6 ms·

SPACs should be banned. They’re a vehicle for perpetuation of the market as a gambling platform, while undermining the transparency requirements of the market.

deleted 5y ago
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lordnacho 5y ago
> SPACs should be banned That's just treating the symptoms, though?
- adamcstephens 5y ago
  Sure, but this didn’t seem like the place to discuss replacing the market economy with one which exists in equilibrium with the planet.
ethanolburner 5y ago
"while undermining the transparency requirements of the market" Then why don't you propose to just ban forward-looking projections and including more transparency? SPACs have their distinct use cases and have unique advantages and disadvantages compared with IPOs & DPOs. A blanket-ban on these vehicles is, in my opinion, limiting optionality, which wouldn't be a problem if the IPO & DPO processes were perfect, however, they are not.
- deleted 5y ago
  [deleted]
dehrmann 5y ago
I don't think they should be banned, but I seriously don't understand how someone could invest in one. You don't know what it's going to acquire, so it's a bet that the leadership finds a good company at a good price that you'd be interested in owning. SPACs have nothing else going for them. That said, it sounds a lot like VCs who invest in the founder, not the company.
- cstejerean 5y ago
  As I understand it, if you don’t like what the SPAC acquires you can demand your money back.
  - nikanj 5y ago
    Minus fees, obviously. They make money no matter what drivel they buy.
    - ivalm 5y ago
      I don’t believe minus fees. The fees are generally the extra shares when it de-spacs. In fact for spacs that trade below nav they are like variable cash instruments.
- ethanolburner 5y ago
  I would break SPACs currently in the market down into 2 categories; pre-DA and post-DA. In other words, there are a number of SPACs which have already posted their target company, their financials, future projections, as well as other things like PIPE investors, % SPAC ownership etc. Most of these, due to the current climate, are trading at or slightly above NAV, therefore, they are akin to buying stock in any other company with a small downside if the deal does not materalise [1]. What you would be referring to in your example are pre-DA SPACs, in which you are correct as it relies on the sponsors prior performance and praying they will find a good target at an appetizing valuation. However, even here there is a small downside, since of the 430 SPACs searching for a target [1], the majority are trading at or below NAV with very few breaking this rule, which is why it is so lucrative for investors and arbitrage HFs. For instance, if you do proper due diligence on a particular SPAC sponsor and have mild conviction on their ability to obtain a good target, chances are their SPAC is trading at or below NAV, therefore, it opens an opportunity to invest in something near risk-free. If a deal does not materalize, then you get $10 (or NAV) back, and if it is a good target you reap relatively good rewards. If it is a bad deal or you do not like the company, you have the ability to sell at or near the same price you bought (provided it was close to NAV), since very rarely in the window of post-DA to de-SPAC will the SPAC price fall below NAV. The only significant downside is opportunity cost since the core idea revolves around parking money and not utilizing until the sponsor announces a deal, and other investments even in index funds may have provided higher returns in that timeframe, which could be a good or a bad thing, especially in volatile markets. [1] - https://spactrack.net/activespacs/ https://spactrack.net/activespacs/
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geuis 5y ago
I agree. When I first started hearing about them a few months ago (oddly enough because I was listening to one of Jason Calacanis’s shows with Chamath) they sounded off. Had also just recently rewatched The Big Short. Back in 2006-ish an old boss at the time was doing some hinky shit with penny stocks. First time I had ever heard about them back then. After doing some research to learn about SPACs, the whole concept is incredibly scammy. It’s all just a weird mutated combo of penny stocks and the crap being pulled in 2007. I know, that’s not an exact true definition. I’m trying to make a generalization.
ianai 5y ago
I wonder whether the same laws that legalized stock buybacks had anything to do with SPACs. (Buybacks were long considered insider trading.) Though I suspect spacs may just be too new.

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lordnacho 5y ago

> SPACs should be banned That's just treating the symptoms, though?

adamcstephens 5y ago
Sure, but this didn’t seem like the place to discuss replacing the market economy with one which exists in equilibrium with the planet.

ethanolburner 5y ago

"while undermining the transparency requirements of the market" Then why don't you propose to just ban forward-looking projections and including more transparency? SPACs have their distinct use cases and have unique advantages and disadvantages compared with IPOs & DPOs. A blanket-ban on these vehicles is, in my opinion, limiting optionality, which wouldn't be a problem if the IPO & DPO processes were perfect, however, they are not.

deleted 5y ago
[deleted]

dehrmann 5y ago

I don't think they should be banned, but I seriously don't understand how someone could invest in one. You don't know what it's going to acquire, so it's a bet that the leadership finds a good company at a good price that you'd be interested in owning. SPACs have nothing else going for them. That said, it sounds a lot like VCs who invest in the founder, not the company.

cstejerean 5y ago
As I understand it, if you don’t like what the SPAC acquires you can demand your money back.
- nikanj 5y ago
  Minus fees, obviously. They make money no matter what drivel they buy.
  - ivalm 5y ago
    I don’t believe minus fees. The fees are generally the extra shares when it de-spacs. In fact for spacs that trade below nav they are like variable cash instruments.
ethanolburner 5y ago
I would break SPACs currently in the market down into 2 categories; pre-DA and post-DA. In other words, there are a number of SPACs which have already posted their target company, their financials, future projections, as well as other things like PIPE investors, % SPAC ownership etc. Most of these, due to the current climate, are trading at or slightly above NAV, therefore, they are akin to buying stock in any other company with a small downside if the deal does not materalise [1]. What you would be referring to in your example are pre-DA SPACs, in which you are correct as it relies on the sponsors prior performance and praying they will find a good target at an appetizing valuation. However, even here there is a small downside, since of the 430 SPACs searching for a target [1], the majority are trading at or below NAV with very few breaking this rule, which is why it is so lucrative for investors and arbitrage HFs. For instance, if you do proper due diligence on a particular SPAC sponsor and have mild conviction on their ability to obtain a good target, chances are their SPAC is trading at or below NAV, therefore, it opens an opportunity to invest in something near risk-free. If a deal does not materalize, then you get $10 (or NAV) back, and if it is a good target you reap relatively good rewards. If it is a bad deal or you do not like the company, you have the ability to sell at or near the same price you bought (provided it was close to NAV), since very rarely in the window of post-DA to de-SPAC will the SPAC price fall below NAV. The only significant downside is opportunity cost since the core idea revolves around parking money and not utilizing until the sponsor announces a deal, and other investments even in index funds may have provided higher returns in that timeframe, which could be a good or a bad thing, especially in volatile markets. [1] - https://spactrack.net/activespacs/ https://spactrack.net/activespacs/

deleted 5y ago

[deleted]

geuis 5y ago

I agree. When I first started hearing about them a few months ago (oddly enough because I was listening to one of Jason Calacanis’s shows with Chamath) they sounded off. Had also just recently rewatched The Big Short. Back in 2006-ish an old boss at the time was doing some hinky shit with penny stocks. First time I had ever heard about them back then. After doing some research to learn about SPACs, the whole concept is incredibly scammy. It’s all just a weird mutated combo of penny stocks and the crap being pulled in 2007. I know, that’s not an exact true definition. I’m trying to make a generalization.

ianai 5y ago

I wonder whether the same laws that legalized stock buybacks had anything to do with SPACs. (Buybacks were long considered insider trading.) Though I suspect spacs may just be too new.