Reddit got added to the S&P 500. The stock jumped. Congratulations to everyone who needed Standard & Poor's to tell them whether a profitable publicly traded company with billions in market cap was worth owning.
The index inclusion works like this. A committee meets. They review criteria. They vote. Then Reddit gets added to a list. Mutual funds that track the index must now buy Reddit stock because the list says so. The stock goes up because people who manage other people's money are contractually obligated to buy it. Not because the company got better. Not because users suddenly love ads between pictures of cats. Because a committee said yes.
Retail traders saw the jump and logged into their Robinhood accounts to chase it. They're buying Reddit stock after it already moved on news that was entirely predictable. The inclusion was announced weeks ago. The date was set. Every institutional investor already positioned for it. But sure, buy it now at the elevated price. That's called getting in early.
Reddit's business model is letting unpaid moderators run communities for free while Reddit sells ads against their work. Now that business model gets a shiny S&P 500 badge. The volunteer janitors are not getting equity. They're getting the same thing they always got. Nothing.
The funniest part is Reddit users spending years telling everyone that index funds are the only smart investment, that stock picking is for idiots, that you can't beat the market. Now their own platform is the stock getting pumped by the index they worship. They're about to learn that passive investing means buying Reddit at whatever price the inclusion forces it to. Even the price after it jumped on this news.
They'll buy it anyway. The index demands it.
Photo by Brett Jordan on Unsplash
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