Benjamin Felix

Like that's wild.

It's crazy.

Now, if you're a company listing on the stock market, or if you're an investment bank facilitating an IPO, getting the stock included in a major index or multiple indices, even better,

can mean huge investment dollars flowing into the shares of the company on public markets because index funds are forced to buy.

Now, what does that do?

Well, it increases the price probably, and we know that it does from some of the data we'll talk about.

It gives sellers liquidity, increases the share price.

So if you're the company or involved with taking the company public, index inclusion is really desirable for shareholders, for the company.

The group that it's not so great for is the index fund investors.

who are potentially left holding the bag.

Now, it tends to be a small portion of the index that we're talking about here.

So it's a tiny little bag, but it's still a bag that they're left holding.

So why do we see this happening?

This doesn't have to be an irrational, inefficient markets thing.

Lubos Pastor has a paper that I'm pretty sure we talked to him about when he was on our podcast.

There are rational reasons for there to be waves of IPOs.

Companies go public basically when they think they can sell their stock at a high price, which doesn't mean anything inefficient or irrational is happening.

It's just for whatever reason, their company has a high stock price at that time.

But that means for the public market investors, when these companies go public, they have by their own evaluation, a high stock price.

public market investors buying the stock in a secondary market get the opportunity to invest in these companies when they're, if we wanted to use the word overvalued, here's where we would use it.