GameStop Day traders are moving to SPACs

Now, the shares of companies with empty checks almost always increase. The last 140 SPACs that went public were either earnings or fixed on the opening day of trading, based on an analysis of Dow Jones market data on trading in unverified companies through Thursday. One hundred and seventeen in a row grew in their first week. Earnings tend to continue, averaging higher returns for up to a few months.

Earnings from 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 startups in vibrant sectors to go public and take advantage of investor enthusiasm for futuristic themes.

But lately, everyday retailers are actually putting money into SPACs before revealing which company to buy. At that stage, these are cash funds, so investors bet that the company will eventually close an attractive deal.

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

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This trend is also evident in the actions of silver miners in SPACs, which were relatively rare before last year but are suddenly ubiquitous in finance.

“I would have a bad case of FOMO if I weren’t in SPACs,” said Marco Prieto, a 23-year-old real estate agent who lives in Tucson, Arizona, referring to the fear of losing. leads many individuals to put money on the markets.

He has a portfolio of about $ 50,000 and about 60% of his holdings are related to empty check companies. Some of his positions are in their infancy in shell companies, such as Hedosophia Holdings Corp. VI,

while others are based on rumors of possible corporate transactions, including Churchill Capital Corp. IV.

The company’s shares have more than doubled since Bloomberg News reported on Jan. 11 that it is in talks to merge with electric car company Lucid Motors Inc. Do not comment on the report and that it always evaluates a number of possible offers. The stock continued to rotate in the days since.

Investors who bet on SPACs even before such reports are extraordinary, because the basic value of a blank checking company before concluding a transaction is the amount of money it raises 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 renowned SPAC founders such as venture capitalist Chamath Palihapitiya and former Citigroup Inc. transaction maker Michael Klein.

In another sign, companies with empty verification are now frequently traded by individuals, several SPACs and companies that merged with them recently joined GameStop and AMC on a list of shares that have position limits at Robinhood Markets Inc., a popular intermediary for day traders. Restricted include Mr Klein’s Churchill Capital IV and some of Mr Palihapitiya’s SPACs in Hedosophia SPCE 2.74%

franchise.

The flood of money is a concern for skeptics, who fear that everyday investors do not understand the dangers of trade. Even the recent losses of several hot companies, such as the start-up of Nikola electric trucks Body.

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and healthcare company MultiPlan Inc., which has merged with the companies with incomplete verification, does not discourage investors because of earnings from other SPACs.

“It’s a tremendous amount of speculation,” said Matt Simpson, managing partner at Wealthspring Capital and SPAC investor. His firm invests when SPACs become public or immediately thereafter, then profits when shares typically grow and sell before a transaction is completed. He announced an expected return on the 6% strategy to customers, but returned 20% last year.

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.

Quick earnings of shares can lead to great rewards for their founders and for the first investors in companies with empty checks, such as Mr. Simpson. These first investors always have the right to withdraw their money before concluding a transaction. Traders who enter later do not have the same privileges, but this was not a deterrent.

“If you don’t risk it, there’s no chance at all,” said Chris Copeland, a 36-year-old from upstate New York who began trading on the Robinhood platform with his girlfriend last month. About three-quarters of its portfolio is related to SPACs, such as GS Acquisition Holdings Corp. II.

The trading volumes of many popular vacuum verification companies have increased recently, an indication of the increased activity of investors. This trend even attracts the attention of some SPAC founders.

“I’m worried,” said veteran investor and SPAC creator Bill Foley. Trading volumes rose in one of the SPACs founded by Vegas hockey team owner Golden Knights, especially as it announced a $ 7.3 billion deal to take over Blackstone Group Inc.

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-provided by the public benefit provider Alight Solutions last week.

One of the reasons merchants go into companies with empty checks when they are just cash is that the time it takes for a SPAC to reveal a business has decreased. Normally, companies with free verification give themselves two years to acquire a private company, but many today only need a few months.

It also doesn’t take long for investors’ speculation about acquiring a blank check company to build, especially since SPACs can indicate the sector in which they hope to complete a transaction.

Enthusiasm can be triggered by a SPAC pioneer, such as Mr. Palihapitiya, who sometimes suggests to his more than 1.2 million Twitter followers when the activity comes. Former Facebook Inc. executive took over the space tourism company Virgin Galactic Holdings Inc.

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

Even if he invests in a number of companies with blank checks other than his own – often when SPACs have to raise more money to complete transactions – the shares of his own companies can go up following such tweets. An example came on January 21, when one of his companies with empty checks grew by about 4% after Mr Palihapitiya started a tweet saying “Am I completing an investment in” ??? ”.”

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

Mr Palihapitiya also threw himself into the frenzy of activity around GameStop trading, advertising and taking advantage of a stock option trade last week.

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 vacuum verification firm is now owned by many individuals, including Prieto, Copeland and Jack Oundjian, a 40-year-old man living in Montreal.

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

Write to Amrith Ramkumar at [email protected]