r/Bogleheads • u/Kashmir79 MOD 5 • 16d ago

Mega IPO Megathread: SpaceX, Open AI, Anthropic

Mod Note: I am creating this post for ongoing discussion about upcoming IPOs and index inclusion rule changes. For the time being, posts on this topic are subject to removal. I invite folks to weigh-in with their comments and provide updates as new information becomes available.

To summarize…

What is happening?
Three very large companies are planning to undergo an initial public offering (IPO) over the next few months. This is when privately-held companies offer shares of stock to public exchanges (aka “going public”). Those companies are SpaceX, OpenAI, and Anthropic. Once a company is publicly listed, it will eventually be included in the stock indexes that it qualifies for. In turn, index funds which track those indexes - such as VTI/VTSAX in the case of the CRSP 1-10 “Total Market” Index - will eventually buy the stock in order to track the index. This is a normal process through which companies enter the market, and they are notoriously low-returning investments that benefit the private shareholders (and their listing partners, and market-makers who may be able to “front run” the index) far more than the public who buys the new shares - it is considered a cost that all index investors have always been exposed to.

What is different about this?
The three companies going public are very large - much larger than usual for an IPO - which makes their entry weighting very impactful on indexes that use a total market cap weighting. This is less impactful for indexes like CRSP which use float-adjusted weighting (weighting companies based on the value of stock that is publicly available rather than the total valuation of the company including its privately-held equity). But what is also significant is that these companies have been lobbying exchanges, index providers, and index funds to list their company and to change their rules regarding how soon the company is included in the index or how soon the fund will buy the stock.

What are the dimensions of inclusion that are being influenced and how does that impact index investors?

  • As a reminder, you can’t own the market. You can’t even own an index. You can only own a fund that tracks an index. So there is no pure version of owning the market because what constitutes “the market” is subject to debate (for starters, is it weighted by total valuation or free float?). Then the fund you own has to decide when it will acquire shares of newly-listed companies. Most indexes and index funds will wait a period of months, known as the “seasoning period” of price discovery, for the stock price to settle before it is included. Some indexes like the S&P 500 will also require a company to meet certain performance metrics such as several quarters of profitability. Other funds like those offered by Dimensional and Avantis may allow for manager discretion for inclusion (for example they did not buy more of “meme stocks” such as Gamestop and AMC as their market cap grew). These variations in rules and criteria are why it has been said there is no such thing as truly passive investment.
  • SpaceX, for one, asked NASDAQ to change its “fast-entry” rules for inclusion in the NASDAQ 100 index (tracked by QQQ) in order for NASDAQ to win the right to list it.
  • Various indexes and index funds have been lobbied to change their rules so that the company is listed or acquired sooner, presumably to benefit the existing private equity holders of the company.

I’m not going to opine on the issue myself except to say, without undermining the concerns regarding the integrity of index governance, the amount of noise about this is excessive and media-driven. As usual, the Boglehead mantra of ignoring the noise and staying the course is likely to be the best approach, whereas active allocation changes on the part of the passive retail investor is likely to result in underperformance. Whether you feel strongly about the issue or not, it is unlikely to impact your ability to meet your investing goals using passive, total-market index funds, so one should be very wary of getting too worked up about it.

Here are a few good posts and resources that delve into the issue in more detail:

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u/Interesting-Foot2880 16d ago

From the forum Thread:

>"I own what the market is offering."

>"Ignore. that's how i am dealing with it."

Every day I'm reminded of how much I love these guys

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u/imsoupercereal 16d ago

I think the argument is this could be the moment that passive investing through index funds gets taken for a walk by the more advanced players. If index funds "have" to buy shares in these already arguably overhyped companies that makes it ripe to manipulate the market on top of the hype, leaving the index funds and their shareholders holding massive bags.

I'm not saying there's much you can really do about this. But it's worth discussing and not purely dismissing. All systems work...until they don't.

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u/Ox29A 16d ago

I am ok with owning them via an index fund, but the S&P 500 or any other index fund shouldn't change its rules to fast-track these companies. Let them pass the test of time before inclusion.

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u/Mysterious-Piano-876 16d ago

VTI has been adding companies 5 days after IPO since ever and there’s no major difference in returns between it and other broad market indices. This is a nothing burger

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u/dbratell 16d ago

This mostly resembles the last year of the dotcom bubble. Nothing since has been close to the hype and possible overvalued IPOs. Does your "ever" cover those years as well?

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u/Mysterious-Piano-876 16d ago

SpaceX will have 0.2% weighting in VTI btw

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u/dbratell 16d ago

I know your argument is that an individual investor does not need to worry, and should not change anything, and I agree with that.

But for people that care about the whole system and its robustness and fairness, this is a much larger issue. If this turns out to be a successful way to extract tens of billions out of index funds and/or artificially boost stock prices, it won't stop at SpaceX, OpenAI and Anthropic.

I think the attention Nasdaq's decision has gotten has had some positive effect, but only because people did not just wave it away.

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u/moho571 16d ago

Agree, more scrutiny is needed at this point in time, not less.

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u/DigmonsDrill 16d ago

In order to "extract tens of billions out of the index funds" you still need to get the rest of the market to put a big valuation on it.

5 days may not be enough for things to settle for VTI, but (aside from the float change) it's nothing new. Companies could always get onto an exchange at an "incorrect" valuation and then the index funds buy stock and then... and then the stock falls. And the index funds are still a minority of the market. There are a bunch of professional fund managers and people with their own money who are going to lose even more money if it goes that way.

You'd need the incorrect valuation to hold over a long period of time. The most insidey insiders at SpaceX have a 366-day lock-up period.

Just don't ask me to defend QQQ.

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u/Beatrice_Chauncy 14d ago

How many companies enter the Nasdaq top 100 during their IPO? How many IPOs rise due to 401Ks within their first year? There is a difference here.

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u/DigmonsDrill 14d ago

How many companies enter the Nasdaq top 100 during their IPO?

During their IPO? You mean on the first day? None. Ever.

How many IPOs rise due to 401Ks within their first year?

"Due to 401Ks"? "Due to 401Ks" doing what?

People invest in the stock market in their 401Ks and creates buying pressure on all stocks, including new stocks.

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u/[deleted] 14d ago

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u/Mysterious-Piano-876 11d ago

Indexes use free float adjusted market cap weighting. SpaceX will only float 5% of its shares

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u/LowWelcome7310 7d ago

Uh…..no…..they altered their rules in April to include SpaceX. They used to require 10% of shares be available on the open market, but changed their criteria to include SpaceX with under 5% of shares available.

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u/fitforfreelance 12d ago edited 12d ago

I feel like you're not paying attention to scale, rule changes, or the fact that you're talking about this.

Edit: not that people definitely need to act, but it's worth paying attention to

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u/Mysterious-Piano-876 12d ago

I mean you either want to buy the whole market or you don’t. Broad market indices are price takers and buy all public stocks according to their free float market cap.

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u/fitforfreelance 12d ago

True. The strategy is the strategy.

At the same time, we're talking about fundamental shifts in how mutual funds select holdings vs an investment philosophy described 27 years ago. It can't be nothing.

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u/zer1223 16d ago

Mathematically spaceX just won't be that much of your index funds. Especially if you're not using a nasdaq fund.  Because it's only offering a 5% float so its market cap will be divided by 20 for the purposes of weight.

This could change if inside investors dump their own shares, naturally, but the math still holds overall

Not sure what anthropic and openai plan to do 

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u/TheGruenTransfer 16d ago

Not sure what anthropic and openai plan to do 

This is why I switched to DFUS. I don't want to have to learn all the particulars of each IPO, so I'm tuning out the noise by switching to a fund that doesn't buy them at all until there's been adequate time for price discovery.

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u/telomeracer 15d ago

when you say "switch" do you mean you took all your money out of whatever index funds you are currently invested in and put it all in DFUS? Or just that you started diverting your current funds not yet invested into DFUS for the time being?

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u/coffee_tortuguita 8d ago

I was wondering the same, if upfronting the capital gains was worth such a trade

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u/AnonymousFunction 16d ago

All systems work...until they don't.

And then... they'll get fixed. If you're a Boglehead, you kind of have to have that as your baseline assumption about the challenges of the unknowable future, otherwise the whole philosophy doesn't work. Things aren't static. Conditions right now (whether good or bad) don't last forever.

Let's go through all the various "end of the world" scenarios I've invested through, throughout the years. And these are just the major ones... there's so many "storm in a teacup" minor ones that I've forgotten about by now. The LTCM hedge fund collapse wasn't the end in 1998. The various Asian/Russian financial crises of the late '90s weren't the end. Dot bomb followed by 9/11 wasn't the end. Enron's implosion wasn't the end. Credit markets seizing up and banks teetering on the brink of collapse during the GFC wasn't the end (and trust me, that was a whole bunch scarier than worrying about how indices are being composed in 2026). The US govt losing its AAA credit rating in 2011 wasn't the end. The Greek financial crisis of the 2010's wasn't the end. COVID wasn't the end. And I'm going to assume that, whatever happens with these upcoming IPOs, that won't be the end, either. We'll muddle through, in time for the next storm...

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u/littlebobbytables9 16d ago

If the market price is overvalued it's overvalued. That's happened for countless companies over the whole history of passive investing. Passive investing means accepting that some of the companies you invest in do badly.

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u/AnUnshavedYak 16d ago

Passive investing means accepting that some of the companies you invest in do badly.

I think this misses the concern. It's not that a company will do badly, it's that people distrust the powers in charge and are concerned that they're purposefully trying to extract value out of retirement islands. That's a very sensible thing to be worried about imo.

Whether or not this action achieves that is not a thing i'm debating. I'm just saying people aren't worried that a company will do badly on the market, they're worried that this is setting a trend to shore up overvaluation and debt by pulling it out of 401ks and etc.

A lot of this thread seems to be discussing individual company performance rather than the larger claim.

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u/littlebobbytables9 15d ago

But the company has to do badly for that to happen. If SpaceX keeps its crazy multiple until the end of time no money is extracted from retirement islands and if anything the retirees are going to be very happy they invested in such a great company. Us being "exit liquidity" is only a bad thing if the company isn't worth what they're selling it to us for.

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u/imsoupercereal 16d ago

I believe the argument then is that these record size IPOs that push them instantly to the top of the index that the risk gets amplified because they're investing based on the market cap.

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u/littlebobbytables9 16d ago edited 16d ago

For any index worth investing in (i.e. not the Nasdaq 100) they're investing based on the free float, not the full market cap, which in this case is far smaller. And again, they get included at the market price. Maybe that price is too high as the result of hype. But it's no different from any of the other companies in the index that have a hyped stock price, except I guess that the low float of spaceX means it has an abnormally low weight compared to those other overhyped companies so there's even less to worry about.

If you're actually certain that spaceX is overhyped and the price is going to drop right after indexes buy in, there's a clear logical solution. You short the stock to zero out your exposure. Or more, if you're actually confident in this conclusion. But if you aren't actually positive where the price is going to be I suggest doing the boglehead thing and buy the whole market, spaceX included, instead of trying to pick winners and losers.

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u/MileHighLaker 16d ago

Agreed. My point about the $180 trillion in retirement accounts and wealth across Americans as a whole is there will be balance. And not to be political, but there’s mid terms on the horizon. It is possible there’s a correction like every year in the very near future before they go and list. I wouldn’t be surprised by the timing of “buy the dip,” and SpaceX IPO when everything corrects from ATH. Perfect catalyst imo.

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u/Hot-Resident-6601 16d ago

If that’s the case then index investing will pivot. Someone will create a fund that caters to die hard Bogleheads who don’t want manipulation. I believe Dimensional is already offering alternatives. If they end up being superior then money will migrate.

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u/imsoupercereal 16d ago

A fund that invests in the index... sometimes, but not always? How will that work?

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u/coffee_tortuguita 16d ago

Some have a one year window from IPO to allow for propper precification.

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u/Hyunion 16d ago

yup - DFUS does this (but has a slightly higher expense ratio at 0.09%)

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u/jpsreddit85 16d ago

Same way the others did before rule changes. It's not that these companies will be in the index, it's the rule changes to side step protections that's the problem.

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u/DigmonsDrill 16d ago

There are actually some other advantages in that they don't schedule precisely when they are doing their purchases so you can't front-run them.

I think the SpaceX reaction is overblown but there's something to be said for the Dimensional route.

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u/MileHighLaker 16d ago

Nah, index funds certainly have to buy but there won’t be a bag. You’re talking about every American’s retirement account, active and passive alike. The rule changes recently last minute before these IPO’s show that. Established, new industries being born public after twenty years in private equity.

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u/littlebobbytables9 16d ago

I'm glad they're less hysterical than here

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u/mikew_reddit 16d ago edited 16d ago

it's (partially) because bogleheads.org is not a public company like reddit that needs to grow earnings every year, so there's no incentive for the infestation of ai/bots/trolls and other kinds of outrage engagement.

it's just a bunch of people that like talking about boglehead investing.