includes some that may not be great companies. The beauty of the index is you don't have to know or care, since it'll take care of itself over time.

>The beauty of the index is you don't have to know or care, since it'll take care of itself over time

As long as there are active investors in the market conducting price discovery. Which there always will be, just pointing out that someone has to care, even if you don’t

> As long as there are active investors in the market conducting price discovery. Which there always will be,

Passive funds dominate ow, don't they?

Depends on what you consider passive, I think index funds specifically are only 20% but if you add other low cost ETFs it’s probably about half the market. I don’t think there’s any way to know for sure at what point passive funds become distortionary, but it should be self correcting to some degree. If active funds are able to provide a substantially better return than passive funds, even with management fees, people will migrate back to them.

> it'll take care of itself over time

At least until it doesn't. If this spacex venture succeeds because it got propped up by index funds, then that's a decent indicator that more will follow.

It stands to reason that active investing will be more valuable as a result

Yes. That’s what passive investing is. You give money to the passive fund, the passive fund buys the market. No regard to price or any other metric.

the problem:

The Nasdaq 100 and FTSE Russell made a rule change that allows SpaceX to enter index without mormal time for price discovery. Most index funds have rebalance day just 5 days after IPO. S&P also made rule change for S&P Total Market Index and Dow Jones US Total Stock Market Index, but left SP500 intact.

Nothing wrong with SpaceX or Anthropic getting into indexes with fair rules, this rule change is pure creed+corruption.

>Nothing wrong with SpaceX or Anthropic getting into indexes with fair rules, this rule change is pure creed+corruption.

What evidence do you have that these rule changes are motivated by "creed" or corruption?

What evidence do you have they are not? You've been questioning everyone, please justify your position

> What evidence do you have they are not?

What evidence do you have that 9/11 was not an inside job?

> please justify your position

I'll cite Matt Levine from Bloomberg:

>1. In the next few months, SpaceX, Anthropic and OpenAI will all probably go public at massive valuations.

>2. They will be fast-tracked into the major stock indexes, because those indexes are designed to reflect the stock market, and reflecting the stock market, in 2027, will absolutely require big allocations to those three companies.

Ok, now we are getting somewhere. There is no guarantee that they will be a big part of the stock market. It is not "absolutely" sure, for them or for any new public stock. That's why the indices have/had the the rules they (used) to have, to wait and see if a newly IPOed stock actually becomes a big part of the market before it becomes part of the index.

Why did they change the rules for these companies? That's what people want an explanation for. That's what is fishy about all this. I'm not asking you to explain something that seems normal. I'm asking you to explain something that doesn't make sense

Because the fundamental purpose of an index is to track the stock market. The S&P 500 benchmark was created in 1957 to benchmark the US stock market, decades before the first investment funds that copy it (by Vanguard, in 1976).

The primary purpose of an index is to track the market. If an index excludes a significant part of the market it claims to track, then the index no longer accurately reflects the market, and fails at achieving its purpose.

The S&P 500 tracks the 500 largest large-cap US stocks. All three of the major upcoming IPOs (SpaceX, OpenAI, and Anthropic) are large-cap US stocks. Together these companies comprise ~5% of the total US stock market.

In previous decades, this was not an issue, since companies IPOed much earlier when valued at <0.1% of the market. It was fine to exclude these companies from the index for some time, since they were an insignificant part of the market.

Today we have companies raising enormous amounts of private equity, and going public as significant members of the market. All of (SpaceX, Anthropic, OpenAI) are within the top 20 largest companies in the US.

This is why many are arguing for fast-track inclusion, so the index can add these companies quickly, and retain its ability to accurately track the market.

> This is why many are arguing for fast-track inclusion...

History will be the judge.

But using nothing more than Occum's Razor and recent corporate history as a guide the reason that "...many are arguing for fast-track inclusion" is that they are crooked.

> There is no guarantee that they will be a big part of the stock market. It is not "absolutely" sure, for them or for any new public stock

It's really hard to believe that you'd be writing this in good faith.

In reality, even without being publicly listed(!), these companies have already managed to become an absolutely massive part of the market. After the IPO? Hah.

Dude, need to @ Elon on X with a link to these comments. Pretty sure he replies to fans as dedicated as you to his cause.

I hope Elon Musk gets some particularly nasty disease and dies a slow, painful death. He is a vile individual, as are you for attempting to associate me with him.

I'm sticking to the facts, shove your ideological struggle up your ass or go pollute a different website.

Musk is highly unpopular, and some conspiracy theorists linked financial arcanity to him in a way that sounds compelling and hidden. If you push back on the corruption claim, you’re in Musk’s pocket. The same folks who became armchair bank experts in 2023 now confidently make statements that middle 401(k)s and pensions, or the NASDAQ 100 (for whom this has probably been the most brilliant marketing move in their history, nobody talked about that index before) and the S&P 500.

At the end of the day, some RIAs in the Bay Area made bank on folks churning their retirement accounts. Some influencers got clicks. Otherwise, this is a nothing burger.

Those funds are not whole market funds.

But there are things to say about your point too. I’ve commented on that in other threads.

I mean these rule changes have been a long time coming. SpaceX was just the straw that broke the camels back here. These major index's want to stay relevant and cutting out some of the biggest companies in the market just opens the way for a "true" NASDAQ 100 that is actually market cap weighted rather then some arbitrary rules cutting somethings out.

Are there really 10-100x undervalued companies listed on indexes that haven’t been noticed?

Yes. There are probably a dozen or more across the SP500 and Russel 2000 that will 10-100x in the next 5-10 years. The trick is to be able to identify them!

There's a difference between "will go 10x in the next 10 years" vs "is 10x undervalued right now".

Laying the blame for the transparent financial manipulation we are observing at the feet of regular people (who are putting their savings into their pension funds, a system that we incentivize because of its pro social outcomes) and saying they should just opt out because they should know better, is at best callous, most people should not have to think about that issue at all.

You seem to have misunderstood my comment.

The key there is "whole market." This is still a tiny sliver of the whole market and most people's exposure to it is minimal. Still a wealth extraction move ultimately, but like many other such moves, the few pull just a little from each of the many. Nobody individually goes broke, but the whole class gets slightly poorer. It takes a village to raise a billionaire!

Trillionaire

If you want to play “active investor” and pick and choose what companies you invest in, don’t be surprised when you underperform the whole market.

SpaceX could rise to be a major winner that makes people a lot of money. And then what? You missed out and underperform the whole market.

OK, but SpaceX is not printing money out of thin air. And neither does the stock market. Somebody will be left holding the bag eventually.

> Somebody will be left holding the bag eventually.

I think so too. I also thought that about Facebook: IPO around 40, swiftly down to 20 - I was laughing about stupid retail getting wrecked. Now it's around 600...

Maybe you are right, maybe not.. However Facebook as an example seems entirely irrelevant, though? It was valued 15 P/S ratio at IPO and went down to 10 a year after the IPO. You'd have a point if Facebook IPO at $400 instead of $40. But it took it 10 years to reach that.

SpaceX IPO price already has many years of extremely high growth priced in. Comparing it to Facebook's or Google's IPOs is like apples to oranges.

> Maybe you are right, maybe not..

About what precisely?

Asteroid mining alone could be huge.

Alternatively you may want to be a passive investor using the current rules for index inclusion, rather than having them altered to favor this loss-making trashcan on fire.

> SpaceX could rise to be a major winner that makes people a lot of money

Based on "sane"/traditional metrics that and much more is already priced in into the IPO valuation.

e.g. Google had a many times lower P/S ratio at their IPO and was actually profitable (and software companies usually have higher valuations than capital intensive ones like SpaceX anyway). SpaceX is already valued at more than Google was 10 years after its IPO while barely making a tiny fraction of its revenue.

Or you could mitigate the next dot-com style crash (which wiped out nearly 80% of the NASDAQ composite).

Back then, it was "day trading" that was one of the warning signs that a bubble was ensuing. There are certainly shades of the day-trading phenomenon in the "r/wallstreetbets" gambling, and wildly overvalued meme stocks like Tesla. And this mad rush to relax the guardrails for what appears to be wildly overvalued IPOs.

Bubbles, and their inevitable collapse, are generally not as big of a problem for younger passive investors, but they can be for older ones. (Hence why I've got a "bond tent", value tilt, and other diversification. I'm at the stage where "underperforming the market" is less of a concern than "mitigation". :) )

So your contention is what? This will crash? Surely you'll be shorting the stock right?

A company can have poor fundamentals compared to its stock price, and also have an enormous P/E multiple if it has committed investors. We've seen this with multiple meme stocks and Tesla. I have no doubt SpaceX will fly high for a while and people will make a lot of money, but I don't think the company is going to make $320bn/year in AI services (with 74% profit) by 2030 as the S-1 suggests. At some point the market price will coincide with real earnings.