It could be an indicator that a lot of people invest without regard for foundational questions like "does this valuation make sense" or "does my ownership interest grant me any control of the company?"
And I'll be the first to raise my hand on that front. On the face of it, I'm not really interested in owning a stock like this. But I've stopped picking stocks entirely, now I just invest in the stock market through index funds. And there are a lot of people like me -- enough that Vanguard funds own about 5% of just about every public company you can name. People like me are essentially saying, "We don't really care what this company does, how much it costs, or whether its stock can vote, we want to own 5% of it." (And that's just Vanguard -- there are plenty of other passive funds out there, too.)
In an IPO that sells 10 or 15% of the company, these "buy at any price" investors can eat up a pretty big chunk of the available shares. So all it takes is a few investors to say, "yes, we want to buy at this valuation," and the rest of us will blindly follow.
I think the incentives of different investor types should be considered.
If you're a speculative investor and plan to own for <1 month or so, who cares about voting rights.
If you're a long term investor, say >2 years, non-voting shares means the company doesn't have to burn itself for quarterly or annual results.
Activist investors won't like it (but there's not really that many of them).
Will probably work well as long as things are going well for the company. If things go badly, management will need to be very self-aware or the recourse will be a large discount to the share price.
The $SNAP price isn't being driven by index funds. Index funds also aren't about blindly investing ("we don't really care what...") - it's about delegating that trust. For example, SPY is delegating that to a trusted entity (you're trusting that the S&P 500 will remain a meaningful measure of the US stock market).
> "Delegating to a trusted entity" isn't different from "blindly investing"/"buy at any price".
Those are incredibly different things. If I put $5000 in SPY, even if the S&P 500 index contains $FOO today I'm not telling my brokerage firm to "buy and hold $FOO at any price", because that's not how the SPY index works, and it's also not how index fund investing works a strategy either.
In addition, most indices are based on fundamentals like market cap, earnings, and price - either directly or indirectly. Putting money in an index fund is delegating the work of that research to a trusted entity, in exchange for a fee (which is usually bundled into the trading prices).
Actual "blind investing" or "buy at any price" would be someone who trades on individual stocks without doing any systematic research, either directly or through a delegate.
> If I put $5000 in SPY, even if the S&P 500 index contains $FOO today I'm not telling my brokerage firm to "buy and hold $FOO at any price", because that's not how the SPY index works, and it's also not how index fund investing works a strategy either.
Unless you can educate me as to what you mean here, I understand that this is exactly what is happening. As long as $FOO remains in the S&P 500, buying and holding SPY is financially (roughly) equivalent to buying and holding equity in $FOO in proportion.
> Is Snap big enough that indexes tracking the S&P 500 would buy up Snap?
With the risk of stating the obvious... index funds tracking the S&P 500 index buy exactly the 500 stocks that form the index, no more no less (modulo some derivatives that are highly correlated with the index).
So they will buy Snap whenever S&P decides to include Snap in the S&P 500 index. Snap has already surpassed the minimum necessary market cap (~U$5 billion). There are other criteria, but ultimately the inclusions and exclusions are decided by committee [0]. When they do decide change the index, they announce it well ahead of the date when the change is effective.
Vanguard index funds don't participate in IPOs. Their rebalancing occurs on a regular schedule. Constant purchases would undermine the effort to keep fees low.
And I'll be the first to raise my hand on that front. On the face of it, I'm not really interested in owning a stock like this. But I've stopped picking stocks entirely, now I just invest in the stock market through index funds. And there are a lot of people like me -- enough that Vanguard funds own about 5% of just about every public company you can name. People like me are essentially saying, "We don't really care what this company does, how much it costs, or whether its stock can vote, we want to own 5% of it." (And that's just Vanguard -- there are plenty of other passive funds out there, too.)
In an IPO that sells 10 or 15% of the company, these "buy at any price" investors can eat up a pretty big chunk of the available shares. So all it takes is a few investors to say, "yes, we want to buy at this valuation," and the rest of us will blindly follow.