alt Hacker NewsNote that index funds don't hold companies in proportion to their market cap, but in proportion to their free float (shares available to purchase on the market).
Both SpaceX and OpenAI's estimated free float are around 4-5% of their shares at IPO. This means that we really are talking about companies in the sub $100M valuation in term of index fund impact (assuming under $2T for each).
Replies
nly • today at 9:29 AM
"free-float adjusted" is the key term
FireBy2024 • today at 12:17 PM
5% of 2T would be $100B, not $100M.
That's true for the S&P but not nasdaq, nasdaq is market cap weighted. There used to be a limit that the available float couldn't go below something like 20%. (This is because 5% float available but 100% market cap would cause a huge supply/demand mismatch). But for spacex they changed the rule so there's no minimum, it's just that below 20% float, companies would be weighted at 5x the float instead of 100% of market cap. If spacex is planning on something like 5% float, it would be weighted around 25% of market cap with only 5% of float available to buy.
But it gets worse because when the lock-up period expires in 180 days after ipo (currently scheduled right before quarterly index rebalancing), it's possible that frees up more than 20% of float and it suddenly has to be weighted at the full 100% of market cap -- triggering additional automatic buying.
It certainly seems like it's set up for our retirement accounts to be the insider's exit liquidity.