{"id":9114,"date":"2020-12-10T15:35:21","date_gmt":"2020-12-10T15:35:21","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9114"},"modified":"2022-02-26T13:05:59","modified_gmt":"2022-02-26T13:05:59","slug":"spacs-are-2020s-hot-new-investment-but-what-are-they","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/spacs-are-2020s-hot-new-investment-but-what-are-they\/","title":{"rendered":"SPACs Are 2020\u2019s Hot New Investment \u2026 But What Are They?"},"content":{"rendered":"\n

Mike J. from\nCambridge, MA asks: <\/em>Hello Mitch, I\u2019ve been reading a lot lately about\nSpecial Purpose Acquisition Companies, and was thinking about investing in one.\nCurious to hear your thoughts on them, maybe some pros and cons, etc. Thank\nyou. <\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for writing, Mike. Special purpose acquisition\ncompanies (SPACs) have been the talk of the town in 2020, with a record amount\nof deal-making and heightened investor interest. I\u2019m glad you asked about them.\nThere have been an increasing number of first-time SPAC investors this year, and\nI\u2019m concerned that some folks are not doing enough research and due diligence\nbefore investing.<\/p>\n\n\n\n

Let me start by explaining what SPACs are, for readers who\nmay not be familiar. SPACs have also been called \u201cblank check companies,\u201d as\nthey are essentially shell companies formed\nto raise enormous amounts of cash. SPACs raise the cash in order to then target\nand acquire companies\u2014often start-ups with flashy new products and growth\nprofiles\u2014with the ultimate goal of taking the company public at\nwindfall-generating valuations.1<\/sup><\/p>\n\n\n\n

____________________________________________________________________________<\/p>\n\n\n\n

9 of the Biggest Financial Mistakes to Avoid When Planning Your Retirement<\/a><\/strong><\/p>\n\n\n\n

It\u2019s important for investors to take their time when\nconsidering future financial situations. Trying to find a one-size-fits-all\nstrategy for investing could lead to future mistakes. When planning for your\nretirement, questions may spark \u2013 What does the future look like for me? What\nmistakes can I avoid?<\/p>\n\n\n\n

See what we believe are the biggest mistakes investors make\nwhen planning for their financial future and how to avoid them with our guide,\n\u201c9 Retirement Mistakes to Avoid.\u201d<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn\nmore, click on the link below:<\/p>\n\n\n\n

Learn About the 9 Retirement Mistakes to Avoid!<\/a>2<\/sup><\/strong><\/p>\n\n\n\n

____________________________________________________________________________<\/p>\n\n\n\n

The appeal of SPACs\nis the same type of appeal that draws investors to the IPO markets: the\npossibility of fast, outsized returns gained from investing in a small start-up\nor a company with major growth potential. But on the other side of the SPAC\ncoin is what investors should expect to find \u2013 high risk. <\/p>\n\n\n\n

For one, start-ups\nand other companies that go public via SPACs don\u2019t face the same constraints as\ntraditional IPOs, particularly in the realm of financial disclosures and\nprojections. For instance, companies that go public via SPACs often tout wildly\npositive growth expectations, but traditional IPOs would be sued by the federal\ngovernment for doing the same thing.<\/p>\n\n\n\n

Here\u2019s a\ncase-in-point for you: through mid-November, SPACs had announced 71 deals with\ntarget companies (a record). But upon closer examination, you find that 15 of\nthese SPAC companies made no revenue last\nyear<\/em>. One recent, noteworthy deal involved an electric-vehicle maker named Fisker\nInc, which went public in October via a SPAC with a $4 billion market\ncapitalization. The company projected it would make over $13 billion in revenue\nby 2025. These are huge numbers, but guess what \u2013 to date, Fisker hasn\u2019t generated a penny of revenue<\/em>. Long-time\nreaders of my columns know this isn\u2019t the type of investment I\u2019m very\ninterested in. <\/p>\n\n\n\n

What\u2019s more, SPACs\ndo not have a very good record of delivering returns. Of the 107 SPACs that\nhave gone public since 2015, their stock\u2019s average return has been about 1.5%.\nOver the same period, companies that went public via IPO sport an average\nreturn of 49%. 2020 has been a much better year for SPACs, to be sure, with the\nyear-to-date average return hovering around 17%. Maybe this is where a lot of\nthe interest is coming from today. But I\u2019d urge readers to understand what\nyou\u2019re buying, and to take extra time to scrutinize what valuation\nyou\u2019re paying for future cash flows. In some cases, a SPAC investment may mean investing in companies that have yet to generate positive cash flows<\/em>. That\u2019s\nnot a very sound long-term strategy, in my view. <\/p>\n\n\n\n

One mistake we have seen investors make is focusing on\nshort-term movements without paying attention to key details or the long-term\noutlook. We advise you to not fall prey to this mistake. <\/p>\n\n\n\n

There are common mistakes and habits that we believe can\nhelp some investors succeed while others fail. To help you understand some of\nthese mistakes and how to avoid them, we have created the guide, \u201c9 Retirement\nMistakes to Avoid.\u201d4<\/sup><\/p>\n\n\n\n

In this guide, we provide our thoughts on what we believe\nare 9 of the biggest retirement mistakes investors should avoid. If you have\n$500,000 or more to invest and want to learn more, click on the link below: <\/p>\n","protected":false},"excerpt":{"rendered":"

Special purpose acquisition companies (SPACs) may sound intriguing, but Mitch urges doing your research <\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9114","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9114","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9114"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9114\/revisions"}],"predecessor-version":[{"id":10494,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9114\/revisions\/10494"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9114"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}