GameStop Day traders move on to SPACs

Now, the shares of blank check companies almost always increase. The last 140 SPACs that have been public have posted gains or ended flat on the opening day of their trading, according to a Dow Jones Market Data analysis of trading in blank check companies through Thursday. One hundred and seventeen in a row have increased in their first week. Earnings tend to continue and, on average, generate higher returns until a few months.

The profits of companies that do not yet have any underlying business underscore the wave of speculation in today’s markets. Merging with a SPAC has become a popular way for emerging companies in lively sectors to make themselves public and leverage investor enthusiasm for futuristic topics.

But lately, everyday marketers even put money into SPAC before revealing which company they buy from. At this stage, they are cash funds, so investors are betting that the company will end an attractive deal.

Despite the risks, many are embracing trading, highlighting how online investment platforms and social media groups are now sending people to new corners of the market, including shares of unprofitable companies like GameStop and AMC Entertainment Holdings. . Inc.

AMC 53.65%

This trend is also occurring in everything from the actions of silver miners to SPACs, which were relatively rare before last year, but are suddenly ubiquitous when it comes to finance.

“I would just have a bad case for FOMO if I weren’t at SPAC,” said Marco Prieto, a 23-year-old real estate agent living in Tucson, Arizona, referring to the fear of getting lost that is driving many people to put money on the markets. .

It has a portfolio of approximately $ 50,000 and approximately 60% of its holdings linked to blank check companies. Some of his positions were started in dealerships such as Social Capital Hedosophia Holdings Corp. VI,

while others are based on rumors related to possible deals by companies like Churchill Capital Corp. IV.

Shares of the company have more than doubled since Bloomberg News reported on Jan. 11 that it is in talks to combine it with electric vehicle firm Lucid Motors Inc. Do not comment on the report and a number of possible bids are always being evaluated. Stocks have still been spinning in the coming days.

Investors who bet on SPAC even before these reports are extraordinary because the underlying value of a blank check company before making a deal is the amount of money it collects for a public listing. This figure is usually set at $ 10 per share. However, it has become common for investors to buy at higher prices, such as $ 11 or $ 12, to support founders of big-name SPACs, such as venture capitalist Chamath Palihapitiya and former maker tracts of Citigroup Inc., Michael Klein.

In another sign, companies now frequently market companies, several SPACs and companies that have merged with them recently joined GameStop and AMC in a list of shares that had position limits on Robinhood Markets Inc. Among the restricted were Churchill Capital IV of Mr. Klein and some of Mr. SPAC. Palihapitiya in the Social Capital Hedosophia SPCE 2.74%

franchise.

The flood of money it pours in is a concern for skeptics who worry that everyday investors will not understand the dangers of trading. Even recent losses in some hot companies such as the launch of Nikola electric trucks Corp.

NKLA -0.39%

and the healthcare company MultiPlan Inc. which merged with blank verification companies do not deter investors due to gains in other SPACs.

“It’s a huge amount of speculation,” said Matt Simpson, managing partner of Wealthspring Capital and SPAC investor. Your company invests when SPACs are made public or immediately after, then takes advantage when stocks increase and is usually sold before a deal is finalized. It announced an expected 6% return on strategy to customers, but returned 20% last year.

Nine ninety-one SPACs have raised $ 25 billion so far this year, putting the market on track to break last year’s record of more than $ 80 billion, according to data provider SPAC Research.

Rapid gains in shares can result in great rewards for its founders and early investors in blank check companies like Mr. Simpson. These early investors always have the right to withdraw their money before an agreement is reached. Traders who access it later do not have these same privileges, but this has not been a deterrent.

“If you don’t take risks, there’s really no chance,” said Chris Copeland, a 36-year-old man in eastern New York who started the day trading on the Robinhood platform with his girlfriend last month. About three-quarters of its portfolio is tied to SPAC as GS Acquisition Holdings Corp. II.

The trading volumes of many popular blank check companies have increased recently, an indication of increased investor activity. This trend even catches the attention of some SPAC founders.

“I care,” said Bill Foley, the veteran investor and creator of SPAC. Trading volumes have grown at one of the SPACs founded by Vegas hockey team owner Golden Knights, especially since it announced a $ 7.3 billion deal to take over Blackstone Group. Inc.

BX 0.21%

Advantage provider Alight Solutions was made public last week.

One of the reasons traders enter blank check companies when they are just groups of money is that the time it takes a SPAC to reveal a deal has decreased. Blank check companies typically take two years to acquire a private company, but many of them only need a few months.

It also doesn’t take long to build investor speculation about acquiring a blank check company, especially because SPACs can indicate the sector in which they expect to complete a deal.

The excitement can be triggered by a SPAC pioneer like Mr. Palihapitiya, who sometimes makes his more than 1.2 million Twitter followers notice as the activity approaches. The former Facebook Inc. executive took the space tourism firm Virgin Galactic Holdings Inc.

public in 2019 and last month reached an agreement with Social Finance Inc.

While you invest in several blank check companies other than your own, often when SPACs need to raise more money to end operations, the shares of their own companies can go up after these tweets. An example was on January 21, when one of his blank check companies rose by about 4% after Mr Palihapitiya started a tweet saying “I’m finalizing an investment in” ???. “”

Since then, the SPAC has returned these gains after no news of an acquisition was released and it was revealed that Mr Palihapitiya’s investments were in companies unrelated to his. He declined to comment.

Palihapitiya has also thrown itself into the frenzy of activity around GameStop trading, posting an options trade last week in stocks and making profits.

Reports of possible mergers such as those surrounding Churchill Capital IV SPAC and a possible combination with Lucid Motors are also quickly attracting hordes of buyers. This blank check company is now owned by many people, including Messrs. Prieto, Copeland and Jack Oundjian, a 40-year-old living in Montreal.

“I’m very excited to have the opportunity to participate in what could be future unicorn companies” or startups valued at $ 1 billion or more, Oundjian said. He said he considers SPACs to be long-term investments rather than quick operations, and that sector-linked holdings account for about 30% of his $ 1.2 million portfolio.

Write to Amrith Ramkumar at [email protected]