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SPAC ATTACK!!
The past few weeks I have researched strategies and investment approaches to SPACs. Unfortunately, I didn't identify a TON of easy-to-use resources; however, I very much enjoy this intro. (All credit to SPACDaddy)
SPACs can appear very intimidating for many investors - complicated timelines, tickers that change, and a whole new set of jargon "above/below NAV." However, they can prove a very rewarding, exciting investment. SPAC investing is "as close" to late stage venture capital investing as a retail investor can enjoy.
Here are a few simple tricks/techniques to understanding SPACs for the beginner/intermediate investor. Hope you find them helpful:
- Understand the SPAC timeline. Specifically, get a sense of the transition from "Units" to "commons and warrants" to "Definitive agreement/merger." The terminology matters - the intro link I provided above is a great primer.
- Read through some SEC materials on a SPAC. This is helpful to understand how and why warrants are redeemed. Take the time to walk through a prospectus and investor deck.
- Study the price movement of stock tickers that began as SPACs. Great examples are $SPCE and $SKLZ. Understand why and when these tickers "pop".
- Go deep...on a few current SPAC tickers that are PRE-DEFINITIVE AGREEMENT. Understand why they are trading at the price they are. Is the industry they are targeting appealing? Does the leadership team have a lot of credibility?
- Patience and strategy. Before you start investing, decide if you will target a specific sector or stage of SPAC. Will you invest in only warrants? Only units? What industries appeal to you? Perhaps you will build a portfolio of SPACs and buy/sell the tickers as they announce merger candidates. Some traders only buy/sell warrants and (can) generate very impressive returns.
- Again, patience. SPACs take time. This is a great Tweet from Chamath today about SPAC performance. You might need to hold a ticker that has very little price movement for 18 months, then will very quickly 2x. Be prepared for the wait.
- RESEARCH, RESEARCH, RESEARCH. In my opinion, many companies that should not be in the public markets are going public via SPACs. Be very careful in the companies you invest in; research and proper DD is very important.
- Feel free to reach out to me if you want to know more or have questions about SPACs!
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