153- The SpaceX IPO: Why You Shouldn't Care

This episode, Benjamin discusses the SpaceX IPO, arguably one of the bigger financial news stories of the year, explaining why, as a diversified global investor, you will always own the beasts and don't need to be concerned about FOMO. 

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Transcript

SPEAKER_00 0:11

Hello money nerds and welcome to Heads Up on Money. I hope we are all well and I hope it's been a good July for you so far. This is episode 153. In this week's episode, I'm talking about the SpaceX IPO. Again, you're maybe wondering what am I talking about here, but you've maybe heard a little bit in the news of late, particularly in and around the middle of June, where we talked about Elon Musk becoming overnight the world's richest man. And that led to a lot of rhetoric in the never-ending worry service about investing in SpaceX, and I'm conscious that quite often when we're encapsulated with all of these news headlines, we start to get a bit of ants, we start to get a bit of FOMO, and we sometimes forget the priorities in our financial plans. So I'm going to explain in this episode why, if you're a global diversified investor, which I'm hoping all money nerds are, why the SpaceX IPO is really of minor consequence to you. And I'll get into all that a little bit later, just a quick call out to say last week's episode, if you haven't listened already, 152, was proving to be a fairly popular one because it's a topic that many people think about, and it's whether or not you should consolidate your pensions. And it's becoming increasingly easy to do in the modern landscape, often at the touch of a button, but there are some things you need to be aware of before you consolidate. It's not always recommended to consolidate your pensions. There are pros and there are cons in doing so. I've covered all in 26 minutes in last week's episode. So if you haven't already listened to that one, give it a listen and let me know what you think. So turning now to episode 153, we're talking about the SpaceX initial public offering. Point number one, what exactly is an initial public offering? So keeping this high level as always on Heads Up on Money, essentially when a company that was perhaps previously trading privately, so it would be privately held, private directors, they then move to the public markets where they seek to raise additional funding to expand their ventures via typically you can do this one of two ways. You can do it through debt financing or in this case, equity financing. So the shares become available on a publicly traded exchange, in this case, SpaceX listed on the Nasdaq stock exchange in the States. The shares come to the market, and end investors have an opportunity to subscribe for those shares and become direct shareholders in SpaceX. Now, point number one here is that you probably were reading lots of things about the share price absolutely escalating on market opening, and it starts then to starts to lead into that doubt in your financial plans, thinking, you know what, there must be a quicker get rich quick scheme out there than just investing for the long term in global equities. But as I've always said, money nerds, getting rich quickly is not often a doable strategy, it's certainly not a practical strategy from a risk perspective, and often the best financial plans are created slowly, letting markets do their thing, the compounding snowball effects that we love to talk about and heads up on money over time, that is what delivers long-term growth. But every so often there will be some news headlines which bring in the idea of almost being a bit more speculative, trying to make a call in the direction of a stock with the hope that that will have a shorter-term positive impact on your planning, and essentially you've gotten rich quickly. Now, of course, there are some people that may be able to do this, but for the vast majority, it is not a feasible strategy. And those that have managed to do it, in all probability, it was luck because we cannot time financial markets. We do not know what is around the corner, so instead we rely on global diversification and markets doing their thing. That's all fairly fundamental stuff I've talked about in other episodes of the podcast many, many times. So what am I talking about today? We're talking about SpaceX. So it listed on the Nasdaq Stock Exchange on the 12th of June, and the valuation was astronomical, trillions, making it the largest initial public offering of all time. And it was a strange one because prior to it becoming listed on the Nasdaq, the shares of this well-known company were typically only available to a small group of investors. And it would have been typically directors, employees within the company, all of which would have stood to inherit a sizable fortune when the shares came to the market for you and I to invest in. Now, the strange thing is that SpaceX is not necessarily a new company. It's actually been going for the best part of two decades. We just didn't really know about it because it would have taken different flavours in the past, and all of a sudden it's come into the mainstream never-ending worry service media, and suddenly we think, oh god, we should really be an investor in SpaceX. And it's become a bit more prominent because SpaceX didn't necessarily grow into the public market over decades the way that the likes of Apple or Microsoft or Amazon have done, but instead it's just suddenly transitioned from private to being publicly funded partially overnight, which is why it's grabbed the headlines. And naturally, end investors, we want a slice of that pie. However, you will actually get a slice of that pie in time or now, depending upon how the constituent index funds you use are made up. And what I mean by that is an index fund isn't necessarily the same thing as another index fund. They will each track different indices, and those constituent indices may have different determinants as to whether or not the SpaceX stock starts to feed into their index. Particularly, the S P 500 have said that they're not going to feature SpaceX at the moment until it has a better long-term profitability reputation. So you may or may not already be a shareholder in SpaceX. And if you aren't, it's highly probable in time, if you're a globally diversified investor and you invest in index funds, then naturally a company of this size will start to carry a significant weight within the index, and by extension, you will then hold an element of your portfolio in SpaceX. But you've done so almost with no effort on your part. And you've done so in a risk-managed way, totally in contrast to the speculative investors who are buying direct shares in SpaceX, hoping it will lead to a quick fortune for them. And again, I don't know the direction of the SpaceX stock over time. I'm not going to comment on that because I would be absolutely fueling the fire of all the other financial commentators out there who try and reinforce their worth by making false predictions. The SpaceX stock did indeed rally on market opening when it came to the market, but it has since had a fairly prominent decline and has leveled out since then. And it may go up, it may be an absolutely stellar, if you excuse the space pun stock, or it might crash and burn. But as end global investors, you don't need to worry about this because you will always own the beasts, regardless of who comes into the market and who exits the market. By the very nature of the index funds that you're investing in, they will hold these beasts, and by extension, you will benefit from these beasts. And if we look over time at the beasts that have come into the markets, the top 10 stocks perhaps in the last number of years, these are all the household names that you recognize. Apple, Microsoft. There's a new one that came in largely recently, Nvidia, which is contested as the flavor of the month at the moment. These will do well some years and poorly other years. In some drastic scenarios, there may be absolute stocks that just tank and some may escalate, but you don't need to concern yourselves with that money nerds because you are a globally diversified investor. And what we need to remember is that based on current reporting, there may in fact be a few more of these so-called mega IPOs coming down the line, especially in the wake of the AI age. In particular, names like Anthropic and OpenAI are both reported to be preparing their listing soon. And these two will come into the world's most valuable companies. And by extension, they will start to drip feed into your portfolios. But you don't need to concern yourselves with am I missing out? Should I be investing in them? The FOMO, feeling like everybody else knows what they're doing and you're being left behind. I really encourage you, Money Nerds, not to feel like that. By far the better long-term strategy for you is just to let markets do their thing. And naturally, over time, the winners will grow and your allocation will grow with them, and the losers will fall out and they'll start to fall out of the market index that you are tracking within the funds that you invest. So for most globally diversified investors, a listing such as that of SpaceX last month on I think it was the 12th of June when all of the news was circulating about this, the lessons for these IPOs will be the same. A listing like this calls for no particular action. There's a good chance you already hold it, and if you don't, there's an even greater chance that you will hold it soon. You will by default always own the beasts. You will own the SpaceXs of the world and any future versions that come to the market in future months and future years. That is just the nature of investing, and this one has attracted a lot more commentary purely because of the size of the company. And the lesson once again when it comes to stock market listings, is the price of SpaceX at the moment reinforces all of the messaging I always convey in the podcast. It's speculative, it's based on conjecture, on rhetoric, on expectations, it's got absolutely no relevance to the underlying economic fundamentals of the company. So short-term news will affect the price, but often, more often than not, the underlying fundamentals should have no variation around this. And this reinforces to us that when it comes to investing, the market price at the moment is arguably futile. It is totally redundant, it's only relevant to you if you are planning to sell. And we know that when it comes to investing in equities and offsetting the terminator of wealth that is inflation, we should not be holding these stocks, shares, whatever you want to call them, for short-term goals. We use cash savings for short-term goals and we invest in equities for long-term goals. So there's lots of messaging we can take from the SpaceX IPO. And the good news is that you do not need to do anything at all. So if you're feeling like you're missing out at the moment, I would urge you not to feel that way. Yes, there may be individuals out there who have liquidated their entire diversified portfolio within their pension fund and are planning to go long in SpaceX stocks in the hope that the market will be right and the stock is going to absolutely soar. But question what if they're wrong? What if SpaceX is not going to deliver the masses of expectations that it's promising? What if things change materially in the market? What if there's a data risk? What if the stock crashes to zero? And I can't predict that. It could equally deliver fantastic returns far in expectation, far in exceeding the expectations, I should say that it's promising. But equally it could go the other way. And as human beings, we regret losses far more than we value equivalent gains, loss aversion theory. Look it up. We hate to lose. We enjoy gaining, but we hate to lose more. And ask yourself if SpaceX does not deliver on the promises, if it absolutely tanks, if you've got a globally diversified portfolio, you're going to feel that, but certainly not to the extent as an individual who is reacting to short-term speculation and hype at the moment. And that is worth so much more for your peace of mind than any promised share returns that may be circulating in the media at the moment. So just wanted this episode to get on my soapbox to say to you, I know it's noisy out there at the moment, even if you are not really interested in the intricacies of investing and investment management and investing in the stock market, it's hard to avoid it in the case of the SpaceX IPO. And I do not like to use heads up on money to comment on short-termism, on individual stocks, on short-term market trends. But I did really want to get this episode out because I want to encourage you, money nerds, to take inaction at the moment, not action. You will always own the beasts by virtue of the way in which index funds are set up. Do something more meaningful with your time. You can worry about other things, but this does not need to be one of them. So earn yourself a little bit of time back and focus on the things that matter more in life, not the SpaceX IPO and the inevitable plethora of other ones that are going to come to the fore over the next few years as the tech landscape continues to shift and evolve. Reminder and key takeaway is if you're an index globally diversified investor, you will always own the beasts in one form or another. I've been Benjamin Mitchell. I'm going to wrap up there. I hope you've enjoyed this week's Heads Up on Money. I will see you next Friday, as always, for Personal Finance Friday. In the meantime, enjoy your week. I hope the sun is shining this weekend, wherever you're listening, and I'll catch you next Friday. Goodbye again from me.