Ben Felix

SpaceX and OpenAI: The Mega IPO Grift

The video examines the looming public listings of private giants such as SpaceX, OpenAI and Anthropic, and how their potential inclusion in major stock‑market indices could compel index funds to purchase their shares regardless of price. Ben Felix explains that fast‑track entry rules allow some IPOs to join total‑market indices within days, creating a brief price boost that quickly evaporates. Low‑float offerings—where less than 5% of equity is publicly tradable—further limit weighting, yet index providers are tweaking rules to accommodate these mega‑IPOs, effectively creating a “shadow tax” on index investors. He backs his argument with Bloomberg and Financial Times reports, a 1995 “new‑issues puzzle” paper showing IPOs earn only 5% versus 12% for established firms, a 2019 Dimensional Fund Advisors study finding a 2% annual underperformance, and Professor Jay Ritter’s data that 10 of 11 low‑float IPOs since 1980 lagged the market by roughly 50% over three years. The implication is clear: index‑fund investors may see a persistent drag—estimated at 0.5‑0.7% per year—from forced IPO exposure and rebalancing at peak prices. Investors might prefer funds that delay IPO holdings or tilt away from the junk‑like characteristics of new issues, rather than relying on traditional market‑cap‑weighted index products.