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We’ve seen pre-revenue companies that promised flying cars and other obvious scams go public via SPACs. If you don’t consider that SPAC abuse your bar is a lot

by gizmo 4y ago

We’ve seen pre-revenue companies that promised flying cars and other obvious scams go public via SPACs. If you don’t consider that SPAC abuse your bar is a lot lower than mine. These are companies that had no chance of surviving the more serious road show due diligence that the likes of GS demand when they take startups public. Instead we saw popular podcasts push their SPACs on gullible retail investors, based on fuzzy concepts like disruption and TAM. Subsequently these SPACs lost 90% of their value and the insiders made bank. I hope to see jail sentences for the more shameless SPAC pump and dump players.

lotsofpulp 4y ago
Index ETFs have been around for 15+ years now, and the advice is widely known that if you are an uneducated investor without inside information or some type of edge, you should stick to sub 0.15% expense ratio index funds. It is so easy nowadays that all you have to do is figure out the year you want to retire and buy that year’s target date fund and forget about it. If people want to gamble, then that is their problem.
- gizmo 4y ago
  I'm not sure what your argument is. Sophisticated investors don't invest in obvious scams. That's tautologically true. Does that mean we should just watch and do nothing while people get scammed? The thing is, nobody is born sophisticated and there are many ways to get hurt in financial markets in the absence of scams even if you're intelligent and do your homework. You mention index trackers, but they are no silver bullet. Their mechanism is basically to buy more of stocks that go up, and to sell those stocks that stumble badly. The more people rely on index trackers (exchange traded or not) the more volatile they'll become, and because index funds use such a simple trading strategy it's easy to front-run or otherwise exploit them. Furthermore, index trackers depend on active investors for price discovery, and the fewer active investors you have the worse index funds will perform. Relying on a vanguard ETF might continue to work, but to assume that it will is hopelessly naïve. It's no coincidence that ETFs got so popular with interest rates at 0 and a fed that made stonks go up.
  - fallingknife 4y ago
    You can buy a 2x levered daily vix ETF. You can buy 0dte options. You can buy options on the aforementioned ETF. You can go to a casino and put all your money on the roulette wheel. What is so risky about spacs that they need special attention?
    - gizmo 4y ago
      Should publicly listed companies should publish their financial results every quarter? Do they have to use GAAP or can they make up their own financial metrics? What do you think would happen if we removed the regulations surrounding financial disclosure for public companies? The questions are rhetorical. Companies will rob their shareholders blind if you let them. You can't just be "lol caveat emptor". (Casinos also cheated players shamelessly in the good old days before regulatory oversight.)
      - fallingknife 4y ago
        Yeah I can just like I am about all those other great ways to lose money that I just posted. But, I'm really not getting your point here. SPACs have to report financial results just like any other public company. They aren't allowed to commit fraud any more than any other company.
        gizmo 4y ago
        SPACs are basically an incorporated bag of money, so yes, while they technically have the same disclosure requirements as any other public company the disclosures won't tell you anything. There is no Form S-1 for SPAC acquisition targets. A conventional IPO has a number of roadblocks for fraudsters. First they have to convince a reputable investment bank (like Goldman Sachs) to take them on as a client. Then the CEO and CFO of the company have to go on a grueling road show where they talk to groups of sophisticated investors, present their business prospects, and answer difficult questions. The IPO doesn't happen if those investors aren't willing to pay up, or if the investment bank feels like management is not transparent about their realistic business prospects. With a SPAC you have none of that. You can have a slide deck and a webcast and make outrageous claims and nobody will call you out on it. The company and SPAC sponsor can dump their shares on retail investors who think they are investing alongside the executives and SPAC sponsor, when in reality they are their exit liquidity.
- tivert 4y ago
  >> Instead we saw popular podcasts push their SPACs on gullible retail investors, based on fuzzy concepts like disruption and TAM. Subsequently these SPACs lost 90% of their value and the insiders made bank. I hope to see jail sentences for the more shameless SPAC pump and dump players. > Index ETFs have been around for 15+ years now, and the advice is widely known that if you are an uneducated investor without inside information or some type of edge, you should stick to sub 0.15% expense ratio index funds.... > If people want to gamble, then that is their problem. So what? It's also well known that the IRS doesn't take payment in iTunes gift cards. So do you think if people get scammed, it is their problem for not knowing better? Should we just repeal all the laws against fraud and scams, because caveat emptor? The behavior described in the GP post is unacceptable, and the fact that someone theoretically should have known better doesn't excuse it.

by gizmo 4y ago

lotsofpulp 4y ago

Index ETFs have been around for 15+ years now, and the advice is widely known that if you are an uneducated investor without inside information or some type of edge, you should stick to sub 0.15% expense ratio index funds. It is so easy nowadays that all you have to do is figure out the year you want to retire and buy that year’s target date fund and forget about it. If people want to gamble, then that is their problem.

gizmo 4y ago
I'm not sure what your argument is. Sophisticated investors don't invest in obvious scams. That's tautologically true. Does that mean we should just watch and do nothing while people get scammed? The thing is, nobody is born sophisticated and there are many ways to get hurt in financial markets in the absence of scams even if you're intelligent and do your homework. You mention index trackers, but they are no silver bullet. Their mechanism is basically to buy more of stocks that go up, and to sell those stocks that stumble badly. The more people rely on index trackers (exchange traded or not) the more volatile they'll become, and because index funds use such a simple trading strategy it's easy to front-run or otherwise exploit them. Furthermore, index trackers depend on active investors for price discovery, and the fewer active investors you have the worse index funds will perform. Relying on a vanguard ETF might continue to work, but to assume that it will is hopelessly naïve. It's no coincidence that ETFs got so popular with interest rates at 0 and a fed that made stonks go up.
- fallingknife 4y ago
  You can buy a 2x levered daily vix ETF. You can buy 0dte options. You can buy options on the aforementioned ETF. You can go to a casino and put all your money on the roulette wheel. What is so risky about spacs that they need special attention?
  - gizmo 4y ago
    Should publicly listed companies should publish their financial results every quarter? Do they have to use GAAP or can they make up their own financial metrics? What do you think would happen if we removed the regulations surrounding financial disclosure for public companies? The questions are rhetorical. Companies will rob their shareholders blind if you let them. You can't just be "lol caveat emptor". (Casinos also cheated players shamelessly in the good old days before regulatory oversight.)
    - fallingknife 4y ago
      Yeah I can just like I am about all those other great ways to lose money that I just posted. But, I'm really not getting your point here. SPACs have to report financial results just like any other public company. They aren't allowed to commit fraud any more than any other company.
      - gizmo 4y ago
        SPACs are basically an incorporated bag of money, so yes, while they technically have the same disclosure requirements as any other public company the disclosures won't tell you anything. There is no Form S-1 for SPAC acquisition targets. A conventional IPO has a number of roadblocks for fraudsters. First they have to convince a reputable investment bank (like Goldman Sachs) to take them on as a client. Then the CEO and CFO of the company have to go on a grueling road show where they talk to groups of sophisticated investors, present their business prospects, and answer difficult questions. The IPO doesn't happen if those investors aren't willing to pay up, or if the investment bank feels like management is not transparent about their realistic business prospects. With a SPAC you have none of that. You can have a slide deck and a webcast and make outrageous claims and nobody will call you out on it. The company and SPAC sponsor can dump their shares on retail investors who think they are investing alongside the executives and SPAC sponsor, when in reality they are their exit liquidity.
tivert 4y ago
>> Instead we saw popular podcasts push their SPACs on gullible retail investors, based on fuzzy concepts like disruption and TAM. Subsequently these SPACs lost 90% of their value and the insiders made bank. I hope to see jail sentences for the more shameless SPAC pump and dump players. > Index ETFs have been around for 15+ years now, and the advice is widely known that if you are an uneducated investor without inside information or some type of edge, you should stick to sub 0.15% expense ratio index funds.... > If people want to gamble, then that is their problem. So what? It's also well known that the IRS doesn't take payment in iTunes gift cards. So do you think if people get scammed, it is their problem for not knowing better? Should we just repeal all the laws against fraud and scams, because caveat emptor? The behavior described in the GP post is unacceptable, and the fact that someone theoretically should have known better doesn't excuse it.