Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$.
You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company.
You then rotate out a company for a new one also worth 1 G$. The index is still 100 G$, but to match the index you are contractually required to sell your 20% ownership of the old company and are contractually required to buy 20% ownership of the new company.
However, the newly added company only released 5% of its shares to the public and the founder kept hold of the remaining 95%. Those fund managers are contractually obligated to buy 20% of the newly added company, but only 5% is available. Like a short squeeze, where the squeezer buys and holds supply so there are not enough purchasable shares to cover the shorts (obligated ownership), this is a financial divide by zero.
To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want.
That is the scheme described: how to short squeeze retirement funds who do not even have shorts for fun and profit.
>That is the scheme described: how to short squeeze retirement funds who do not even have shorts for fun and profit.
How many retirement funds use the nadasq 100 as the benchmark? The only thing that's really objectionable is the 5x multiplier, and so far as I can tell that's confined to the nasdaq 100 index. If the funds use a sane index without such shenanigans, it won't be affected nearly as much, and the whole debate just turns into the perennial question on whether [company] is overvalued and whether passive investors are being taken for a ride.
Yes, when SpaceX gets added to the index, it's going to skyrocket for just that reason. The other reason why SpaceX stock is going to skyrocket is because of the "infinite potential". After all, Elon is going to be God-Emperor of Mars, and how much is a piece of that worth?
The OP knows this and wants a window to profit from this squeeze. For the general public index owners, the sooner it's added to the index the better, minimizing the time that traders can front run this squeeze ahead of them.
Perhaps better it's not added to the indices at all, but as long as it's inevitable, the sooner the better.
Being added to the index is literally the only thing causing "the squeeze" according to this description though so how does that benefit either the author or the index holder?
If the stock was added to the index at a normal period then all the shares would be available.
Who is contractually obligated to buy?
I have an index fund for NASDAQ with my broker. When I bought into the fund, the broker promised me that with my money, they will buy shares in companies traded on that exchange according to the specific formula that SpaceX is manipulating here. My broker is obligated to buy. They could open a new fund that has a contact like "we'll keep doing what we had been doing except for the whole SpaceX thing" but they would need my permission to move the money. And I'm only in this fund because it was recommended by my 401k provider -- I don't know anything about any of this. That's the messed up thing here -- the people being screwed are not sophisticated investors, it's nurses and school teachers who hope to retire.
Some funds promise to track the Nasdaq. I guess the idea is they can't sorta track it and they can't artificially track it through some financial proxy. They have to own real shares?
I’m trying to understand the mechanics here. I get that SpaceX and Nasdaq are in cahoots to get SpaceX bundled with a bunch of other stocks (and that bundle is called QQQ?)
But why must retail investors hold this bundle? If I’m holding now, I can sell it and buy a different bundle right? And if I’m not holding it now, I can just continue not to buy it after SpaceX gets included.
Bingo. No sane investor holds QQQ because there is no academic theory behind why it should exist. Why is a stock better if it's listed on NASDAQ instead of NYSE? Can any investor answer this question? Doubt it. If you are into factor investing and you like large cap growth, you buy something like VUG. Most people should just stick with SP500 or total market.
However, QQQ had a really good last 15 years and lots of investors hold it because they are chasing returns and because the marketing worked. (The managers of QQQ are legally obligated to spend X% of the fees collected on advertising the ETF, ha ha ha.)
Tsla is 1.4T market cap, so it's almost like *ELON-stock is going to double in 1 day. It will go from 4% to 8% of qqq in 1 day.
It'll happen a week or a month after IPO date though? It took fb/meta 1 year and then it entered as 1% qqq. TSLA entered 3 years after IPO so probably a small percentage.
Tsla is 2% vti (2T AUM). QQQ is 400B AUM. So add those two and you get $56B of purchasing. This seems like the amount they want to raise via IPO in total in the news, so the banks who do the IPO can sell it all guaranteed.
But people will want to buy it before it gets into the passive funds... So... Post inclusion market cap will be higher than we expect?
Does this only affect money invested after June 15th, or does this also devalues money invested before this date?
If you don't invest anymore money in the index during the interim rebalancing period refered to by the author, then one should be alright. Right?
It's really expensive to get all your marbles out, I'd rather not do it if I don't have to.
Right, you are trapped if you are holding QQQ in a taxable account and have substantial gains, so you should do nothing with the shares you already have. But no, ceasing to invest in it will not save you. The rebalancing discussed in the article happens internally with you already invested dollars.
But do take this moment to realize QQQ never made sense to invest in, and put your future dollars somewhere else. There are plenty of funds that overweight large cap tech but track an index that doesn't care which exchange the stock is listed on.
QQQ rebalances on a schedule. Existing holders are affected because the fund’s underlying composition will change.
This. If you are invested in a Nasdaq index (e.g. QQQ), it will have to sell some of the tail and buy the necessary weighted percentage of Snake Oil. Apart from you buying snake oil, you will realise some extra capital gains/loses due to the rebalancing.
And to be clear it's not just QQQ; countless retirement target date funds have a Nasdaq component. That's the real target of this grift, your retirement fund.
Why can't an index fund compute and track their own objective index, thus ignoring any distortion introduced by the Nasdaq?
Because when I buy QQQ expect it to track the Nasdaq-100, not something else.
Vast majority of index funds do not track NASDAQ 100.
This is the detail I'd really like to know more about
The top 3 most popular index fund ETFs track S&P500, which doesn't really pull this kind of shenanigan. Only QQQ tracks the NASDAQ 100 and it's in 5th place by assets under management.
You should probably read a book about index investing if you are going to invest.
This is not a prediction.
SpaceX is looking at an IPO in the range of $1.75T on revenues of ~$16B. That's ~100x revenue (let's ignore the net for the moment).
How have recent IPOs done when they went out in the neighborhood of 100x revenue?
It's a small club and you ain't in it
Anyone know if vanguards VTI is immune from such practices?
vti is free float adjusted, so not as susceptible. But:
Elon will naturally do everything in his power to pump his stock, as every CEO does, and VTI buys shares in proportion to how successful that is. That is the nature of passive, market cap weighted investing.
If you want to underweight Elon's companies, or, generally, weight companies based on something besides market cap, you have to get into active or factor investing.
It mostly doesn't matter though, because if and when one stock drops, those investible dollars will likely flow into another stock, so VTI doesn't really care.
> The CRSP US Total Market Index, by contrast, adds all IPOs ranging from mega caps to small caps—accounting for 98% of the market—within the first five trading days of the stock’s listing.
So it sounds like SpaceX will show up in VTI sooner than in the Nasdaq100, even with their new "fast entry" rule.
The actual scheme described in the OP requires the multiplier to work, though. Otherwise it's just like any other company that's tightly held, in which case only the free float counts and the scheme unravels.
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So sounds like this will be a great short candidate after the index re-weighting.
What, QQQ or SpaceX?
Either way, no, high frequency trading firms are going to beat you to the punch. And shorting elons other company, just because it's over valued by traditional metrics, didn't work out that great for most traders.
This is a slightly tongue-in-cheek way of saying that if you believe a security is severely mispriced then there is a straightforward way to express that opinion.
Shorting is really not that straightforward. It is a avery advanced topic because it mandates the use of leverage. Many (most) investors are long-only, especially the ones being taken advantage of here.
Let them eat foie gras! It was only a matter of time before they started manipulating index funds too.
To be fair, QQQ is not really an index fund. Unless you think that I can make up whatever arbitrary list of stocks I feel like, and call it an index, and create an ETF that tracks it, and still call that an index fund.
Vanguard is probably the most principled when it comes to passive index tracking, and they do not have an ETF that tracks the NASDAQ 100 (or any fund that focuses on a single stock exchange for some inexplicable reason).
Uh, can someone explain this to me like I’m 5, but somehow still have money invested in index funds? It makes me sound like my invested-in-vanguard-total-market-indexes-and-fidelity-target-date-funds money is going to be mechanically dumped into Elon Stock because of FinanceWord FinanceWord FinanceWord gobbledgook FinanceWord but is that the correct reading?
Index funds divvy up money into stocks, in this case weighted by market cap. More market cap = bigger slice of the pie.
SpaceX wants to instantly jump near the top of the pie - capturing tons of the money in index funds for itself, and also therefore taking it away from other companies stocks.
SpaceX (and others like OpenAI, Anthropic)'s private market cap valuation is so high that if they IPO they would instantly jump to the top of the entire stock market. This has never really happened before. By the rules, funds would have to suddenly start buying a huge weight of SpaceX stock - and sell NVDA/AAPL/GOOGL/everything else - to achieve the new balance.
Normally there are rules on how fast a new company can get included in the index. You usually have to be on the market for some time, demonstrate consistently high valuation, etc etc. SpaceX wants to skirt this and jump straight onto the index (near the top).
Further, the rules also usually weight you according to how much of your stock is actually on the market. If you only sell 5% of your company, you only get weighted at 5% of your market cap. SpaceX wants a bonus multiplier so even though they'll only make 5% of their stock available for sale, they want to be weighted in the index as if it was say 15% available. Aka over-bought / boosted price.
This creates both mechanical forced buying and artificially constrained supply. Likely sending the price to the moon, not based on fundamentals but based on gaming the index rules.
Then, once insider lock-up periods are over in a few months, SpaceX can choose to release even more shares - say jumping the available shares from 5% to 100% - which will unleash their full market cap (now even further inflated) and thus capturing even more of the money in index funds.
Index funds being 'passive' guarantees there will be buyers for SpaceX employees and executives to sell their shares to, likely at exorbitantly over-valued prices. At which point they wash their hands of the valuation and your retirement account becomes the new bag holder who has to worry about whether SpaceX is actually worth what you just paid for it.
And if you an approximate 5 year old investor normal person…
Just buy everything you can on day1 and go along for the ride?
Maybe use your lunch money to buy day 1 and sell just before the lockup period expires? And rebalance your actual retirement accounts into funds that will not get forced into this game.
If you are an index investor, it is probably not worth your time and energy to make any drastic changes because of this particular incident. Space X will comprise a small percentage of the indexes in question, and any impact on your portfolio will likely be imperceptible. And if your holdings are in a taxable account, the tax hit from selling are probably not worth it.
Longer term, folks should be aware that Wall Street has fully caught on to the normalization of index investing and have been looking at ways to use passive investors as exit liquidity. Private equity and private credit are the two recent high profile examples. There was an executive order recently that directed the federal government to consider allowing these asset classes into 401k's. And these sectors have been increasingly making there way into the public markets in various ways (which is ironic considering the name of the asset class). Same story with crypto.
In the past, most passive index investors worried about fees and portfolio composition and diversity. But moving forward it is probably worth thinking about index governance as well. For example the S&P500 has a one year waiting period before an public company can be considered.
Do you have specific recommendations for particularly well-governed indexes? Is something like ESGV insulated from such manipulation? Or is it time for investors to start building their own direct/custom indexing with something like Frec
My understanding: It depends on what index the fund is tracking. QQQ tracks the Nasdaq-100 so QQQ is vulnerable. VT tracks the FTSE Global All Cap Index so VT is not directly affected by Nasdaq’s choices but is still exposed to some extent because spacex is likely going to be in the aforementioned FTSE index, Nasdaq’s actions impact spacex’s market cap, and thus Nasdaq’s actions impact spacex’s position in the aforementioned FTSE index which in turn affects VT’s composition (to a smaller extent than QQQ’s).
EDIT: to be clear the above are just examples with two funds (QQQ and VT)
FTSE Russell is proposing changes similar to Nasdaq, with the consultation ending 18 March.
VIFAX?
I think it’d be a rinse and repeat of the line of thinking for VT but more exposure than VT.
From VIFAX fund’s description on vanguard:
> The fund offers exposure to 500 of the largest U.S. companies
Based on the comment from [1] it seems like the issue with nasdaq is that anyone tracking it is contractually obligated to include spacex? What about for other funds? VIFAX description says
>The Global Equity Index Management team applies disciplined portfolio construction and efficient trading techniques designed to help minimize tracking error and maintain close alignment with benchmark characteristics [of S&P 500].
So given that this only affects NASDAQ i'm guessing they aren't affected? And even if S&p 500 started to play the same games, why can't their supposedly disciplined "Global Equity Index Management team" simply opt not to play along with these shenanigans? Or if they simply do mechanically track the s&p 500, what exactly is the "management fee" paying for?
There’s a lot to address here but in short: VFIAX is an index fund, it tracks the S&P500 index, it’s not actively managed, SpaceX will likely be in the S&P500, so my comment around VT applies to VFIAX (as far as the question of exposure is concerned) but to a greater extent than VT (see VT’s composition vs VFIAX’s composition).
Obligatory not financial advice, I’m not an expert, don’t make any financial decisions based on hacker news comments, etc
You are fine because you don't hold QQQ.
The claim is that Nasdaq is going to artificially admit SpaceX to the Nasdaq-100, an index they control, in order to win their business away from NYSE. If the index you invest in is derived from the Nasdaq-100, that's problematic.
It seems kind of likely that SpaceX would make it into most of the major indices on the merits, relatively quickly (the S&P has a 1-year waiting period), just based on its likely size and liquidity.
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Yeah the ETFs have sold off their trust quite a bit in the past year. No longer can anyone with skin in the game trust the stewardship of the fiduciaries. They are simply showing that they are bad at what they do and people should not entrust their future to them.
Pull your money out of the target date funds and into a responsible mix of indexes.
I think you have it backwards. Many (most?) funds underperform the market as a whole, showing they really don't know anything. ETFs that mirror indexes exist exactly because of this... their managers don't make trades based on their insight of the market, they are contractually obligated to mirror the index, period.
The article shows that at least some ETFs -- NASDAQ index funds -- will now be undermined by this SpaceX scam using those contractual obligations to extract money from ETF investors.
Good question. I don't know, but I'll point out that different indexes have different rules, so someone would need to check if a change to the rules for Nasdaq indexes affects the others you mention. (Perhaps they follow what Nasdaq does somehow?)
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Silicon Valley is mostly made up of schemes designed to defraud investors disguised as the hottest new tech startups. Elon recognized this sometime around 2020 (likely starting with his foray into the world of the crypto pump/dump) and decided to skip the formalities and go straight to the fraud, no apologies. That's been his business model ever since. His companies are just a vehicle for this now.
Two things I learned in this article:
1. Garage
2. Buy SpaceX on Day 1.
I learned: sell all my Nasdaq etfs prior to June.
The problem is that it's very hard to avoid if you have a pension plan, and millions of Americans will subsidize Elon Musk without knowing. This is really messed up.
What pension plan invests in QQQ specifically?
And "pension" in the US usually implies defined-benefits, meaning you don't actually care what it invests in. If you're talking about defined-contribution retirement plans like 401k, you are very unlikely to be invested in QQQ without consciously making that decision on your own.
Honestly, they're probably subsidizing Elon already via Tesla, but the super disturbing part here is what the author nails when he says the tail is wagging the dog. Indices should reflect market investment, they shouldn't drive it like this.
Garage -> Gavage?
Yes, probably a typo.
gavage
American
[guh-vahzh, ga-vazh] / gəˈvɑʒ, gaˈvaʒ /
forced feeding, as by a flexible tube and a force pump.
Funny how all this rule making happens so quickly for friends and family members and donors of the Trump administration. Just like it recently did for SpaceX when they got approval for launching 1 million satellites. The corruption is so out in the open, but it is happening all the time - and there are other controversies already like the Epstein files, ICE, Iran, etc - so these go unnoticed. Our political system is broken.
It's so bad. I could write a series of books about all the problems with the current system. There are so many.
These index funds are a mechanism for monopolization of 'the market' and it affects real people and it suppresses other markets through the perverse incentive structures it creates.
For example, I launched a crypto project back in 2019 which had its own decentralized exchange but ran into all sorts of hurdles with US regulations and also, the leaders of the community I was involved in were actively suppressing and slandering my project and propping up their biggest competitor's tech instead! All under the nose of regulators who approved all of it! I couldn't believe my eyes and neither could the community. But eventually it's like everyone started assuming that corruption and suppression was normal.
It's insane but it's like everyone is working to satisfy the big money and nothing else matters. Truth is suppressed, companies collaborate with their competitors and with regulators to deliver inferior goods and services to people while limiting their opportunities and dialing up surveillance and control.
At this stage, if I ever get the option to vote for a communist government, I would definitely take it.
Unofficially, we already have the worst form of communism now except the proceeds of the loot are distributed unequally and with a massive constant psyop running to convince people that what they get or don't get is a result of their own actions.
At least if we make communism official, we can shut down that psyop, acknowledge that the system is a controlled monopoly money machine and essentially just handing out money selectively and that the current criteria are arbitrary.
Once people accept the reality that the system has become an automated machine (since at least a decade) and that entrepreneurship and leadership has become redundant, then we can start thinking about fair distribution of the resources which the machine produces. The self-made people are not self-made, they are system-selected. Homeless people are not all lazy or incompetent; they are system-unselected. They didn't become homeless because they were crazy; they became crazy because they were made homeless. They became crazy trying to make sense of what happened to them. They couldn't figure it out because many if them did nothing wrong. They just got caught in a mental loop trying to fix stuff that they couldn't fix because it wasn't in their control. Their fate was always in the hands of the system.
I think the worst part is that some people who were given favorable treatment by the machine actually do believe that they earned their place. They don't know what it feels like to have all the algorithms suppressing their work and opportunities. They think their privileged treatment by algorithms is normal and same as everyone else.
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this account is obviously an LLM...
The comment is indeed, the account as a whole hasnt seemed to be in the past.
There's a big difference between the first chunk of this account's history and their posting over the last ~2 hours. Either they suddenly adopted a very different and, frankly, dramatically more literate-but-vapid writing style, or they're running an LLM responder.
On the one hand:
> 11 comments in the last two hours, each 3-4 3-sentence paragraphs expounding essentially very polished summaries of the text with no added context
On the other:
> paseante 74 days ago | parent | context | prev | next [–] | on: Efficient method to capture carbon dioxide from th...
> That's the first thing I thought when I read the title. Hey we have already efficient systems for eliminating CO2 from the athmosphere: trees!. The joke tells itself.
> It seems like we have not yet done the full circle, but we are close.
Simple solution is to not invest in funds that track NASDAQ indices.
There are plenty of other funds out there that track other indices from other providers.
Diversifying away from NASDAQ-tracking index as a component of my investments will be extremely tax costly. Maybe more costly than the gavage (as the NASDAQ/SpaceX folks seem to be betting).
And most people won't even be informed that this is happening.
Large markets need to be run in the public interest...
This is not a simple solution if one purchased QQQ a decade or two ago.
Transparent enough, just trade it based on the new weightings and price direction of the underlying SpaceX
The index will have cheaper options contracts than SpaceX while disproportionately subject to the same volatility
That’s the biggest and most egalitarian wealth creation engine in history, aside from some government moves this administration with the currency and commodities
This is only controversial because
A) you’re too married to indexing and told too many people to do it
B) you consider indexing to be sacrosanct for some reason, and consider inclusion to be a reward when it means nothing. this is a symptom of prosperity preaching
To explain the mechanism simply.
Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$. You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company.
You then rotate out a company for a new one also worth 1 G$. The index is still 100 G$, but to match the index you are contractually required to sell your 20% ownership of the old company and are contractually required to buy 20% ownership of the new company.
However, the newly added company only released 5% of its shares to the public and the founder kept hold of the remaining 95%. Those fund managers are contractually obligated to buy 20% of the newly added company, but only 5% is available. Like a short squeeze, where the squeezer buys and holds supply so there are not enough purchasable shares to cover the shorts (obligated ownership), this is a financial divide by zero.
To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want.
That is the scheme described: how to short squeeze retirement funds who do not even have shorts for fun and profit.
Note that this is a minor variation on my post on the same underlying topic here: https://news.ycombinator.com/item?id=47392325
>That is the scheme described: how to short squeeze retirement funds who do not even have shorts for fun and profit.
How many retirement funds use the nadasq 100 as the benchmark? The only thing that's really objectionable is the 5x multiplier, and so far as I can tell that's confined to the nasdaq 100 index. If the funds use a sane index without such shenanigans, it won't be affected nearly as much, and the whole debate just turns into the perennial question on whether [company] is overvalued and whether passive investors are being taken for a ride.
Yes, when SpaceX gets added to the index, it's going to skyrocket for just that reason. The other reason why SpaceX stock is going to skyrocket is because of the "infinite potential". After all, Elon is going to be God-Emperor of Mars, and how much is a piece of that worth?
The OP knows this and wants a window to profit from this squeeze. For the general public index owners, the sooner it's added to the index the better, minimizing the time that traders can front run this squeeze ahead of them.
Perhaps better it's not added to the indices at all, but as long as it's inevitable, the sooner the better.
Being added to the index is literally the only thing causing "the squeeze" according to this description though so how does that benefit either the author or the index holder?
If the stock was added to the index at a normal period then all the shares would be available.
Who is contractually obligated to buy?
I have an index fund for NASDAQ with my broker. When I bought into the fund, the broker promised me that with my money, they will buy shares in companies traded on that exchange according to the specific formula that SpaceX is manipulating here. My broker is obligated to buy. They could open a new fund that has a contact like "we'll keep doing what we had been doing except for the whole SpaceX thing" but they would need my permission to move the money. And I'm only in this fund because it was recommended by my 401k provider -- I don't know anything about any of this. That's the messed up thing here -- the people being screwed are not sophisticated investors, it's nurses and school teachers who hope to retire.
Some funds promise to track the Nasdaq. I guess the idea is they can't sorta track it and they can't artificially track it through some financial proxy. They have to own real shares?
I’m trying to understand the mechanics here. I get that SpaceX and Nasdaq are in cahoots to get SpaceX bundled with a bunch of other stocks (and that bundle is called QQQ?)
But why must retail investors hold this bundle? If I’m holding now, I can sell it and buy a different bundle right? And if I’m not holding it now, I can just continue not to buy it after SpaceX gets included.
Bingo. No sane investor holds QQQ because there is no academic theory behind why it should exist. Why is a stock better if it's listed on NASDAQ instead of NYSE? Can any investor answer this question? Doubt it. If you are into factor investing and you like large cap growth, you buy something like VUG. Most people should just stick with SP500 or total market.
However, QQQ had a really good last 15 years and lots of investors hold it because they are chasing returns and because the marketing worked. (The managers of QQQ are legally obligated to spend X% of the fees collected on advertising the ETF, ha ha ha.)
If you are a financial brokerage and you want to offer the S&P 100 or the NASDAQ 100, you can't just do that. You have to license that - https://www.spglobal.com/spdji/en/custom-indices/solutions/
I imagine, though I don't know, that the requirement to use the index name and contents also dictates allocation.
https://en.wikipedia.org/wiki/Index_fund
Tsla is 1.4T market cap, so it's almost like *ELON-stock is going to double in 1 day. It will go from 4% to 8% of qqq in 1 day.
It'll happen a week or a month after IPO date though? It took fb/meta 1 year and then it entered as 1% qqq. TSLA entered 3 years after IPO so probably a small percentage.
Tsla is 2% vti (2T AUM). QQQ is 400B AUM. So add those two and you get $56B of purchasing. This seems like the amount they want to raise via IPO in total in the news, so the banks who do the IPO can sell it all guaranteed.
But people will want to buy it before it gets into the passive funds... So... Post inclusion market cap will be higher than we expect?
Does this only affect money invested after June 15th, or does this also devalues money invested before this date? If you don't invest anymore money in the index during the interim rebalancing period refered to by the author, then one should be alright. Right? It's really expensive to get all your marbles out, I'd rather not do it if I don't have to.
Right, you are trapped if you are holding QQQ in a taxable account and have substantial gains, so you should do nothing with the shares you already have. But no, ceasing to invest in it will not save you. The rebalancing discussed in the article happens internally with you already invested dollars.
But do take this moment to realize QQQ never made sense to invest in, and put your future dollars somewhere else. There are plenty of funds that overweight large cap tech but track an index that doesn't care which exchange the stock is listed on.
QQQ rebalances on a schedule. Existing holders are affected because the fund’s underlying composition will change.
This. If you are invested in a Nasdaq index (e.g. QQQ), it will have to sell some of the tail and buy the necessary weighted percentage of Snake Oil. Apart from you buying snake oil, you will realise some extra capital gains/loses due to the rebalancing.
And to be clear it's not just QQQ; countless retirement target date funds have a Nasdaq component. That's the real target of this grift, your retirement fund.
Why can't an index fund compute and track their own objective index, thus ignoring any distortion introduced by the Nasdaq?
Because when I buy QQQ expect it to track the Nasdaq-100, not something else.
Vast majority of index funds do not track NASDAQ 100.
This is the detail I'd really like to know more about
The top 3 most popular index fund ETFs track S&P500, which doesn't really pull this kind of shenanigan. Only QQQ tracks the NASDAQ 100 and it's in 5th place by assets under management.
You should probably read a book about index investing if you are going to invest.
This is not a prediction.
SpaceX is looking at an IPO in the range of $1.75T on revenues of ~$16B. That's ~100x revenue (let's ignore the net for the moment).
How have recent IPOs done when they went out in the neighborhood of 100x revenue?
It's a small club and you ain't in it
Anyone know if vanguards VTI is immune from such practices?
vti is free float adjusted, so not as susceptible. But:
Elon will naturally do everything in his power to pump his stock, as every CEO does, and VTI buys shares in proportion to how successful that is. That is the nature of passive, market cap weighted investing.
If you want to underweight Elon's companies, or, generally, weight companies based on something besides market cap, you have to get into active or factor investing.
It mostly doesn't matter though, because if and when one stock drops, those investible dollars will likely flow into another stock, so VTI doesn't really care.
VTI just tracks the CRSP US total stock index, see https://investor.vanguard.com/investment-products/etfs/profi...
The CRSP index itself adds new companies within 5 days of their IPO, see https://www.crsp.org/what-owning-the-market-really-means/
> The CRSP US Total Market Index, by contrast, adds all IPOs ranging from mega caps to small caps—accounting for 98% of the market—within the first five trading days of the stock’s listing.
So it sounds like SpaceX will show up in VTI sooner than in the Nasdaq100, even with their new "fast entry" rule.
The actual scheme described in the OP requires the multiplier to work, though. Otherwise it's just like any other company that's tightly held, in which case only the free float counts and the scheme unravels.
[dead]
So sounds like this will be a great short candidate after the index re-weighting.
What, QQQ or SpaceX?
Either way, no, high frequency trading firms are going to beat you to the punch. And shorting elons other company, just because it's over valued by traditional metrics, didn't work out that great for most traders.
This is a slightly tongue-in-cheek way of saying that if you believe a security is severely mispriced then there is a straightforward way to express that opinion.
Shorting is really not that straightforward. It is a avery advanced topic because it mandates the use of leverage. Many (most) investors are long-only, especially the ones being taken advantage of here.
Obligatory video from Patrick Boyle
https://www.youtube.com/watch?v=8rS3fTbC7TE
Edit: someone posted it on HN, there's already a thread for it : https://news.ycombinator.com/item?id=47388640
Really the same mechanics with crypto
Let them eat foie gras! It was only a matter of time before they started manipulating index funds too.
To be fair, QQQ is not really an index fund. Unless you think that I can make up whatever arbitrary list of stocks I feel like, and call it an index, and create an ETF that tracks it, and still call that an index fund.
Vanguard is probably the most principled when it comes to passive index tracking, and they do not have an ETF that tracks the NASDAQ 100 (or any fund that focuses on a single stock exchange for some inexplicable reason).
Uh, can someone explain this to me like I’m 5, but somehow still have money invested in index funds? It makes me sound like my invested-in-vanguard-total-market-indexes-and-fidelity-target-date-funds money is going to be mechanically dumped into Elon Stock because of FinanceWord FinanceWord FinanceWord gobbledgook FinanceWord but is that the correct reading?
Index funds divvy up money into stocks, in this case weighted by market cap. More market cap = bigger slice of the pie.
SpaceX wants to instantly jump near the top of the pie - capturing tons of the money in index funds for itself, and also therefore taking it away from other companies stocks.
SpaceX (and others like OpenAI, Anthropic)'s private market cap valuation is so high that if they IPO they would instantly jump to the top of the entire stock market. This has never really happened before. By the rules, funds would have to suddenly start buying a huge weight of SpaceX stock - and sell NVDA/AAPL/GOOGL/everything else - to achieve the new balance.
Normally there are rules on how fast a new company can get included in the index. You usually have to be on the market for some time, demonstrate consistently high valuation, etc etc. SpaceX wants to skirt this and jump straight onto the index (near the top).
Further, the rules also usually weight you according to how much of your stock is actually on the market. If you only sell 5% of your company, you only get weighted at 5% of your market cap. SpaceX wants a bonus multiplier so even though they'll only make 5% of their stock available for sale, they want to be weighted in the index as if it was say 15% available. Aka over-bought / boosted price.
This creates both mechanical forced buying and artificially constrained supply. Likely sending the price to the moon, not based on fundamentals but based on gaming the index rules.
Then, once insider lock-up periods are over in a few months, SpaceX can choose to release even more shares - say jumping the available shares from 5% to 100% - which will unleash their full market cap (now even further inflated) and thus capturing even more of the money in index funds.
Index funds being 'passive' guarantees there will be buyers for SpaceX employees and executives to sell their shares to, likely at exorbitantly over-valued prices. At which point they wash their hands of the valuation and your retirement account becomes the new bag holder who has to worry about whether SpaceX is actually worth what you just paid for it.
And if you an approximate 5 year old investor normal person…
Just buy everything you can on day1 and go along for the ride?
Maybe use your lunch money to buy day 1 and sell just before the lockup period expires? And rebalance your actual retirement accounts into funds that will not get forced into this game.
If you are an index investor, it is probably not worth your time and energy to make any drastic changes because of this particular incident. Space X will comprise a small percentage of the indexes in question, and any impact on your portfolio will likely be imperceptible. And if your holdings are in a taxable account, the tax hit from selling are probably not worth it.
Longer term, folks should be aware that Wall Street has fully caught on to the normalization of index investing and have been looking at ways to use passive investors as exit liquidity. Private equity and private credit are the two recent high profile examples. There was an executive order recently that directed the federal government to consider allowing these asset classes into 401k's. And these sectors have been increasingly making there way into the public markets in various ways (which is ironic considering the name of the asset class). Same story with crypto.
In the past, most passive index investors worried about fees and portfolio composition and diversity. But moving forward it is probably worth thinking about index governance as well. For example the S&P500 has a one year waiting period before an public company can be considered.
Do you have specific recommendations for particularly well-governed indexes? Is something like ESGV insulated from such manipulation? Or is it time for investors to start building their own direct/custom indexing with something like Frec
My understanding: It depends on what index the fund is tracking. QQQ tracks the Nasdaq-100 so QQQ is vulnerable. VT tracks the FTSE Global All Cap Index so VT is not directly affected by Nasdaq’s choices but is still exposed to some extent because spacex is likely going to be in the aforementioned FTSE index, Nasdaq’s actions impact spacex’s market cap, and thus Nasdaq’s actions impact spacex’s position in the aforementioned FTSE index which in turn affects VT’s composition (to a smaller extent than QQQ’s).
EDIT: to be clear the above are just examples with two funds (QQQ and VT)
FTSE Russell is proposing changes similar to Nasdaq, with the consultation ending 18 March.
VIFAX?
I think it’d be a rinse and repeat of the line of thinking for VT but more exposure than VT.
From VIFAX fund’s description on vanguard:
> The fund offers exposure to 500 of the largest U.S. companies
Based on the comment from [1] it seems like the issue with nasdaq is that anyone tracking it is contractually obligated to include spacex? What about for other funds? VIFAX description says
>The Global Equity Index Management team applies disciplined portfolio construction and efficient trading techniques designed to help minimize tracking error and maintain close alignment with benchmark characteristics [of S&P 500].
So given that this only affects NASDAQ i'm guessing they aren't affected? And even if S&p 500 started to play the same games, why can't their supposedly disciplined "Global Equity Index Management team" simply opt not to play along with these shenanigans? Or if they simply do mechanically track the s&p 500, what exactly is the "management fee" paying for?
[1] https://news.ycombinator.com/item?id=47394355
There’s a lot to address here but in short: VFIAX is an index fund, it tracks the S&P500 index, it’s not actively managed, SpaceX will likely be in the S&P500, so my comment around VT applies to VFIAX (as far as the question of exposure is concerned) but to a greater extent than VT (see VT’s composition vs VFIAX’s composition).
Obligatory not financial advice, I’m not an expert, don’t make any financial decisions based on hacker news comments, etc
You are fine because you don't hold QQQ.
The claim is that Nasdaq is going to artificially admit SpaceX to the Nasdaq-100, an index they control, in order to win their business away from NYSE. If the index you invest in is derived from the Nasdaq-100, that's problematic.
It seems kind of likely that SpaceX would make it into most of the major indices on the merits, relatively quickly (the S&P has a 1-year waiting period), just based on its likely size and liquidity.
Yeah the ETFs have sold off their trust quite a bit in the past year. No longer can anyone with skin in the game trust the stewardship of the fiduciaries. They are simply showing that they are bad at what they do and people should not entrust their future to them.
Pull your money out of the target date funds and into a responsible mix of indexes.
I think you have it backwards. Many (most?) funds underperform the market as a whole, showing they really don't know anything. ETFs that mirror indexes exist exactly because of this... their managers don't make trades based on their insight of the market, they are contractually obligated to mirror the index, period.
The article shows that at least some ETFs -- NASDAQ index funds -- will now be undermined by this SpaceX scam using those contractual obligations to extract money from ETF investors.
Good question. I don't know, but I'll point out that different indexes have different rules, so someone would need to check if a change to the rules for Nasdaq indexes affects the others you mention. (Perhaps they follow what Nasdaq does somehow?)
Silicon Valley is mostly made up of schemes designed to defraud investors disguised as the hottest new tech startups. Elon recognized this sometime around 2020 (likely starting with his foray into the world of the crypto pump/dump) and decided to skip the formalities and go straight to the fraud, no apologies. That's been his business model ever since. His companies are just a vehicle for this now.
Two things I learned in this article:
1. Garage 2. Buy SpaceX on Day 1.
I learned: sell all my Nasdaq etfs prior to June.
The problem is that it's very hard to avoid if you have a pension plan, and millions of Americans will subsidize Elon Musk without knowing. This is really messed up.
What pension plan invests in QQQ specifically?
And "pension" in the US usually implies defined-benefits, meaning you don't actually care what it invests in. If you're talking about defined-contribution retirement plans like 401k, you are very unlikely to be invested in QQQ without consciously making that decision on your own.
Honestly, they're probably subsidizing Elon already via Tesla, but the super disturbing part here is what the author nails when he says the tail is wagging the dog. Indices should reflect market investment, they shouldn't drive it like this.
Garage -> Gavage?
Yes, probably a typo.
gavage American [guh-vahzh, ga-vazh] / gəˈvɑʒ, gaˈvaʒ /
forced feeding, as by a flexible tube and a force pump.
Funny how all this rule making happens so quickly for friends and family members and donors of the Trump administration. Just like it recently did for SpaceX when they got approval for launching 1 million satellites. The corruption is so out in the open, but it is happening all the time - and there are other controversies already like the Epstein files, ICE, Iran, etc - so these go unnoticed. Our political system is broken.
It's so bad. I could write a series of books about all the problems with the current system. There are so many.
These index funds are a mechanism for monopolization of 'the market' and it affects real people and it suppresses other markets through the perverse incentive structures it creates.
For example, I launched a crypto project back in 2019 which had its own decentralized exchange but ran into all sorts of hurdles with US regulations and also, the leaders of the community I was involved in were actively suppressing and slandering my project and propping up their biggest competitor's tech instead! All under the nose of regulators who approved all of it! I couldn't believe my eyes and neither could the community. But eventually it's like everyone started assuming that corruption and suppression was normal.
It's insane but it's like everyone is working to satisfy the big money and nothing else matters. Truth is suppressed, companies collaborate with their competitors and with regulators to deliver inferior goods and services to people while limiting their opportunities and dialing up surveillance and control.
At this stage, if I ever get the option to vote for a communist government, I would definitely take it.
Unofficially, we already have the worst form of communism now except the proceeds of the loot are distributed unequally and with a massive constant psyop running to convince people that what they get or don't get is a result of their own actions.
At least if we make communism official, we can shut down that psyop, acknowledge that the system is a controlled monopoly money machine and essentially just handing out money selectively and that the current criteria are arbitrary.
Once people accept the reality that the system has become an automated machine (since at least a decade) and that entrepreneurship and leadership has become redundant, then we can start thinking about fair distribution of the resources which the machine produces. The self-made people are not self-made, they are system-selected. Homeless people are not all lazy or incompetent; they are system-unselected. They didn't become homeless because they were crazy; they became crazy because they were made homeless. They became crazy trying to make sense of what happened to them. They couldn't figure it out because many if them did nothing wrong. They just got caught in a mental loop trying to fix stuff that they couldn't fix because it wasn't in their control. Their fate was always in the hands of the system.
I think the worst part is that some people who were given favorable treatment by the machine actually do believe that they earned their place. They don't know what it feels like to have all the algorithms suppressing their work and opportunities. They think their privileged treatment by algorithms is normal and same as everyone else.
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this account is obviously an LLM...
The comment is indeed, the account as a whole hasnt seemed to be in the past.
There's a big difference between the first chunk of this account's history and their posting over the last ~2 hours. Either they suddenly adopted a very different and, frankly, dramatically more literate-but-vapid writing style, or they're running an LLM responder.
On the one hand:
> 11 comments in the last two hours, each 3-4 3-sentence paragraphs expounding essentially very polished summaries of the text with no added context
On the other:
> paseante 74 days ago | parent | context | prev | next [–] | on: Efficient method to capture carbon dioxide from th...
> That's the first thing I thought when I read the title. Hey we have already efficient systems for eliminating CO2 from the athmosphere: trees!. The joke tells itself.
> It seems like we have not yet done the full circle, but we are close.
Simple solution is to not invest in funds that track NASDAQ indices.
There are plenty of other funds out there that track other indices from other providers.
Diversifying away from NASDAQ-tracking index as a component of my investments will be extremely tax costly. Maybe more costly than the gavage (as the NASDAQ/SpaceX folks seem to be betting).
And most people won't even be informed that this is happening.
Large markets need to be run in the public interest...
This is not a simple solution if one purchased QQQ a decade or two ago.
Transparent enough, just trade it based on the new weightings and price direction of the underlying SpaceX
The index will have cheaper options contracts than SpaceX while disproportionately subject to the same volatility
That’s the biggest and most egalitarian wealth creation engine in history, aside from some government moves this administration with the currency and commodities
This is only controversial because
A) you’re too married to indexing and told too many people to do it
B) you consider indexing to be sacrosanct for some reason, and consider inclusion to be a reward when it means nothing. this is a symptom of prosperity preaching