Has anyone seen a good explanation with graphics on how the money and dilution work for SPACs?
Some good info here, if you follow the links and read the footnotes: https://www.bloomberg.com/news/newsletters/2021-01-08/money-...
A Sober Look at SPACs (2020)
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Re: A Sober Look at SPACs (2020)
#112I invest in SPACs regularly and have made a killing off investing in them. Plain and simple, SPACs are all about hype in terms of how much hype the target company can garner. I only buy pre-LOI SPACs and then consider selling them on the merger announcement or right before the merger completes. This strategy works because of social media. People go around social media to hype up the company so to a certain extent it…
The reason SPACs work has nothing to do with hype. People hype shit on the Internet all the time. There's no insight here. One reason SPACs work is that Apple, Google, Amazon, Facebook, Berkshire Hathaway and (to a lesser extent) Microsoft are sitting on huge cash piles and not doing acquisitions. For almost a decade. So of course high quality mid-caps are going to be "cheap." So while I appreciate your appeal to stu…
You're right midcaps are unfavored and cheap. They are in fewer indices and funds tend not to benchmark against midcaps.
But I don't think this has anything to do with cash piles at large cap firms.
Re: A Sober Look at SPACs (2020)
#11399% of SPACs are scam. They really are, because if they weren't going public via an IPO there must be something wrong and if not they had reasons why not to go public, smarter for companies working on government projects etc.
Re: A Sober Look at SPACs (2020)
#114I know its high risk... but some of those space oriented SPACs are just so tantalizing, anything to get closer to investing in SpaceX...
None of those space companies are doing anything like SpaceX. You might as well just buy $GOOGL which had a 5-10% stake (probably some dilution now) in SpaceX. Although that value is probably only 1% of $GOOGL so you better hope SpaceX 100x’s for a 2x $GOOGL gain.
a few are being used currently by spaceX for last mile delivery.
Re: A Sober Look at SPACs (2020)
#115Earlier quoted context omitted.
what’s the difference between equities and stocks?
Equity is an asset class. It includes stocks for sure, but holdings in index funds, ETFs, private equity investments, venture capital are also examples of equities.
index funds (of stock), private equity investments (generally stock), and vc equity investments (of private stock) are all also “stocks”.
Re: A Sober Look at SPACs (2020)
#116Earlier quoted context omitted.
The reason SPACs work has nothing to do with hype. People hype shit on the Internet all the time. There's no insight here. One reason SPACs work is that Apple, Google, Amazon, Facebook, Berkshire Hathaway and (to a lesser extent) Microsoft are sitting on huge cash piles and not doing acquisitions. For almost a decade. So of course high quality mid-caps are going to be "cheap." So while I appreciate your appeal to stu…
Legitimately confused by this claim. These companies all do tons of acquisitions
Honey, for example. It would have been a great SPAC target. PayPal acquired it - PayPal is unusual in acquiring companies with 1-10b valuations. There is opportunity there.
Microsoft last bought LinkedIn - for $22b in cash and stock, that one acquisition is really expensive and definitely not “midcap.” NVIDIA got ARM for $12b cash, $21.5b stock. Also huge.
Facebook is really interesting in this regard because its multi billion acquisitions - Instagram, WhatsApp, Oculus - all had finance people saying they overpaid. Maybe they did overpay! In the sense that if those companies SPAC’d instead, the price the vehicle would pay would be lower - not in some subjective sense if those were or were not good acquisitions, they obviously were.
So if I had the opportunity to bid against Facebook for Instagram or against PayPal for Honey, I would! SPACs let me do that. The curious thing is that Facebook isn’t bidding on those companies anymore - Snap said no and TikTok isn’t possible - so... does that mean Instagram would have been cheaper? That would have been an amazing opportunity.
Otherwise we’re talking about smaller acquisitions. For example, Apple bought a lot of companies that probably chose acquisition because they would have been microcap IPOs and thus not tradable by Robinhood users - and maybe that’s really the flip side of this.
Re: A Sober Look at SPACs (2020)
#117Earlier quoted context omitted.
I get how this works but it still doesn't make sense on why i should be able to lend shares that i don't own. The whole idea of shorts in general is kind of messed up. I get shorting is a form of 'Fraud detection', or 'Market stabilization' but betting on a company's failure seems.... not-right.
You don’t only make money if the company fails, but if the market thinks it’s going to succeed at a faster pace than it eventually does. You’re not betting against the company, but the market’s opinion of the company. The alternative to allowing shorting is to only allow stocks to increase in price which is obviously silly.
Okay, Failure might not have been the right word.
Also, my main point was in regard to shorting on borrowed shares. If i'm short a company on borrowed shares I should not be able to further lend those shares out for a short.
But to my secondary point, which seems to be getting the most attention I can only say this. In a pure, utopian world it would be immoral for me to have a vested interest in a company 'Underperforming'. Without Shorting you would not have 'Only an increase in price' - thats silly. There would still be the option to sell your shares and since market dynamics dictates the price of those shares they can potentially fall to zero, thus losing money and if the shares fall enough, you could default on your credit, etc. This mechanism has the same protects a short has against fraud, mismanagement, etc.
The difference here isn't just semantics. If i don't believe in a company, i sell my shares thus lowering the value of the shares (If the market agrees).
Re: A Sober Look at SPACs (2020)
#118Earlier quoted context omitted.
fair enough. but if people want to buy the stock at 350$ why disallow it? we either run with the rules or not. you don’t change the rules when the game no longer worked as you want it to work
RH purportedly didn't change the rules, it was unexpectedly large NSCC capital requirements due to an unexpectedly large level of volume on the week.
Right, but this is still a second-order effect of having more than 100% short on a stock and nobody anticipating it. So this is an example of something bad happening from a situation nobody anticipated. Even if it wasn't nefarious do you agree this is a problem?
I mean it's a problem in the sense we want the markets to be "fair" or at least governed by the rules we've set up, aka the SEC, FTC, etcetera. That's what I mean when I say it's a problem. I don't mean this is necessarily an existential threat on our financial system, but do you agree the markets were not working as intended because of this?
Based on what we know now, it seems like Robinhood (and other brokers) should be regulated differently (not that Robinhood was exactly by-the-books before this debacle). They publicly lied about a cash flow problem which alone seems worthy of fraud (I do not see how this could possibly be interpreted otherwise). They were extremely disingenuous about margin calls, and this is important when they are specifically targeting uneducated investors. I realize nobody was expecting this squeeze and expecting Robinhood (or anyone, including Citadel) to have that foresight isn't reasonable. But why not use the power of hindsight to fix this moving forward?
Re: A Sober Look at SPACs (2020)
#119Earlier quoted context omitted.
Dumb question: how do you decide which SPACs to buy if it's before the LOI and you can't figure out what company they will be hyping?
Look for SPACs close to NAV and plant some seeds. You can almost consider these cash accounts since they won't go much below NAV pre-merger so there is a window of assymmetric risk. Once a target is in place you can do research and decide if you want to adjust. Not everything skyrockets after target is revealed. Canoo and Utz were less sexy plays that paid off and were easily researchable. If you're just chasing hype…
Can you help me understand what this means? A SPAC has a NAV at IPO that then fluctuates. Are you saying to track the NAV and see if the units (or shares?) are close to that value?