SPACs were all the rage last year.
A handful of people got rich.
But far more went broke.
I’ve never bought one.
In my opinion, they are the worst thing that’s come out of Wall Street since collateralized debt obligations.
I hate SPACs, and here’s why…
SPAC stands for “special purpose acquisition company.”
Essentially, it is a way to skirt around the usual process of going public via IPO.
They work like this…
An experienced money manager starts a “blank check company” and raises money with the intent of acquiring a private company.
Investors buy shares of the SPAC at $10 apiece, hoping those shares will be worth much more once an acquisition is made.
Take Churchill Capital (CCIV), for example:
After announcing a deal to buy EV-maker, Lucid Motors, back in January, shares of the SPAC soared more than 500%.
Investors who chased the stock and bought near the top have suffered huge losses, but that’s a topic for another day.
There are 2 big problems with SPACs, and this is why I haven’t bought into the hype.
Few investors realize this, but SPAC managers generally receive 20 percent of the equity in the SPAC.
So, you’re basically paying a 20% commission just for the privilege of investing.
That alone is enough to keep away from these toxic assets.
Second, there just aren’t enough good deals to be made.
If a company is worth investing in, odds are it has already gone public.
At the very least, venture capital firms are involved – and they’re too smart to sell the farm at a discounted price.
Don’t get me wrong, there were a few good opportunities at first.
Lucid Motors was a good buy.
And the cutting-edge battery maker, QuantumScape (QS), delivered great returns after endorsements from Bill Gates and Warren Buffett.
But now we are at the bottom of the barrel.
Managers are grabbing up junk companies in rushed deals just to secure their 20% off the top.
Imagine making $60 million just to negotiate a buyout!
Of course, they want to keep the party going.
But those buying SPACs in 2021 have suffered vicious losses.
Back in March, Jim Cramer’s TheStreet.com published an article on the “9 Best SPACs to Buy Right Now.”
Only three had completed deals.
Hopefully, you ignored the advice like I did.
Because this is what the stocks have done since:
Today, the SPAC world has drifted into full-blown insanity.
Mission Advancement Corp is a SPAC being led by social justice activist, Colin Kaepernick.
Yes… the whiny millionaire quarterback who kneeled during the national anthem then sued the NFL when teams no longer wanted him.
And hip-hop star, Jay-Z, formed Subversive Acquisition Units to invest in the cannabis sector.
I mean I feel like I’m taking crazy pills!
When did we start looking to rappers and washed-up athletes for investment advice?
I’d have to be drunk to buy a single share of either issue.
The tools and techniques may change.
But Wall Street’s agenda never will.
Their goal is to transfer money from your pocket to theirs.
In the 1980’s it was mutual funds with lofty management fees.
By the 1990s hedge funds were charging even higher rates.
Trading commissions filled their pockets for most of the 2000s as retail investors began managing their own portfolios.
And now that rates are near zero and commissions have gone away, SPACs are their newest scheme.
Don’t be a sheep.
Don’t buy what they’re trying to sell you.
Put your dollars to work where YOU have an edge… not where Wall Street does.
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