WARNING About Buying SPAC Stocks (Beware of Holding SPACs Through a Merger)

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Are you considering buying a SPAC stock before the SPAC has merged with a target company? Please make sure to watch this video all the way through because I'm covering the biggest reasons why you should not buy SPACs before they've completed a merger. There is a ton of hype around Special Purpose Acquisition Companies right now, but nobody seems to be warning retail investors about the risks associated with investing in SPACs. I reference a research paper by Michael Klausner from Stanford and Michael Ohlrogge From NYU on all of the 47 SPACS that merged between January 2019 and June 2020:

https://papers.ssrn.com/sol3/papers.c...

SPACs are a great deal for the sponsor who gets 20% of post-IPO equity for free and a group of early SPAC IPO investors known as the "SPAC Mafia" abuse the fact that they can redeem SPAC shares at the time a merger is proposed while getting to retain the warrants and rights that came with the units they purchased in the SPAC IPO. A SPAC typically sells shares to one set of investors in its IPO and then to another set of investors when it comes time to merge with a target company. Almost all pre-merger shareholders exit at the time of the merger. This SPAC Mafia group is legally able to consistently invest in SPAC IPOs with absolutely no intention of actually holding their shares through the merger with the target company. They get a healthy return on their investment by redeeming their shares plus interest and still get to retain those warrants and rights for the future merged company for free. This is all at the expense of the investors that buy later and hold shares through SPAC mergers. What I want you to take from this video is that you need to be very cautious if you’re considering investing in a SPAC AFTER they’ve already gone IPO, but before they’ve merged with a target company. You have no idea what company you’re actually investing in and maybe even more importantly, you don’t know how much dilution there will be at the time of the merger after the SPAC mafia redeem their shares and claim their warrants and rights. So if you can’t buy into the SPAC’s IPO by purchasing the 10 dollar units with warrants then you essentially missed the ONLY opportunity to make money and you should just WAIT until post-merger when you know what company you’re investing in. It’s OKAY to invest in SPACs after they’ve already merged with their target company and the dilution caused by the SPAC structure has already been factored into the new stock price. At that point it’s just like investing in any other publicly traded company like Draftkings or Virgin Galactic after their SPAC mergers. It’s sooo much safer to just invest in known companies. And if you’re still not convinced, remember that the average SPAC has a NEGATIVE return after 3, 6, and 12 months so why take on that extra risk when you don’t have to. You can simply just wait to find out what you’re actually investing in.

Pershing Square Tontine Holding (PSTH), a new kind of SPAC from Bill Ackman by eliminating the sponsor promote and revising the redemption rights for SPAC IPO investors. Hopefully other SPACs adopt this structure, but I'm not holding my breath.

00:00 Intro
02:05 Sponsor's Conflict of Interest
03:42 Negative Returns for Retail Investors
04:01 SPAC Mafia and Early Redemptions
07:38 Alternative to Buying SPACs Pre-Merger
08:52 PTSH
11:09 Final Thoughts

I’m not a financial advisor so you really need to do your own research before investing in anything. Especially something as risky as a SPAC.

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