Benjamin Felix

And then I also wanted to mention this episode is coming out the week after we had Tim Edwards on the podcast, who is the managing director and global head of index investment strategy at S&P.

So he also had a bunch of comments just on, I asked him about that.

Why would an index provider change to accommodate these big companies?

And he had some interesting stuff to say.

That was a big tangent there.

Lots of fun though.

Why does all this matter?

Why do we care about index inclusion of IPOs?

A big piece of understanding why we're even talking about this is understanding that investing in IPOs on a secondary market is one of the worst investment strategies that you could possibly employ.

They tend to have a first day pop where the price on the public market jumps up relative to the IPO price, but most investors don't get the IPO price.

Getting an IPO allocation, especially in hot IPOs like this is really, really hard.

And even if you get one, it's not going to be as big as you kind of hoped it would be.

And then investing in the shares once they're listed on the public market has been rough to say the least.

They're the sort of consistent pattern of IPO underperformance, even as a name, named by Jay Ritter, who's also been a guest on this podcast.

They called it in a 1995 paper, the new issues puzzle.

They had looked at companies issuing stock.

This is IPOs, but also seasoned equity offerings.

Companies issuing stock from 1970 to 1990 tended to be poor investments.

In this paper, they find that investors and IPOs receive average returns of only 5% per year, while similar listed firms return 12% over the same period.

The paper notes that to achieve the same wealth five years later, an investor would have had to put 44% more money