If you put your money in the bank, you can withdraw the same amount at a later date.
That’s appealing to many of us.
We need the money to pay bills, make a major purchase and for peace of mind.
If this appeals to you, I want to tell you about another place to put some of your excess money. It’s like a bank account in many respects but offers much more upside.
In fact, you may want to consider putting some of your money in this type of asset instead of in the bank.
I’m talking about SPACs, or special-purpose acquisition companies.
No, I haven’t gone off the deep end. I’m serious. Hear me out…
There’s a Better Way to Store Your Cash
SPACs may sound complex, but they’re really not.
A SPAC is just a shell company. A place to store cash until it’s needed. That’s it.
SPACs raise money to do a deal. The intent is to take part in a deal to bring a private company public.
The most high-profile SPACs are the ones sponsored by notable people.
Bill Ackman is the head of Pershing Square Capital Management. He’s one of the most famous hedge fund managers.
His SPAC is Pershing Square Tontine Holdings (NYSE: PSTH). It hasn’t found a company to merge with yet.
Sir Richard Branson made a $25 million investment in VG Acquisition Corp. (NYSE: VGAC).
VG stands for Branson’s Virgin Group. VG is taking DNA testing company 23andMe public.
More famously, Branson took his space travel company Virgin Galactic (NYSE: SPCE) public via a merger with a SPAC led by billionaire Chamath Palihapitiya. It’s been quite a ride so far:
Many SPACs Are a Great Value Today
The right-hand side of the chart shows our opportunity.
Shares of SPCE and many SPACs are down. And that’s great for us!
SPACs were so cool for a time that they became overbought. Their fundamentals didn’t support their prices.
But things are different now. And no matter what you’ve heard, many SPACs are a great value today.
You see, most SPACs go public at $10. That means they hold $10 of cash for each share outstanding. (There are exceptions. Bill Ackman’s SPAC went public at $20 per share.)
This is like putting your money in the bank. But if you put $1,000 in the bank, you will at best earn some meager interest.
The best savings accounts on bankrate.com today pay 0.5% interest. That would be worth about $5 in interest to you over a year.
Putting your money in a SPAC isn’t that different.
The firms that sponsor the SPAC — like Ackman’s — have a deadline by which they must do a deal. If they can’t find a deal, investors get their money back ($10 per share in most cases) with interest.
If you get your money back — either because the sponsors don’t find a deal or because you choose to redeem your shares — it’s just like if you had put your money in the bank. You get $10 per share plus interest.
The difference here is you have upside. If you hold on to your shares (i.e., “keep your money in the bank”), you will get a piece of the new company. If that company executes, your shares will be worth more than $10.
Improve Your Upside When Investing in SPACs
I ran a Bloomberg search and learned there are 246 SPACs that trade between $9 and $10 a share today.
These are SPACs that you can buy for $9, let’s say, but are worth $10. If it sounds simple, it is.
No doubt, this requires some faith. What if the SPAC pays too much for the deal? This could be an issue.
After all, it’s not like the SPAC sponsors want to give the money back. They collect about a 20% take in the merged company.
That’s why it’s important to invest in SPACs run by people that you can trust. Or SPACs with a history of doing profitable deals.
To me, the upside makes up for the potential issues.
For example, fantasy sports betting site DraftKings Inc. (Nasdaq: DKNG) went public as a SPAC last year.
The original SPAC listed in May 2019 at $10 a share. It rose above $70 in March. And DKNG shares closed on Wednesday at $58.88.
That means a $1,000 investment is now worth $5,888.
It would take more than 350 years at a 0.5% interest rate to turn the same deposit into $5,888 in the bank.
Of course, there’s no guarantee the SPAC will work out. Not every SPAC will rise 6X.
But some will!
The ways to improve your upside when investing in SPACs are:
- Buy SPACs led by credible financial sponsors.
- Search sites with information on SPACs. SPACInsider is one example.
- Dig into the numbers when you learn about a deal. Try to determine how the value offered compares to the current price. The SPAC will file a Form S-4 with the Securities and Exchange Commission. It will include information on the proposed deal.
- Invest with someone you can trust. See below…
Ian King Is an Expert on SPACs
Ian King was a superstar on Wall Street for many years. But he had a higher calling. Now he helps regular Joes and Janes sift through the maze of Wall Street to make money.
He’s also an expert on SPACs. You see, SPACs aren’t new. They’ve been in use for decades.
They’re just more popular today. This is great because they’re easier to access than initial public offerings.
It’s tough to sort through the hundreds of SPACs that are out there today. If you need someone to help guide you through this landscape, Ian’s your guy.
And his analyst, Steve Fernandez, is a numbers guru. They make a great team.
Ian has 10 open SPAC trades in his New Era Fortunes newsletter right now. And many of them are in buy range.
Click here to learn more. At the very least, you should learn something from this presentation.
And if you dip your toe into the space, there’s something to keep in mind. If you pay $10 or less for something that you can redeem for $10, you can’t lose.
For as much as we’ve heard about SPACs, I haven’t heard anyone compare them to bank accounts. But they should. I think they’re better than bank accounts.
(To be clear, though, I don’t recommend you put money you need to pay bills into SPACs. This idea is for money you don’t need in the near future.)
We aren’t hearing enough about how cheap SPACs are today. But don’t delay. These discounts won’t last!
Good Investing,
Editor, Profit Line