Total market ETFs are about to become exit liquidity for mega upcoming IPOs like spaceX and openAI

Passive investing is about to get ugly. Everyone acts like buying total market indexes such as VTI is low-risk, but we are walking into a massive trap with these upcoming mega IPOs.

In the past, when companies like Amazon or Google IPOed at reasonable valuations of hundreds of millions or a couple of billion, the index funds bought in cheap and captured the ride up to trillions. The public got the growth.

Now? Companies like OpenAI and SpaceX are staying private until they are massive. OpenAI is already rumored to be looking at huge valuations, potentially approaching a trillion. SpaceX is rumored to be around 1.25 trillion.

When they finally IPO, funds like VTI have to buy them. They have no choice. They are price-insensitive forced buyers.

If OpenAI or SpaceX lists at $1 trillion, it instantly becomes a top 10 holding in the total market index. Your "safe" passive fund will be forced to dump billions into it on Day 1 to match the weight. You are literally becoming the exit liquidity for the VCs and insiders who got in early. They cash out at the top, and you are left holding the bag for a mature asset that is priced for perfection.

If these things pull a WeWork or just drop 50% because the narrative shifts, the entire index is going to tank because it's loaded up on them. Passive investors used to participate in the growth of these companies and get rich -- now they are just the exist liquidity and likely bag holders

Ultimately, these IPOs could potentially add additional Meme mega caps, like TSLA, to the index, further reducing the efficiency of the market

What do you think?

Note:

S&P 500 has profitability rules and committee rules. Total Market funds (such as VTI) are different.

VTI tracks the CRSP US Total Market Index. CRSP has a 'Fast Entry' rule specifically for massive IPOs. If a company is big enough to qualify for the Large Cap basket (which a $1T OpenAI obviously would), CRSP adds it to the index within 5 trading days

So if OpenAI IPOs on Monday, VTI effectively buys by Friday