A tale of two investors

Investment Analysis Clubs Macro Economic Trends and Risks
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It’s a World-Class Investment. It’s a Junk Investment. What Is Going on With SpaceX?

The recent initial public offering for SpaceX was the biggest stock sale the world has ever seen, with shares priced as if life on Mars were a sure thing. The company’s debt, on the other hand, is priced [as if it were junk].

The answer starts with Wall Street’s long-held distinction between “smart money” and “dumb money.” In that view, the roughly $2 trillion value that the stock market is affording SpaceX — about the same as Amazon’s value, and more than JPMorgan’s and ExxonMobil’s combined — is being set by naïve investors who think Elon Musk’s promises will all miraculously be realized. The debt, on the other hand, is being priced by seasoned investors, the ones who understand that profits actually have to be earned, and who are rightly skeptical of Mr. Musk’s grand pronouncements.

Simple answer: bond holders want their money back, and with some interest. Stock holders want to get rich.

The article details some instances where this same dichotomy has led to warning signs: Enron, Lehman, Bear Stearns, WeWork, and some where it didn’t: Amazon.

https://www.nytimes.com/2026/07/09/opinion/spacex-ipo-investment-smart-dumb-money.html

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The big difference is that for bond investors the upside is fixed (i.e., the best you can do is collect the periodic income coupon and have your capital returned at maturity, as promised.)

Stock investors have a potentially unlimited upside. While it’s true that only a small fraction of companies produce blockbuster returns, if you’re “buying the whole market” with an index fund, you’ll own enough of the “winners” to produce a sizeable return.

That’s why the i-Bonds I purchased 28 or 29 years ago have tripled in value during a period where the S&P 500 index fund has grown more than 20-fold with dividends reinvested. Thank God the i-Bonds are only about 1% of my portfolio.

Stocks for the Long Run

intercst

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Usually. But not in this case. Because it started at such a high market cap (never mind multiple, lol), investors might, just might, see 2X or 3X or even 5X, but they will very unlikely ever see 10X, and will surely never see 100X or 1000X (unless spaceX takes over nearly the entire world economy).

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