There’s been some really good journalism digging into these index rule changes on the eve of the SpaceX IPO. The most nefarious explanation looks bad. SpaceX gobbled up xAI and X, and the Frankenstein mega company is hemorrhaging money. The investors who poured billions into xAI and the Twitter acquisition want out, and see index funds as sitting ducks who will be forced to buy in at market prices. There’s just one problem. Those pesky index rules generally prevent this kind of thing, with seasoning (period of time before inclusion), minimum float (companies have to sell a significant portion of their shares), and profitability rules.

Nasdaq specifically has a strange role here, as they operate as both a stock market AND an index provider. As an analogy, think of Nasdaq as a grocery store where buyers can come in and pick whatever items they want. But right out the grocery store are middlemen who sell ready to go baskets of groceries without having to walk through the aisles. (These are the fund providers). Nasdaq ALSO wanted a piece as a middle man, so they have their own basket outside of the store (QQQ). But SpaceX came along and said, “Hey, I’m willing to have my stock sold exclusively in your store but I really want it to be in your basket outside the store too” That creates a conflict of interest between Nasdaq who wants to carry SpaceX and those passive investors who are trusting Nasdaq to provide an ethically crafted basket of stocks.

Draw your own conclusions, but for me, this isn’t something I’m worried about. I’m focused on buying more shares of broad market index funds. An attempt to speculate that the newly listed SpaceX stock will go down and adeptly step around it is much more likely cost me time and money than somehow result in outperformance. The big money is in the holding for long periods of time, not the fancy trading strategies.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy