Episode summary
When Massive Private Companies Go Public | Rational Reminder 406
The Rational Reminder Podcast
· · Hosts: Benjamin Felix, Cameron Passmore, Ben Wilson
Summary
Massive private-company IPOs like SpaceX, OpenAI, and Anthropic could force index funds to buy newly public stocks that may be richly valued and prone to weak post-IPO returns. The discussion focused on how index providers decide when and whether to include IPOs, why those rules differ across S&P, NASDAQ, and CRSP-based indexes, and how free-float requirements can dramatically reduce a company’s effective weight if only a small portion of shares is actually tradable. The hosts argued that this is less a fatal flaw in indexing than a structural trade-off that becomes more visible when companies go public at enormous valuations.
The episode also dug into the research on IPO performance. The host cited studies showing that IPOs have historically underperformed established stocks, with low-float and high-price-to-sales IPOs looking especially poor. Marco Sammon’s research was discussed as evidence that fast-track index inclusion can create a short-term price pop that later reverses, effectively transferring value from index investors to intermediaries. The hosts emphasized that index funds are not trying to beat the market; they are trying to represent it, even if that means buying securities after a wave of demand has already pushed prices higher.
Finally, the episode compared approaches. Dimensional waits 6 to 12 months before considering IPOs, while Avantis said it can include newly listed companies sooner if it has enough financial information and the valuation looks attractive. The broader conclusion was that investors should not abandon index funds, but they should understand that market-cap-weighted indexing can involve buying high and selling low at the margins when market structure changes.
Key takeaways
- The host argued that mega-IPOs could matter less for broad index funds than headlines suggest if the companies float only a small share of stock.
- Marco Sammon’s research was cited to show that fast-track IPO inclusion can create a short-term price pop that later reverses.
- The host said IPOs have historically underperformed established stocks, especially when float is low or valuation is extreme.
- Dimensional’s 6- to 12-month IPO delay is a deliberate way to avoid buying newly listed stocks immediately.
- Avantis said it may include a newly listed company sooner if the financials are available and the price looks attractive.
Notable quotes
“If you're going to buy the hay stack, you need to buy all of the hay”
“the expected index uh investor demand for IPO shares causes fasttrack IPOs to outperform their non-fastrack counterparts by over 5 percentage points”
“dimensional waits 6 to 12 months after a company lists before considering including it in their portfolios”
How the episode opens
This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making from three Canadians. We are hosted by me, Benjamin Felix, chief investment officer, Dan Bordotti, portfolio manager, and Ben Wilson, head of M&A at PWL Capital.
Good to be back.
Yeah, good to be back. It's episode 406. and exciting to to get into the the main topic later today which or later on this uh episode.
Um but before we get to that, uh exciting news that many people have probably already heard by the time uh this episode's coming out, but PWL made um a pretty cool acquisition in Vancouver, BC. Uh we partnered up with the McDonald Shimco and Company team out in Vancouver. So we now have a great team out there and officially a PWL office space.
So as we continue to grow and find likeminded advisors that are implementing a similar philosophy and and financial planning driven approach to their clients. We are expanding our presence across the country and and this is a a great team to be partnered with. It's a pretty well-known financial planning firm's been around for a long time and pioneers in that industry.
Uh specifically like fee only planning I think originally right
Um so — Y — Exciting to have them on board — Fee only planning pedigree and they they've they went into u portfolio management and and on that side of the business they're super super aligned with the way that PWL operates. You said Pioneers, Dan. I was going to say OG's, but you know, same.
Yeah, — They're they're one of the one of the oldest financial planning firms uh around and have been been in business for for a very very long time and they've been super involved with moving the financial planning profession in Canada forward.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- mega ipos
- index fund mechanics
- ip o returns underperformance
- free float and index inclusion
- private markets vs public listings
Companies and tickers mentioned
- SpaceX
- OpenAI
- Anthropic
- Dimensional
- Avantis
Watch the episode
Watch “When Massive Private Companies Go Public | Rational Reminder 406” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Rational Reminder Podcast, this episode and its artwork belong to Benjamin Felix, Cameron Passmore, and Dan Bortolotti. Octagon is not affiliated with the show; this page is an independent summary.
