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.
> Just buy everything you can on day1 and go along for the ride?
What does adding demand to something with a very limited supply do to the price? You won't be subverting anyone's plan here - you're just hoping for a greater fool[1] will buy from you later, if you buy at inflated prices on day 1.
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
I have stopped doing index investing and have switched to actively managing my portfolio, so I haven't spent much time looking into it. I have seen a few posts on reddit (r/bogleheads in particular) and it looks like there are some names getting thrown out over there, as well as discussion about particular ETF's rules regarding these types of changes.
My recommendation is do not take investing advise from any post on HN. They are notoriously bad about understanding capital markets. There are a few good posters here but they are boring [factual] with 0 replies.
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)
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
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?)
Successful professor with a very theoretical (as opposed to empirical) research trajectory here: this feels extremely accurate to me.
I see this with students all the time: they're so afraid of making mistakes that they refuse to write anything.
I often say "I think in print." If I believe something is true and I can defend it, I publish it. If it turns out to be wrong, fine, I'll correct it in the next paper and the conversation has moved forward. Nobody is going to think I'm an idiot for being wrong.
This, however, might work better the more senior one is. There may be a failure mode, at least in academia, where you start publishing mistakes and lose all credibility. But then again, I know a lot of people who have published a lot of mistakes starting young and who seem to still be doing fine, so... perhaps not!
I love this. I use various text editors mostly used by devs (moving back and forth between emacs and sublime on mac and textastic on ipad) for serious longform writing all the time, usually using markdown +
pandoc, and it has a bunch of advantages and disadvantages.
IME the main advantages are (1) not having to fight with useless Microsoft word (and similar) behavior, bloat, bugs, etc. and (2) being able to mix in a spot of code as needed, for example compiling different sections together, doing a bit of text replacement and templating etc.
The main disadvantage is that the tooling isn't really there. I've done a stupid amount of yak shaving trying to get things like footnote folding in emacs, word count, etc., the spell checking is waaay behind, outline formats don't really work right (though they also don't really work right in word etc.)
So three cheers for anyone working on making the tooling problem better!!
> Seniority here also unfortunately often correlates with age. The best startup employee will usually be someone early in their career who doesn’t have as many responsibilities or as much need for consistency due to having more dependents. They may have fewer immediate cash flow constraints, fewer “adult responsibilities.” Kids need braces and karate classes, and if Mom is doing 996 at a ten-person company paying her peanuts, offering a crappy health care plan, promising an epic payout ten years from now, that’s a real mismatch. Startups are an extreme sport, and generally inadvisable for anybody who’s not in a safe position to speculate on their career for several years.
Oooof. Following this paragraph is a recipe for age and family status discrimination lawsuits. (A number of states prohibit both, and federal law prohibits the former above 40). Quite possibly sex discrimination lawsuits as well if a court quite plausibly concludes that someone who makes decisions this way will also be averse from hiring women of childbearing age or life stage.
Also, anecdotally false. The highest performers were often late 30s-55 yo at both startups I've worked (acquired and 'unicorn'). The young had tons of energy, but their output didn't meet any engineering rigor for working in a hardware startup. Maybe the mobile/web guys have a different story. But here in hardware, firmware, electrical engineering "The Best" had families, children, dogs, homes, heli-ski'd, bicycled from Mill Valley to SF, and were absolutely surgical with their work.
These people were exceptional and I would easily call them The Best any day.
the author almost realizes that hiring cheap talent is like looking for a stock to invest in ... the trick is to identify undervaluation. then he shortstops and overvalues the usual metrics like low age just as everybody else. some people miss the forest for the trees.
More charitably, someone who is older and exceptional has probably had a chance to find equilibrium with the market, i.e. they know exactly how much they are worth and as a little startup you're less likely to end up landing them.
It's also completely incorrect. The average age of startup founders is 45, many of the best engineers in the market right now are older Millennials and GenX because they grew up in a time when you could still gain legible access to every aspect of computing in a home setting with PCs, which gave them an exceptional fundamentals basis which allows them to have a broader scope than specialists.
As someone who spent almost my entire career, until fairly recently, in startups, I would not consider age in any way a determining factor /especially/ for early hires. You need "adults in the room", because they will help to establish the bar for the remainder of the team as you grow, act as technical leads, and have a very broad scope of responsibility. The more experienced and capable they are, the better the quality of your future hires and the less technical debt you incur in the process of getting to product-market fit and growing to profitability/critical mass.
You should not (legally) have an age bias at all, but if you were going to apply one, the reverse bias is more rational.
The paragraph was supposed to be descriptive of what one sees in the field, not prescriptive of what managers should do. I can see that it doesn't obviously read that way. Will edit, thank you for the feedback.
Woah, the thing that leapt out at me, as a professor, is that they somehow got an exemption from the UMN institutional review board. Uh, how?? It's clearly human subjects research under the conventional federal definition[1] and obviously posed a meaningful risk of harm, in addition to being conducted deceptively. Someone has to have massively been asleep at the wheel at that IRB.
I've also had to deal with the IRB a lot as a professor. The retroactive application is extremely weird (although maybe better than nothing?).
This seems like one of those situations that would usually require regular review to err on the side of caution if nothing else. It's worth pointing out there are exceptions though:
Generally those exceptions fall into "publicly observable behavior", which I guess I could see this falling into?
It's ethically unjustified how the whole thing actually happened but I guess I can see an IRB coming to an exemption decision. I would probably disagree with that decision but I could see how it would happen.
In some weird legalistic sense I can also see an IRB exempting it because the study already happened and they couldn't do anything about it. It's such a weird thing to do and IRBs do weird things sometimes.
>I've also had to deal with the IRB a lot as a professor. The retroactive application is extremely weird (although maybe better than nothing?).
I mean I feel like the IRB is mostly dealing with medical stuff. "I want to electrocute these students every week to see if it cures asthma". "No that's too much.. every other week at most". "Great I'll charge up the electrodes"
So if a security researcher rolls in after the fact and says "umm yea so this has to do with nerd stuff, computers and kernels, no humans, and I just want it all to be super secure and nobody gets hacked, sound good" "ok sure we don't care if no people are involved and don't really understand that nerd stuff, but hackers bad and you're fighting hackers"
The whole story is a good example of why there are IRBs in the first place --- in any story not about this Linux kernel fiasco people generally cast them as the bad guys.
> That person died in a car accident and they were wearing a seatbelt! But in any story not about this car accident people generally cast them as the useless.
This story isn't evidence that IRBs are always useless, but also it's not an example of them being useful. The thing this story shows is they are sometimes useless.
That seems like a bad faith reinterpretation of the context that the question was being asked in. The statement that the question pertained to was, "in any story not about this Linux kernel fiasco people generally cast them as the bad guys."
If a lot of money is involved, it's only a matter of time before all oversight is corrupt. Similarly, you can safely assume all data that is on an important (big money) topic is fake.
I think they should have gotten permission from IRB ahead of time, but this doesn't sound like they were researching human subjects? They were studying the community behind the Linux kernel, and specifically the process for gatekeeping bad changes from making it to the kernel; they weren't experimenting on specific community members. Would you consider it human experimentation if I was running an experiment to see if I could get crappy products listed on Amazon, for example?
> they weren't experimenting on specific community members.
Yes, they were. What kind of argument is this? If you submit a PR to the kernel you are explicitly engaging with the maintainer(s) of that part of the kernel. That's usually not more than half a dozen people. Seems pretty specific to me.
>I think they should have gotten permission from IRB ahead of time, but this doesn't sound like they were researching human subjects?
I assure you that it falls under IRB's purview -- I came into the thread intending to make grandparent's comment. When using deception in a human subjects experiment, there is an additional level of rigor -- you usually need to debrief the participant about said deception, not wait for them to read about it in the press.
(And if a human is reviewing these patches, then yes, it is human subjects research.)
> Would you consider it human experimentation if I was running an experiment to see if I could get crappy products listed on Amazon, for example?
Yes, if in the course of that experimentation, you also shipped potentially harmful products to buyers of those products "to see if Amazon actually let me".
> Woah, the thing that leapt out at me, as a professor, is that they somehow got an exemption from the UMN institutional review board. .... in addition to being conducted deceptively
There are cases where deception (as they call it) can be approved (even by ethics boards). Based on the Verge's article, this research setup should not have been approved even by then. But the topic itself seems as relevant as ever with the xz case and all.
Right, that's something to discuss at the IRB review. But they didn't even do an IRB review before conducting the experiment. After the outcry, they went back to the IRB and said "was this OK?"
Maybe you're over-estimating how much universities actually care about ethics and IRB.
I reported my advisor to university admin for gross safety violations, attempting to collect data on human subjects without any IRB oversight at all, falsifying data, and falsifying financial records. He brought his undergrad class into the lab one day and said we should collect data on them, (low hanging fruit!) with machinery that had just started working a few days prior, we hadn't even begun developing basic safety features for it, we hadn't even discussed design of experiments or requesting IRB approval for experiments. We (grad students) cornered the professor as a group and told him that was wildly unacceptable, and he tried it multiple more times before we reported him to university admin. Admin ignored it completely. In the next year, we also reported him for falsifying data in journal papers and falsifying financial records related to research grants. And, oh yeah, assigning Chinese nationals to work on DoD-funded work that explicitly required US citizens and lying to the DoD about it. University completely ignored that too. And then he got tenure. I was in a Top-10-US grad program. So in my experience, as long as the endowment is growing, university admin doesn't care about much else.
We might also acknowledge that a pretty significant share of people do know that already and just shrug their shoulders to it, convinced that it's better to allow for that than do anything about it.
There's been a lot of work put into distilling "free market" into its most radical interpretation, and lots of people just aren't open to bringing much nuance or pragmatism to bear upon it any more. Many lessons learned painfully in late 19th and early 20th century have been forgotten and the counterweight and containment policies that they earned now tend to get ignored or dismantled.
And somehow instead of trying to make it better, there are never ending attempts to make it even worse somehow ( if some of the patents are to believed ). I honestly sometimes wonder if some of the stuff is not in place already only because public reaction if all those were plopped in place in one go.
Well, why don't the ethical non-predators open up shops in economically disadvantaged areas and offer non-predatory prices? The margins must be huge if they really are predators.
Good question, was on my mind too. The problem I could see is Walmart style - the predator will beat the prices of the non-predator down until the non-predator goes out of business, then raise their prices again.
They can do this because they are operating in other areas with predatory prices, giving them the ability to operate at a loss, and relying on the fact that at least some of those areas are not being challenged by non-predators.
Everybody seems to be playing the game right in this scenario. Interesting to try to come up with a good counter.
Does this actually happen? If a community opened up a co-op shop that started eating into the revenue of a dollar store, would the dollar store company try to fight back, or would they just exit that market?
Yes, I guess well capitalize companies could offer unrealistically low prices, but on the other hand, any kind of co-op or community driven organization has the benefit of not needing the margins. Dollar store investors are there to make a buck, if their capital isn't getting reasonable returns will ultimately exit the business and move somewhere else.
Cooperatives do not get rid of the net negative cycle. Ultimately whatever the benevolent entity ends up being, it becomes a contest of who can bear to lose more money.
Cooperatives distribute the losses but it is still a money pit.
Isn't it just the predators that care about stock price to enrich themselves? Couldn't a co-op exist which offered non-predatory pricing and didn't try to maximize their stock price constantly? And real estate in destitute rural areas is generally dirt cheap.
Of course this could be offered. But, no one wants to do it because it's a thankless job. And if you're going to do a thankless job, you'd probably rather get paid a lot of money to do it than very little
You're ducking the argument. The loot from predatory practices is quickly absorbed not just by the single player perpetuating them, but by their complements in the economic network -- complements which a competitor would have to deal with on the loot-enriched terms, which turn launders exploitation into a "necessity" and transforms any charity into a weakness that will ensure your replacement. That's what Nash Equilibrium is, and it's an elementary result of game theory that Nash Equilibrium can lie very far from the global optimum. Even the global minimum can be a Nash Equilibrium. We should aspire to do better.
It really wasn't this bad in the past on a whole. There were plenty of bad actors, but EVERY actor wasn't bad.
Just look at food recipes American corporations feed to Americans, and their different recipes for Europe that look more like the American recipes circa the 1990s. Everything in America is optimised to the max permissible bad action.
Yeah. Why do I have to pay a plumber to install gas appliances? It's just a protectionist racket.
Point is, it's easy to screech "predation" or whatever but the problem is that every one of these things has some justification that can be used in the abstract.
It does legitimately cost more to run a store like Dollar General than Walmart so the same can of beans has to cost more on their shelf for the same margin.
How much more, how much is justified? I don't know.
I know we're all idiots here because that's what easy tech money does to people but retail margins are razor thin. You can't just make thoughtless trite statements about what they "should" do because a few percent here and there is the difference between red and black and red means prices go up. I'm sure they're happy to not invest in accuracy when it makes them money but there's a pretty wide gulf between being sloppy because it suits you and actively making a business out of deceit.
As another commenter in this thread pointed out, pricing is the bare minimum for retail. We’re not talking about general sloppiness, we’re talking about misleading consumers on the basics of their transactions.
Yes, lots of businesses have thin margins. But the law (such as contract law and the laws against consumer fraud, which are implicated here) sets the things that a business can’t economize on in order to meet those margins. It’s the same as food safety: restaurants also run really thin margins, but they’re not allowed to store the meat on the counter because refrigeration is too expensive. If they do that, they get shut down by the health inspector.
Businesses “should” comply with consumer fraud laws for the same reason they “should” comply with health codes.
Interesting—-just a couple of days ago, I actually figured out my new favorite prompt, which was “find me reviews for X by established publications as opposed to SEO-driven content farms”—-seems to work reasonably well to cut out the first several pages of google results for reviews of any product
I have to shamelessly show off my personal webpage, which is designed to be a rough emulation of how I remember palm OS looking back in the day, at least when you load it on a phone. https://gowder.io --- took me way too long to hack together the CSS for this in like 2017 :-)
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