Except for the fact that these companies would make up a tiny fraction of the index funds. If Anthropic comes in at 1T, they’d constitute 0.6% of the S&P. If it goes all the way to 3T (~1.8% of S&P), and then has a colossal valuation collapse to, say, 200B (ie, more than 90% loss), then that’s a grand total wipeout of a massive…1.6% of the S&P.
Even for tracking funds it’s that same fraction of a fraction. The idea that an index fund would suffer a wipeout from a constituent company collapsing just goes to show a lack of understanding of the mechanism.
Besides which, of course, on that 1>3>0.2 ride, retail investors would be a lot less constrained than a VC with a lockup…If the collapse really comes, those VCs be the ones far more affected, being in for the -93.3% while index fund investors get hit with -1.6%. If it doesn’t collapse and VCs get out of it, well, doesn’t collapse, so? If it takes long enough such that VCs can get their investments out, and then it still collapses, then why were public institutions or retail invesors not reacting at all?
This is the index fund version of that same “the rich use their assets to collateralize debt and avoid paying taxes” silliness.
Oh, I definitely know the concentration and intrinsic problems there. But he’s fundamentally talking about VC backed AI companies and their use of indices to “manipulate” the market, of which NVidia is not.
There are 100% problems worth discussing with the current Mag7 setup and excitement about AI but the specific context of this joke is a genuine misunderstanding that gets both index funds and VC exits wrong.
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u/Dull_Construction553 3h ago edited 3h ago
Except for the fact that these companies would make up a tiny fraction of the index funds. If Anthropic comes in at 1T, they’d constitute 0.6% of the S&P. If it goes all the way to 3T (~1.8% of S&P), and then has a colossal valuation collapse to, say, 200B (ie, more than 90% loss), then that’s a grand total wipeout of a massive…1.6% of the S&P.
Even for tracking funds it’s that same fraction of a fraction. The idea that an index fund would suffer a wipeout from a constituent company collapsing just goes to show a lack of understanding of the mechanism.
Besides which, of course, on that 1>3>0.2 ride, retail investors would be a lot less constrained than a VC with a lockup…If the collapse really comes, those VCs be the ones far more affected, being in for the -93.3% while index fund investors get hit with -1.6%. If it doesn’t collapse and VCs get out of it, well, doesn’t collapse, so? If it takes long enough such that VCs can get their investments out, and then it still collapses, then why were public institutions or retail invesors not reacting at all?
This is the index fund version of that same “the rich use their assets to collateralize debt and avoid paying taxes” silliness.