[tankenmate]

"Because the index needs accuracy.", and I would argue that include price accuracy not just inclusion accuracy. The S&P is a benchmark that is designed to reflect a subset of the market, and giving only some companies early access to the benchmark changes the benchmark. So if you want a benchmark that's designed to include all the big stocks regardless of age, profitability, etc then go make a new benchmark. The only thing you need to do is convince others to use your benchmark.

[tristanj]

"go make a new benchmark" completely ignores how this works in practice. Benchmarks are only useful because everyone uses the same one, you can't swap it out. The S&P 500 benchmark is used as a comparison for trillions of dollars of mutual funds, index funds, and institutional mandates. The further the S&P 500 strays from reflecting the actual market, the more useless it becomes.

Also the S&P criteria have been revised multiple times, it's not some sacred unchangeable document.

[dlenski]

> The further the S&P 500 strays from reflecting the actual market, the more useless it becomes.

Here I once again agree with you in part, and disagree in part.

The S&P 500 should reflect the actual market. That is, the actual market of publicly-traded companies with legal requirements for transparent accounting and reasonable expectations of future positive cash flows.

As you wrote yourself (https://news.ycombinator.com/item?id=48408363), "These [mega-cap IPO] companies will likely never meet S&P profitability inclusion criteria for the next 5 years."

At this point in time, I don't think it's reasonable to expect future positive cash flows from SpaceX or Anthropic. There are indeed some reasons to suspect that there won't be future positive cash flows from them.

[ywvcbk]

You want to turn S&P 500 to a total market index. Why? That was never its purpose.

[tristanj]

No? Where did I say that?

The purpose of the S&P 500 is to be the "best single gauge of U.S. large-cap equities". That's direct from their website. I never dispute this.

I dispute the fact they claim to be the best benchmark of large-cap U.S. equities, yet have rules that (currently) exclude large-cap equities like SpaceX, OpenAI, or Anthropic.

[tankenmate]

Sure, but then it comes down to your opinion vs the S&P board's opinion. I suspect (given that there's only been a few days of this getting into the public eye) that more people support the S&P's position vs their critics. But the trade flows will show if people get out of SPX (or SPY/VOO) in the coming days.

[tristanj]

My issue is that so many people have forgotten the purpose of the S&P 500 index (i.e. it's a benchmark to reflect the large-cap U.S. equity market), and instead treat it as a list of approved companies they should blindly invest their 401ks into. These people do not want to invest their retirement funds into the upcoming IPOs of the overpriced & unprofitable (SpaceX, Anthropic, OpenAI), and then are arguing the benchmark index should not include these companies.

But at a fundamental level, the S&P500 index exists to track the market. It was created decades before passive investing even existed. These companies are all large enough to qualify as major members of the index. If S&P started arbitrarily excluding parts of the market they find uninvestable, then that's compromising the integrity of the index, and defeats the purpose of the index entirely.

Reading this thread, there is so much confusion happening.

[notahacker]

> If S&P started arbitrarily excluding parts of the market they find uninvestable, then that's compromising the integrity of the index, and defeats the purpose of the index entirely.

But they haven't started arbitrarily excluding parts of the market they find investable: on the contrary you are demanding they start arbitrarily change a long established and pretty basic rule to arbitrarily include pre-profit companies. Criteria on non market cap factors including positive earnings and liquidity are defined explicitly on their website along with the subjective "best gauge", which is entirely compatible with the idea it's a better gauge of large market cap company performance if it only includes companies whose market cap is supported by having given the bare minimum indication their business model can be financially sustained, not the ventures whose potential is most hyped[1]

[1]which obviously applies to OpenAI and Anthropic to a greater extent than SpaceX which actually achieved positive earnings as a private company before it pivoted to a model which bankrolls other Elon ventures and ambitions and needed to IPO as a result.

[ywvcbk]

> But at a fundamental level, the S&P500 index exists to track the market

No, it exists to track a subset of the market based on specific criteria and weights. It's not even based on the market cap of included companies directly.

'S&P Total Market Index' exists to track the market.

> qualify as major members of the index

Not based on the inclusion criteria.

AND even if that were changed they wouldn't be near the top anyway, despite the trillion dollar valuations initially they wouldn't even be in the top 20 by weight.

> and defeats the purpose of the index entirely.

The index has operated based on specific rules defining inclusion criteria for a while. Can we just conclude that it did not become the most popular index despite never being designed to track the full market or be based directly on total market caps.

After all it's the people advocating the inclusion of these companies are advocating an arbitrary modification to the rules just to get them in.

[anonymars]

> Where did I say [I want to turn S&P 500 to a total market index]?

Right here:

> Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now.

If it's not a total US market index, then why is the index wrong to not include it?

Edit: and then again here:

> But at a fundamental level, the S&P500 index exists to track the market.