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by trhway 16 days ago
>Forcing it into our retirement funds, 401ks and IRAs.

Not just forcing it into. Forcing the funds to fight for it betting the stock rice higher and higher in a runaway style - the effect created by limited float and high valuation as the funds tracking indexes would try to get the amount reflecting the proportion of the valuation of the company vs. the whole tracked index valuation, and with such huge valuation the limited float leads to the price rise (similar to the short squeeze) and the higher the price on the float the higher the valuation, rinse and repeat...
2 comments
quickthrowman 16 days ago
Some index funds are not obligated to perfectly replicate the index by buying shares, FXAIX (Fidelity S&P 500 mutual fund) has the option to use futures, swaps, options, and statistical sampling in addition to buying equity shares to try and replicate the returns of the index.
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a3c9 16 days ago
That's exactly what happened with Nortel in the dotcom crash. Everyone's pension and retirement tied up in a company that couldn't turn a profit and was, at its peak, 38% of the TSE300.

I don't think dominating an index to anywhere close to that degree is likely here, but I wouldn't be surprised to see some similar strategies being used. Changing the rules is already from the Nortel playbook: The Nortel Rule allowed index funds to have over 10% of their holdings in a single stock.

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