Comment by lelanthran
13 hours 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.
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-br...
> 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,
Okay, but isn't that gauge measured over a specific timeframe? Since investors in this index have timeframes in years/decades not days, why would you expect the index to have a ranularity of days?
> 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.
Sure, but it excludes lots of companies. This specific index is risk-averse and caters to risk-averse investors; regardless of whether the company is SpaceX, Anthropic or OpenAI, rick-averse investors are going to shy away from any share that hasn't been traded long enough for price-discovery to kick in.
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.
I addressed that exact point here 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.
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It currently would exclude all 3 companies because they aren’t publicly traded.
Post IPO they wouldn’t immediately be included. Every benchmark I am aware of doesn’t immediately include companies because there is a decent amount of volatility shortly after, especially due to all the internal stockholders who have restrictions on how quickly they can sell their stock and routinely dump their stock en masse the second those restrictions are lifted.
All the hubbub about benchmarks like Nasdaq right now is because they are altering their rules for these companies in particular and including them much earlier and before what are standard restrictions for employees to sell their stock.
The fear is that massive pension funds whose rules have them rebalance into these benchmarks will be buying up these stocks before that dump and the public’s retirement funds will be made into bagholders.
> Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. > A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.
Ok, now I know not to take you seriously if you can recognize companies aren’t following GAAP but think it’s wrong to not treat them the same. I don’t even know if it’s true that they aren’t following GAAP, but everytime a company tries to argue why they aren’t following GAAP but instead their own magic formula that shows how successful they are, we get another Enron or Theranos.