The index fund is no longer safe? How SpaceX IPO adapts passive investment rules

Everything you've been Todd About Index Funds Is No Longer True: Phil Bak

Original by: Quoth the Raven

Original language: Peggy

Let's talk about what is happening in capital markets, especially in index funds. But before that, we need to understand what a fall from the altar is. For that, we need to talk about Pete Rose。

Pete Rose is not just a baseball star, he's almost the kind of "ball star" in all baseball fans. He's muddy, hard-working, tough, tough. Later, he became a player and coach, a front for a team and a representative of the sport。

But in the process, he made some mistakes. He proved to have made the worst mistake of the time: to bet on his sport project. It is ironic to put it today, because sports games have appeared on everyone ' s mobile phone and have been continuously advertised in various sporting events. But in those years, people still cared more about old-age concepts, such as "good faith". So the League decided to take Pete Rose and take an example。

Fifteen years later, the broken Pete Rose had to lend WrestleMania his last reputation to pay the bills. Soon he found himself standing in the ring facing a 400-pound Samoan wrestler, Rikishi。

Here I must remind you: watch carefully. Because Rikishi had a landmark move called Stinkface. This move has the same taste as its name: Rikishi would trap his opponent in the corner of the ring and turn around, turn back, shove his big ass over his face, and the audience would go crazy。

You can see for yourself. It sounds as bad as it sounds。

In Rikishi rubbing Pete Rose's face with his huge ass, if you look at it, you see something unusual: some look in Pete's eyes. It's a mixture of sadness and acceptance. That's the look of a person who realizes what he has fallen into. His eyes no longer struggled with the current state of life, but became faint, tired and accepted this new, sad reality。

John Bogle is no longer alive. I can only imagine how he would look if he saw what is happening today in the index fund. I can only imagine that would be the same sad look. It is equally sad and tired to accept that his great invention, which once stood so high, is now falling into a fraudulent sewer。

IF YOU START READING MY ARTICLES EARLY, ESPECIALLY WHEN I USED TO WRITE MORE ABOUT STOCKS AND ETF, YOU'LL PROBABLY GUESS WHAT I'M GOING TO SAY. BUT IF YOU'RE THE NEW READER, I'LL FILL YOU IN. WHAT REALLY HAPPENED WAS THIS:

Low-cost investment was once a powerful narrative that placed ordinary investors on the opposite side of greedy Wall Street

This narrative facilitates the flow of funds into the Passive Index Fund

(a) Inflows of funds drive performance by allowing market value weighting factors — which are intrinsically a combination of reverse-scale and kinetic factors — to run all other factors

(b) Performance is successful and leads to more inflows, which leads to a closed cycle

(a) The rationing of options against the off-the-shelf stock trade, and derivatives linked to the largest index are starting to drive prices deeper than index funds themselves

Thus, valuation is no longer important for the market。

All of this brought us to today and to this Rikishi moment we are facing. This moment is SpaceX IPO。

First, NASDAQ modified the Nasdaq-100 index rule to make it easier and faster for new market-market companies like SpaceX to enter the index. These changes in rules seem to have weakened the standards of traditional indices in terms of free circulation units, liquidity, investmentability and replicability. Time will tell us whether this is good or bad for investors. But one thing is certain: it's very beneficial for NASDAQ to get SpaceX to choose it as the main listing。

Of course you can say that it's crazy to set up shares on the main listed exchange. Of course you're right. I've been to those promotions, and why a company chooses to be listed at New York House or NASDAQ has nothing to do with the relative investment value of S&, P or QQQ. We are talking about two completely disconnected worlds。

For example, people think that they're buying Nasdaq-100 technology shares, and there's Costco, Wal-Mart, and a bunch of other things. They may also think they can buy Oracle or Uber, but it's not because these companies chose to be listed at New York City for reasons unrelated to your portfolio. So you missed them。

This is crazy。

But it's always been that way. And now it's worse. Because this time, it's not just about listing. All index companies have modified their index methodology to push them into the index only for SpaceX, Anthropic and OpenAI. If valuations remain important, it would make you nauseous that index fund investors would buy these companies at what level of valuation。

According to Hedgeye, the damage was as follows:

Change of rules around SpaceX IPO:

The index provider exempted the profit requirement and reduced the post-market observation window from 90 days to 5 days。

This will force more than $30 trillion in passive 401 (k) and retirement funds to buy SpaceX in the IPO valuation。

Bloomberg Inteligence estimates that S& P500 funds must absorb 19 per cent of SpaceX Circulation Unit within six months。

Russell 1000 and Nasdaq-100 will absorb 24%。

The rules used to protect passive investors:

Since 2002, S& P500 has required companies to have a 12-month trading history and to achieve GAAP profits over four consecutive quarters. Both requests are now exempted。

NASDAQ reduced its inclusion in the window from 90 trading days to 15 trading days。

FTSE Russell shortens it to five trading days。

All three benchmark indices are now designed to buy SpaceX at IPO pricing levels。

That's the moment. The index fund's "Founding Shark Time". That was the moment when the great Pete Rose was staring at Rikishi's big ass and showing his desperate eyes。

INVESTORS NO LONGER SIMPLY OPT OUT OF THE STOCK. THEY HAVE ALSO OUTSOURCED ALL ASSET ALLOCATION, IPO DISCIPLINE, LIQUIDITY JUDGEMENT, VALUATION DISCIPLINE, LISTING SELECTION AND THE PRECAUTIONARY PRINCIPLE. THEY HAVE GIVEN ALL THE INITIATIVES IN THEIR DEALINGS TO INDEX COMMITTEES, WHICH WILL BE SWINGING。

The index is no longer neutral. They are making active bets, and the bets are on the company with the most foam, and at the highest valuation point。

There has never been such a good entrance to active management. Direct indexation has never been so important. A huge transformation is finally approaching。

Everything you've heard about the smart but boring index fund is no longer in existence。

Get out while you can. Choose your own methodology, choose your own factors, choose your own stocks and regain ownership of your portfolio。

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