Index funds buy companies, for the most part, according to their market capitalisation.

They own more of bigger companies than small.

There's the option of "equal weight" or other strategies but the overwhelming majority is market cap weighted.

Index funds are also really, really big now and contain a lot of money earmarked for retirement/pensions.

In theory if you had a temporarily very frothy market into which you could sell a part of your unprofitable company to some people at a very high valuation, index funds would then mechanically move in and need to purchase and add significant support for insiders to sell into.

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karmakurtisaani 5 hours ago | parent | next [-]

In this case, Elon has moved the wildly unprofitable XAI into SpaceX. SpaceX will IPO with a trillion dollar valuation, while only releasing a small number of shares for public trading.

Due to the high valuation, index funds are required to buy SpaceX stock, which Elon will presumably slowly sell them in order not to crash the stock. The funds will be left holding the stock, while eventually the price will crash, because the company will simply not make enough money to justify the valuation.

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andsoitis 5 hours ago | parent [-]

> Elon will presumably slowly sell them in order not to crash the stock. The funds will be left holding the stock, while eventually the price will crash, because the company will simply not make enough money to justify the valuation.

Musk owns about 50% of SpaceX. You are saying he is planning to sell the vast majority of that holding at a gradual pace that will not be noticed by anyone but fast enough to get a high price?

	▲	karmakurtisaani 2 hours ago \| parent [-]
		I'm sure there are multiple ways to profit from the situation. Even having just a small fraction of the shares publicly traded, while the index funds keep the price high is a huge win for him, as his net worth will be extreme on paper.

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andsoitis 5 hours ago | parent | prev [-]

Ok, but how does this "hold the bag for the oligarchs"? And which specific oligarchs do you have in mind when you say this? Are you thinking of Sam Altman and Dario Amodei and Elon Musk?

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karmakurtisaani 2 hours ago | parent | next [-]

Index funds will prop up the valuations of these companies, while they return nothing but value on paper. The owners on the other hand can use the valuation as collateral to loans, which then generates cash for them. Musk and Altman would be the most visible benefactors of this scheme, yes.

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lpcvoid 5 hours ago | parent | prev [-]

All of the mentioned will dump their overhyped and overvalued trash onto retail investors which are forced to buy it due to it being part of the NASDAQ. It will tank in value afterwards due to public scrutiny revealing thr fiscal unprofitability. Retirement funds will be ripped apart, trust in the financial system will evaporate, people will be left holding the bag on a scale that makes Lehman brothers seem like a trial run.

	▲	Danox 14 minutes ago \| parent [-]
		They (everyone) are not forced to buy it. They’re buying it on the hype. Tesla for example is done worldwide aside from the USA, but it still has a cult and hype behind it, if you are a smart early investor, you have already sold all your shares in Tesla and moved on because they will never be as big as they were five years ago. Tesla’s done BYD has seen to that. Many investors haven’t figured that out yet but they will eventually and they will be the ultimate bag holders once the bubble bursts for Tesla for good. There are other companies that are remnants of what they were but they still survive on hype. It just takes a long time for them to die. Another example of that is IBM. They are functionally done in the tech world. It just takes a long time to die other companies that fit that mold is Xerox and Kodak still floating at a much lower level, but they are functionally done.