Best practice for index funds is to add IPOs within 3-5 days to capture early returns. The critical and often-missed step is to be 'float-adjusted,' meaning the fund only buys a proportion of shares available to the public, preventing index demand from artificially inflating the price of a limited supply.

For highly-capitalized companies like SpaceX and OpenAI, bankers are designing new IPO structures. Instead of standard 90-180 day lockup periods, they're planning staggered share releases over a longer timeframe to manage immense selling pressure from a large base of private shareholders and prevent post-IPO stock volatility.

For companies like SpaceX, Nasdaq now allows index inclusion in just 15 days (down from six months) and artificially inflates weight by treating a 5% float as 15%. This creates a massive, predictable, and forced buying event from index funds, which must sell other holdings to accommodate the new stock, distorting the market.

Index providers are no longer neutral. By changing inclusion rules to quickly add "hot" IPOs like SpaceX, they are making active bets on specific companies. This blurs the line between active and passive investing, requiring investors to have an opinion on the index's strategy itself rather than just blindly buying.

Market-cap-weighted indexes create a perverse momentum loop. As a stock's price rises, its weight in the index increases, forcing new passive capital to buy more of it at inflated prices. This mechanism is the structural opposite of a value-oriented 'buy low, sell high' discipline.

By offering only a small fraction of its shares ($75B out of a trillion-dollar valuation), SpaceX is creating a supply-demand imbalance. This classic IPO strategy forces index funds and institutional investors to buy into a potential price bubble, risking significant losses when more shares eventually hit the market.

For the past decade, the market benefited from shrinking equity supply via buybacks. Jones warns this trend is about to reverse. A wave of large IPOs will flood the market with new stock, creating a significant headwind as supply outstrips demand, especially for the tech sector.

For trillion-dollar private companies like SpaceX going public, the traditional 90-180 day lockup period is inadequate. The massive volume of insider shares hitting the market at once could crash the stock. Investment bankers are now designing staggered lockup releases to manage this unprecedented liquidity event.

A predictable pattern in IPO investing is a stock price decline following the 90 to 180-day lock-up period. This occurs when insiders (employees, founders) are finally allowed to sell their shares, flooding the market with supply and often causing the price to crater.