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S&P500 listing and moderator actions (out of Market Action)

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AudubonB

One can NOT induce accuracy via precision!
Moderator
Mar 24, 2013
9,841
47,941
Ugh.

I just thought of a MonkeyWrench ex machina bizarre undesirednessmenthoodship, as follows (===>As per my MOD posts, ALL below are suppositions!<===)

1. Time to deal-completion takes 2 quarters

2. Those two quarters show nice profits

3. Therefore, the last hurdle for S&P 500 inclusion is passed

4. TSLA thus added to that gorilla of all Indices and enormous amounts of its shares need be purchased by such index funds

.....

And this at a time when the last thing the privatization path needs is for such a quickly-needed forced selling. Yuck.

Sooooooo....has anyone been deep enough into the weeds to know if an entity can forcibly excuse itself from being entered into this (or other) Index? I’ll be surprised if any Index creator ever contemplated that outcome!
 
2. Those two quarters show nice profits
3. Therefore, the last hurdle for S&P 500 inclusion is passed

No, S&P eligibility requires four (4) succesive quarters showing profits. Might also get excluded on the "majority of shares in public hands" requirement.

Requirements for S&P 500 listing:

To qualify for the index, a company must have:
  • a market cap of $5.3 billion
  • its headquarters in the U.S.
  • the value of its market capitalization trade annually
  • at least a quarter-million of its shares trade in each of the previous six months
  • most of its shares in the public’s hands
  • at least half a year since its initial public offering
  • Four straight quarters of positive as-reported earnings.
Moderator: If you’re going to be brazen enough to “Disagree” with a Moderator’s posting (true enough - It was not a “Mod” post), and try to ‘correct’ that post, then get your facts straight. And now....MOD ON: Read and HEED what I wrote about disseminating half-truths, mis-statements, old wives’ tales and daydreams....and posting them without mentioning this is your opinion only
 
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No, S&P eligibility requires four (4) succesive quarters showing profits. Might also get excluded on the "majority of shares in public hands" requirement.

Requirements for S&P 500 listing:

To qualify for the index, a company must have:
  • a market cap of $5.3 billion
  • its headquarters in the U.S.
  • the value of its market capitalization trade annually
  • at least a quarter-million of its shares trade in each of the previous six months
  • most of its shares in the public’s hands
  • at least half a year since its initial public offering
  • Four straight quarters of positive as-reported earnings.

This has been discussed repeatedly, and that information is incorrect. You need to go to the source to get real information: https://ca.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf

Here are the main two differences:
  • Unadjusted company market capitalization of US$ 6.1 billion or more for the S&P 500
  • The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter. For equity real estate investment trusts (REITs), financial viability is based on GAAP earnings and/or Funds From Operations (FFO), if reported. FFO is a measure commonly used in equity REIT analysis.
 
Moderator: If you’re going to be brazen enough to “Disagree” with a Moderator’s posting (true enough - It was not a “Mod” post), and try to ‘correct’ that post, then get your facts straight. And now....

And again we have a moderator who feels that they can change someone else's post just because they disagree with the contents. I know it's a thankless job but THIS IS NOT THE WAY TO DO IT. And it's not like this is the first time either. If you disagree with the post, argue it as a non-mod through a reply. If there is a policy that half-truths are not allowed, delete the post (and get cracking because there are hunderds of them in the investor section, some of the most prolofic posters have a majority of their posts in this category).

Btw, the mentality that someone must be 'brazen' to disagree with a poster that also happens to be a moderator disqualfies you as a moderator. It's that simple. You can be a poster AND a moderator at the same time but you need to STRICTLY seperate the two. Don't use powers that come from being moderator to 'win' an argument as a poster.

Extra-ordinary times require extra-ordinary measures, so allow me to be so brazen to post some hard guidelines for our moderators.

1. don't edit posts for content correction, only for policy. Even then, why not just delete it.
2. if you put up a warning that you are going to be strict with off-topic posts for market action, then don't start posting off topics for market yourself
3. if you put up a warning that you are going to delete/move certain discussions, DO IT
4. for the love of god, expand your team.
5. lock this thread on Saturday and Sunday
6. public apology to a user who's post you edited
 
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Moderator: If you’re going to be brazen enough to “Disagree” with a Moderator’s posting (true enough - It was not a “Mod” post), and try to ‘correct’ that post, then get your facts straight. And now....MOD ON: Read and HEED what I wrote about disseminating half-truths, mis-statements, old wives’ tales and daydreams....and posting them without mentioning this is your opinion only

This is not merely my opinion. It is a direct quote from a reputable source, for which I provided the link to Investopedia.com

Requirements for S&P 500 listing:

If you are attempting to educate users, your attitude is not helpful. It feels more like bullying. Apparently Investopedia isn't up to your standards either. Tell me if commenters are allowed to disagree in good faith, or if we need to know in advance what affect comments might have on MODS.

BTW, you neglected to mention how much profit Tesla would need to earn in Q3 to become net profitable over the last 4 quarters. But since this is the "Market Action" thread, you can MOD this comment too.

I will not return to this board without an apology.

Good day.
 
Don't know if they could "decline" being added (my guess is no). But would they fill the two criteria below?
  • most of its shares in the public’s hands (what does "public" mean here exactly?)
  • Four straight quarters of positive as-reported earnings.
Investable Weight Factor (IWF). Eligibility differs depending on the index:
• S&P Total Market Index. An IWF of at least 0.10 is required.
• S&P Composite 1500. An IWF of at least 0.50 is required.
As to what that means:
For information on standard treatment of share and IWF updates, please refer to S&P Dow Jones Indices’ Equity Indices Policies & Practices document
Which says :
Investable Weight Factor (IWF). The percentage of shares outstanding that is readily available to investors for a given company. Investors who own shares with the intention of maintaining control are said to be investors of a “strategic” nature and are not included in the IWF calculation.

@AudubonB
@Artful Dodger Most internet sources get this wrong: actual fund documents attached for reference.

The two rules related to profit are should be profitable last quarter and sum of last four quarter should be profitable (GAAP). Unless Q3 and Q4 really rock, they won't get positive for the year.

S&P could add them at any time, but it seems like they would avoid doing so if the private transition were still in play (listing just to delist does not seem to be in their best interest)

S&P methodology rules attached for reference
 

Attachments

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  • methodology-sp-equity-indices-policies-practices.pdf
    372.2 KB · Views: 71
Moderator: If you’re going to be brazen enough to “Disagree” with a Moderator’s posting (true enough - It was not a “Mod” post), and try to ‘correct’ that post, then get your facts straight. And now....MOD ON: Read and HEED what I wrote about disseminating half-truths, mis-statements, old wives’ tales and daydreams....and posting them without mentioning this is your opinion only

Okay, I haven't been part of this conversation (I've been sleeping). I don't even know what is being talked about. But I'm just going to say one thing:

Threatening to moderate someone - even implicitly - because you disagree with them is totally not okay. "Brazen enough to disagree with a moderator"? You actually think that someone disagreeing with your views is a "brazen" act? Who do you think you are?

Any mod who talks like this should be automatically disqualified from being a mod.
 
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As to what that means:

Which says :


@AudubonB
@Artful Dodger Most internet sources get this wrong: actual fund documents attached for reference.

The two rules related to profit are should be profitable last quarter and sum of last four quarter should be profitable (GAAP). Unless Q3 and Q4 really rock, they won't get positive for the year.

S&P could add them at any time, but it seems like they would avoid doing so if the private transition were still in play (listing just to delist does not seem to be in their best interest)

S&P methodology rules attached for reference

Then there is no way S&P adds it 2019Q1 because FY2018 will be almost unprofitable for sure.
 
Ugh.

I just thought of a MonkeyWrench ex machina bizarre undesirednessmenthoodship, as follows (===>As per my MOD posts, ALL below are suppositions!<===)

1. Time to deal-completion takes 2 quarters

2. Those two quarters show nice profits

3. Therefore, the last hurdle for S&P 500 inclusion is passed

S&P 500 inclusion is actually discretionary on the part of the committee. Even if the stock meets all the other criteria, if it's about to be taken private, the S&P committee will not add it.

Problem solved.
 
Why are you making that assumption? The 400 is the medium market capitalization index, the 600 is the small-cap index.

S&P 500 is one of their most prestigious large-cap indices, with the largest, most stable, most profitable firms in it, it's entirely reasonable to expect stricter rules for inclusion than to the 500+600+400 composite index.

We don't know, they don't appear to be defining it clearly, and they have the authority and discretion to be stricter.

(Anyway, this is getting off topic I suspect.)

From the doc:
S&P 500, S&P MidCap 400 and S&P SmallCap 600
Index Universe. The index universe consists of all securities that meet the eligibility criteria for these indices as detailed in Eligibility Criteria.
Eligibility criteria is a section of the same document and each item in eligibility is divided into total market and 1500 groups:
Market Capitalization. Eligibility differs depending on the index:
 S&P Total Market Index. There is no minimum market capitalization requirement for index eligibility.

 S&P Composite 1500. Unadjusted company market capitalization of US$ 6.1 billion or more for the S&P 500, US$ 1.6 billion to US$ 6.8 billion for the S&P MidCap 400, and US$ 450 million to US$ 2.1 billion for the S&P SmallCap 600 are required. These ranges are reviewed from time to time to assure consistency with market conditions

Financial Viability. Eligibility differs depending on the index:
 S&P Total Market Index. There is no financial viability requirement for index eligibility.

 S&P Composite 1500. The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter. For equity real estate investment trusts (REITs), financial viability is based on GAAP earnings and/or Funds From Operations (FFO), if reported. FFO is a measure commonly used in equity REIT analysis.

Composite 1500 is made up of the 400, 500, and 600 as called out in Market Cap and
S&P Composite Indices
Index Construction. Each index is constructed by combining the respective underlying indices as follows:
 S&P Composite 1500. The index is a combination of the S&P 500, S&P MidCap 400, and S&P SmallCap 600.
 S&P Composite 900. The index is a combination of the S&P 500 and S&P MidCap 400.
 S&P Composite 1000. The index is a combination of the S&P MidCap 400 and S&P SmallCap 600.

Thus, there is no reason to have 1500 specific rules since the 1500 IS the 400,500, and 600 indexes, not a separate entity. Each market cap tier follows the same eligibility rules.
 
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Reactions: MP3Mike
Somewhat disconnected from the previous conversation, here's my own view on TSLA being added to S&P 500 (post copied from Market Action):

I can't believe that the S&P rules are not more straightforward. I thought June 2019 was almost certain. This is surely the only thing that will kick out the shorts without doubt. I don't like the the idea that we are gonna beholden to a committee made up from the establishment. Might as well ask the SEC if we can gain membership? I'm sure Elon will tweet on the subject to make things right....

...
You might not like it, but that's how the S&P 500 works. It's the creation of a private company, not a governmental entity, and they decide what's in and out. You and the market decide whether their criteria is useful to you in your investing decision making process. The government can't help (and isn't that the start of a meme - "hi, I'm from the government, and I'm here to help" :)).


Anyway, my own view on things is that I LIKE that it's a committee decision. The way I look at it - if I were on the S&P 500 committee, and I want my index to be as relevant as possible to as big of an investor community as possible (and therefore we get licensing fees from funds tracking the index, or I assume that they do), then do I want TSLA to be in or out of the index?

H'mm - I'm thinking IN. And I'm thinking I want to get TSLA into the index as soon as I can say they've met the criteria with a straight face and probably not hear laughter from the crowd.

One profitable quarter is probably too soon. But if Q4 is bigly profitable and the sum of the previous 4 quarters is really close to break even, then I might lean on the "should" in the inclusion criteria, the fact that the trajectory is for big profitability in the quarters to come, and add TSLA as soon as Q4 earnings are announced.

Or maybe I have to wait for Q1 '19 earnings are announced and TSLA is close or better than break even.

In short - I think the S&P 500 wants TSLA in the index as soon as possible, and they're going to be interpreting the criteria as generously as they need to get it there. Love that "should".


(To be clear, second paragraph on down is ALL MY OPINION. I've got no external evidence to suggest I'm right.)
 
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Yes, that's the argument I made in my reply, you managed to quote it almost verbatim. ;)

S&P 500 is their crown jewel, and selection is at their discretion, so they might have the kind of stricter criteria that various sites such as Investopedia mention.

I could (easily) be wrong. Was there any recent addition to the S&P 500 that didn't have 4 consecutive profitable quarters? Also, the addition of Tesla in May/June 2019 would falsify my claim too.

The S&P is no more the crown jewel that the 400 and 600 are. The only difference is the market cap of the companies. If the 500 had different rules, they would be part of the 1500 rules. Or the 400/600 would have different rules called out.

As it is Twitter was added June 2018, pre Q2 results, previous GAAP earnings (in millions):

2017
Q2 -116
Q3 -21
Q4 91
2018
Q1 61

Edit: total 15 million to the plus side
tagging @vigleik @Ellec @shootformoon to move things out of MA
 
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The S&P is no more the crown jewel that the 400 and 600 are. The only difference is the market cap of the companies. If the 500 had different rules, they would be part of the 1500 rules. Or the 400/600 would have different rules called out.

As it is Twitter was added June 2018, pre Q2 results, previous GAAP earnings (in millions):

2017
Q2 -116
Q3 -21
Q4 91
2018
Q1 61

Edit: total 15 million to the plus side
tagging @vigleik @Ellec @shootformoon to move things out of MA
TWTR was announced to be joining S&P 500 on June 5 (join date June 7). For some perspective as what TSLA could do, here are stock closing prices for TWTR around those dates:

June 4: 37.88
June 5: 39.80
June 6: 40.10
June 7: 39.70
June 8: 41.21
June 11: 41.42
June 12; 43.49
June 13: 44.07
June 14: 46.76

Then it dipped slowly over the next 3 weeks to 43.89 on July 3.
 
TWTR was announced to be joining S&P 500 on June 5 (join date June 7). For some perspective as what TSLA could do, here are stock closing prices for TWTR around those dates:

June 4: 37.88
June 5: 39.80
June 6: 40.10
June 7: 39.70
June 8: 41.21
June 11: 41.42
June 12; 43.49
June 13: 44.07
June 14: 46.76

Then it dipped slowly over the next 3 weeks to 43.89 on July 3.

Humm... shift the decimal point... and...
 
TWTR was announced to be joining S&P 500 on June 5 (join date June 7). For some perspective as what TSLA could do, here are stock closing prices for TWTR around those dates:

June 4: 37.88
June 5: 39.80
June 6: 40.10
June 7: 39.70
June 8: 41.21
June 11: 41.42
June 12; 43.49
June 13: 44.07
June 14: 46.76

Then it dipped slowly over the next 3 weeks to 43.89 on July 3.
That's consistent with studies showing a ~10% boost from addition of a stock to the S&P 500.