If whole market means whole market, then such investments are exposed to companies who are fairly valued, companies who are massively overvalued, and companies who are massively undervalued, and the whole range in between.
If you want to start picking and choosing which companies are overvalued and which are undervalued, don’t invest in whole market funds. But most people are not good at that!
The Nasdaq 100 and FTSE Russell made a rule change that allows SpaceX to enter index without mormal time for price discovery. Most index funds have rebalance day just 5 days after IPO. S&P also made rule change for S&P Total Market Index and Dow Jones US Total Stock Market Index, but left SP500 intact.
Nothing wrong with SpaceX or Anthropic getting into indexes with fair rules, this rule change is pure creed+corruption.
I mean these rule changes have been a long time coming. SpaceX was just the straw that broke the camels back here. These major index's want to stay relevant and cutting out some of the biggest companies in the market just opens the way for a "true" NASDAQ 100 that is actually market cap weighted rather then some arbitrary rules cutting somethings out.
Musk is highly unpopular, and some conspiracy theorists linked financial arcanity to him in a way that sounds compelling and hidden. If you push back on the corruption claim, you’re in Musk’s pocket. The same folks who became armchair bank experts in 2023 now confidently make statements that middle 401(k)s and pensions, or the NASDAQ 100 (for whom this has probably been the most brilliant marketing move in their history, nobody talked about that index before) and the S&P 500.
At the end of the day, some RIAs in the Bay Area made bank on folks churning their retirement accounts. Some influencers got clicks. Otherwise, this is a nothing burger.
Ok, now we are getting somewhere. There is no guarantee that they will be a big part of the stock market. It is not "absolutely" sure, for them or for any new public stock. That's why the indices have/had the the rules they (used) to have, to wait and see if a newly IPOed stock actually becomes a big part of the market before it becomes part of the index.
Why did they change the rules for these companies? That's what people want an explanation for. That's what is fishy about all this. I'm not asking you to explain something that seems normal. I'm asking you to explain something that doesn't make sense
Because the fundamental purpose of an index is to track the stock market. The S&P 500 benchmark was created in 1957 to benchmark the US stock market, decades before the first investment funds that copy it (by Vanguard, in 1976).
The primary purpose of an index is to track the market. If an index excludes a significant part of the market it claims to track, then the index no longer accurately reflects the market, and fails at achieving its purpose.
The S&P 500 tracks the 500 largest large-cap US stocks. All three of the major upcoming IPOs (SpaceX, OpenAI, and Anthropic) are large-cap US stocks. Together these companies comprise ~5% of the total US stock market.
In previous decades, this was not an issue, since companies IPOed much earlier when valued at <0.1% of the market. It was fine to exclude these companies from the index for some time, since they were an insignificant part of the market.
Today we have companies raising enormous amounts of private equity, and going public as significant members of the market. All of (SpaceX, Anthropic, OpenAI) are within the top 20 largest companies in the US.
This is why many are arguing for fast-track inclusion, so the index can add these companies quickly, and retain its ability to accurately track the market.
> This is why many are arguing for fast-track inclusion...
History will be the judge.
But using nothing more than Occum's Razor and recent corporate history as a guide the reason that "...many are arguing for fast-track inclusion" is that they are crooked.
> There is no guarantee that they will be a big part of the stock market. It is not "absolutely" sure, for them or for any new public stock
It's really hard to believe that you'd be writing this in good faith.
In reality, even without being publicly listed(!), these companies have already managed to become an absolutely massive part of the market. After the IPO? Hah.
Yes. There are probably a dozen or more across the SP500 and Russel 2000 that will 10-100x in the next 5-10 years. The trick is to be able to identify them!
Fun fact, both Enron and Lehman Brothers were in the S&P 500 when they went bankrupt. So yes, the whole market or even the market of the largest companies, includes some that may not be great companies. The beauty of the index is you don't have to know or care, since it'll take care of itself over time.
>The beauty of the index is you don't have to know or care, since it'll take care of itself over time
As long as there are active investors in the market conducting price discovery. Which there always will be, just pointing out that someone has to care, even if you don’t
Depends on what you consider passive, I think index funds specifically are only 20% but if you add other low cost ETFs it’s probably about half the market. I don’t think there’s any way to know for sure at what point passive funds become distortionary, but it should be self correcting to some degree. If active funds are able to provide a substantially better return than passive funds, even with management fees, people will migrate back to them.
At least until it doesn't. If this spacex venture succeeds because it got propped up by index funds, then that's a decent indicator that more will follow.
It stands to reason that active investing will be more valuable as a result
Laying the blame for the transparent financial manipulation we are observing at the feet of regular people (who are putting their savings into their pension funds, a system that we incentivize because of its pro social outcomes) and saying they should just opt out because they should know better, is at best callous, most people should not have to think about that issue at all.
Also, there’s a long history of companies that people yell about being overvalued being the drivers of index returns, because one of the major drivers is growth rate, whereas retail investors tend to look mostly at current state.
SpaceX's S-1 says they're going to make more than $320bn by 2030 at a 74% expected profit margin. That implies they're going to succeed at selling high-value AI services, not compute, which is a competive business with typical profit margins at or below 30%.
As an ignoramus to these things.... there are only just so many Googles though. Having made a significant jump, are they really expected to continue that growth?
The bet is that demand for AI tokens will continue to grow exponentially. And that SpaceX will be able to deploy and rent out GPUs to serve those tokens faster than anyone else.
The wrinkle is that they are planning to deploy those GPUs in space. That’s what people are most skeptical about, I think!
Space data centers need years of time to design, build, and deploy, 5-10 at least, and that's after they solve their multiple very difficult or impossible problems. How will they cool them? There are just simple ideas like giant structures to radiate the heat away, but you say you need to put lots of mass in orbit?
Well yes it will be hard, and hence maybe not economical, and that’s why many people are skeptical of the business case (myself included btw).
But satellite cooling already exists (Starlink v2 satellites dissipate heat at over a kilowatt I believe), so that’s why other people find it plausible.
They also need Starship at minimum, which is now a 10+ year old project still exploding regularly.
Starship is at minimum a 2030 project at this point.
And even producing the volume of chips needed for the type of growth space data centers would need to have to justify this would be another decade if construction started now on those fabs.
I don't see how: Starship is a very long running project at this point, and progress has been incremental. Productionizing the basic logistics systems like turning around re-usable launch vehicle took years for Falcon 9, and Starship's haven't even done that yet.
By the end of the year if it's not landing intact yet, now you're 2027.
I'd say 2030 is optimistic (the 2028 moon landing with Artemis straight up isn't going to happen IMO).
Cooling in space does not seem like a hard problem to me. You absorb a certain amount of energy in a given time in the form of solar energy, you should be able to emit that. On top of that, in LEO you are only in solar orbit roughly 50% of the time
It is in fact very hard, and LEO is not "solar orbit". You want your datacenters in sunlight 100% of the time, to not need heavy batteries, which is possible, but cooling is in fact very hard
SpaceX already has 10,000 satellites on orbit that are basically preview versions of space data centers. They've already paid 5 years of that 5-10 year timeline you outlined.
the math doesn't work. a starlink satellite has ~10kw power consumption. A single ai optimized server rack (GB300) is 140kw. Starlink works because you get a massive benefit from putting networking in space for rural users. no one has made a convincing case as to why putting a data center in space is a benefit that can come anywhere near the drawbacks (inability to service, launch cost, cooling etc)
Even permitting isn't a clear win. You are changing from land permitting (where you can pick the location to be wherever you want) to launch permitting (where you have to coordinate with the federal government for airspace and water closures). Not to mention that with the current regulatory status, a rocket explosion can easily lead to a multi-month mandatory safety review that blocks all new launches.
> changing from land permitting (where you can pick the location to be wherever you want) to launch permitting (where you have to coordinate with the federal government for airspace and water closures)
One of these is orders of magnitudes longer and more complicated than the other. Land permitting always involves multiple layers of government. And most of them are causing months- to yearslong delays. (Power hook-up is another source of delay.) Launch permits are predictably issued by, essentially, a single regulator.
> a rocket explosion can easily lead to a multi-month mandatory safety review that blocks all new launches
Which is equivalent to a regular permiting delay.
The tradeoff is between the cost to launch radiator mass and the delays local and state governments cause in permiting. The first is mediated through launch costs. The latter through interest rates. And right now, the former is going down and the latter going up.
Plenty of world to jurisdiction shop beyond the US, most of which also has cheap land and plenty of sun, and for better and worse much of that world is less regulated than launch (and FCC spectrum licensing if you want your data back) and easier to skip the queue with comparatively small amounts of money. Hell, if you like your unit economics to be dependent on solving physics problems most of the earth's surface doesn't need permits at all...
Google and friends continue to see increased demand for their wares. The bet is probably that SpaceX is one of the best-placed companies to deliver incremental compute. They've shown they can build data centers fast.
A cynic might wonder given Musk's implausible trajectory and questionable associations whether the X project is primarily a grift and/or money laundering project that happens to do high-profile tech, and the primary aim is to pump the stock and hope some other opportunity to pump it further arrives in the future.
Otherwise a dump works too. There's plenty of money to be made from carefully timed shorting.
The entire AI field has been plagued by circular financing deals, so this is not new. But it's new in aerospace, and the market institutions appear complicit.
Otherwise, why is this IPO getting such unique treatment on such flimsy fundamentals?
But the SPCX float is a small fraction of its overall shares. So it will end up being around 0.08% to 0.12% of the weight of the SP500 [1]. Nothing to write home about.
Personally, I do think SpaceX is overvalued at these proposed IPO numbers and I will trade accordingly. So should anyone else who is confident and competent at taking appropriate market positions.
Technically I think this would be fairly straightforward. You could keep the index fund and then short the stock you believe is overvalued, to the degree it's weighted in the index fund. That would give you stock market exposure equivalent to the index without the company you don't believe in.
But I would strongly advise you to NOT DO THIS.
The above position makes it explicit that your thesis involves shorting a stock that could go through the roof in value. That emphasizes what a risk you're taking with your thesis. If your typical investment approach is to just buy index funds, then carry on just buying index funds and let the market do its work.
By the way, if SpaceX, Anthropic, OpenAI etc were to be excluded from the indices, then professional investors would just start a trade the inverse of the one I outlined above - i.e. they'd start shorting your index fund to the extent it was underweight in those companies, in order to profit off the exclusion of those tickers from it.
If you're in this for the long term (which I assume you are given this is your 401k), don't try to second-guess the market short-term.
£10,000 per year for Mr Darcy is 10,000 gold sovereigns per year. A gold sovereign at spot price today is about $1,100. So that’s over 10 million dollars per year in gold-equivalent wealth. Plenty to maintain his estate with.
Alternatively, £10,000 is 200,000 sterling silver shillings per year (20 shillings per pound) for him. A sterling shilling today is about $13.50 at spot price. So that’s $2.7million per year in silver-equivalent wealth. Still plenty!
Data centers in space may or may not make sense (personally I'm quite skeptical) but the objections in the article certainly don't make sense.
1. The only reason there are 15,000 satellites in space is because SpaceX launched about 9,500 of them (Starlink is 65% of all satellites) on their semi-reusable Falcon 9. If fully-reusable Starship pans out, they will be launching satellites at 10x the rate of Falcon 9 at the very least.
2. You don't need to upgrade the satellites, you just launch new ones. The reason data center companies upgrade their servers is because they can't just build a new data center to hold the new chips. But satellites in space are a sunk cost, so just keep using the existing satellites while also launching new ones.
3. Falling solar panel costs decreases the power costs for both earth-based and space-based, but they're more efficient in space so the benefit would be proportionally greater there.
As I said, I'm skeptical too, but let's be skeptical for good reasons.
A few additional items to rebut the lack of info in this Article:
- SpaceX just requested a license to launch up to a million satellites.
- the satellites already have some incredible anti collision software, which I believe Elon has now open sourced.
- the cost to launch 1 kg to space has dropped by a factor of 10 in the past few years and is currently less than $1000. It's perfectly reasonable to estimate that over the next 10 years the cost could drop by another factor of 10, if not more, particularly if the heavy rockets are reusable.
3. The falling costs won’t benefit space as much. The cost of sending mass to space will still be a big factor in the space solar panel costs. Much of the reason why solar is getting cheaper is not the panels themselves, but due to innovations that reduce installation costs. Those don’t apply to space (outside of the already assumed reductions in sending mass to space to make this viable)
Yes, launch cost is the crux of the matter. My skepticism is based on whether they’ll be able to get launch cost low enough and launch cadence high enough. SpaceX has shown the ability to get launch costs dramatically lower and cadence dramatically higher, but it’s not a slam dunk that those curves will continue to the levels needed for this idea to work.
2) it is extremely common to add storage to existing servers. Only slightly less; RAM, CPUs etc. not to mention how often it is cost-effective to replace broken components.
Your explanation of finding a surface to separate good reasoning traces from bad reasoning traces in a high dimensional space worked as a great framing of the problem. It seems though that the surface will be fractal - the distance between a good trace and a bad trace could be arbitrarily small. If so then the work required to find and compute better and better surfaces will grow arbitrarily large. I wonder if there is a rigorous way to determine if the surface is fractal or not.
Darkness is the absence of light. In this usage light would represent a moral agent, and so darkness is its absence - either no morality or no agency or both.
My wife is pregnant and, because the nearest maternity unit is 1hr45mins drive away, we're going to rent a place near it around the due date. This just gave me a confidence boost about what dates to be there. Thank you!
If you want to start picking and choosing which companies are overvalued and which are undervalued, don’t invest in whole market funds. But most people are not good at that!