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Comment by dehrmann | Hacker News Reader

Matt Levine's take was essentially that if you're in the index fund game, you want the market. You don't pick and choose what parts of the market you want--that's active management. SPCX mostly isn't an issue because most indices include the float in the weight, so it isn't really even a $1T company.

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The problem isn’t that you’re invested in the index. The problem is that the index decided it wanted to change its rules to include companies that are not profitable. I still remember the days when you needed to be profitable for x quarters and have a minimum amount of float to be listed in an index. That changed overnight and we all know why.

Can someone make an etf that uses the older more conservative criteria for inclusion?

Can they? Yes, anyone can.

Will they... that's a different question

And even if there are new ETFs like this, will ETF customers bother to move at enough scale. It's like the old quote for buying IBM, no one get's fired for returning the benchmark, so if it's the benchmark adjusting the way they do things there is lots of inertia.

No need. There are already plenty of them that track the S&P — which notably decided NOT to change its rules.

Feel like many of these articles were either prewritten, lazy, or have intentionally omitted the non-impact that S&P opting to not change its rules has had, just so the headline and lede could be as sensational as possible.

Index licensing might be an issue.

S&P 500 did not change its rules right?

Right.

A simpler solution to this would be to introduce new ETF tickers for changed rules. It's a breaking change -- version it.

Okay then why is SPCX going to be weighted 3x its actual float in the Nasdaq? A rule made just for SPCX.

That's absolutely insane -- how the hell did anyone think that was a good idea under these circumstances ... This is an absolute scam -- why does it make sense for an index's buying volume requirement to be based on the implied value of shares that can't even be bought or sold ...?

it's not a scam if no one gets hurt

Honestly, I'm not sure most people get "hurt" in scams.

Think of the generic which cup has the ball scam? Like no American sailor falling for that overseas is going homeless from that event.

But I mean do you want to live in a neighborhood with only broken windows?

To the same point I also don't want the index itself picking and choosing which companies to apply which rules to.

Except they did pick and choose SPCX and did special favors by giving them a multiplier on the float and an exceedingly short interval before including it in indices.

The only index that I know that float multiplied is Nasdaq which no one should even be investing in via their 401k anyway. Shitty index. Most consumers are utilizing some type of fund that tracks the CSRP, which float adjusts with no multiplier.

It's not even the Nasdaq Composite, It's the Nasdaq 100. And yes, the Nasdaq 100 is a shitty index because Nasdaq vs. NYSE is a bit of an arbitrary, tradition-based way to get tech exposure. It's missing NYSE tech companies (Oracle, Dell, Spotify, Uber) but gets some non-tech like Costco and Pepsi. It'd be like only dating iPhone users. It's sort of a rough proxy for something, but you're better off choosing what you actually care about.

Depends which index. S&P isn't giving them anything special. https://finance.yahoo.com/markets/stocks/articles/spacex-fac...

Yeah but Matt Levine is wrong.

1) Index funds and ETFs are highly active.

They're just low-cost due to largely algorithmic decisions but at all of the edge cases manual _active_ decisions are made.

IIRC, in this podcast Vanguard goes into detail about all of the active decisions they do [1]. It's long because uh, they do a lot.

2) You're in the index fund game because "you liked that index". There are literally thousands of ETFs. Saying "you want the market" is just wrong, you wanted a specific slice of the market and if the ETF changes the slice under you then that feels like a bait and switch.

[1]: https://www.youtube.com/watch?v=hQVz_VGJNnY

TIL about float for stock, thanks.

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