GameStop day traders move to SPACs

Now, shares of blank check companies almost always rise. The last 140 PSPCs to go public have posted gains or ended flat on the day they open for trading, according to a Dow Jones Market Data analysis of blank check companies trading through Thursday. One hundred and seventeen in a row rose in their first week. The gains tend to continue, on average generating larger returns for a few months.

The earnings of companies that do not yet have an underlying activity underscore the wave of speculation in today’s markets. Merging with a SPAC has become a popular way for startups in trendy industries to go public and take advantage of investor enthusiasm for futuristic themes.

But lately, day traders are even investing money in PSPCs before they reveal the company they are buying. At this point, it’s all about cash reserves, so investors are betting that the company will end up with a good deal.

Despite the risks, many are embracing the trade, highlighting how online investing platforms and social media groups are now sending individuals flocking to new market corners, including stocks of unprofitable companies like GameStop and AMC Entertainment. Holdings. Inc.

AMC 53.65%

This trend is also evident in everything from stocks of silver miners to PSPCs, which were relatively rare before last year but are suddenly ubiquitous in finance.

“I would just have a bad case of FOMO if I wasn’t in PSPC,” said Marco Prieto, a 23-year-old real estate agent living in Tucson, Arizona, referring to the fear of missing out which leads to many individuals to put money on the markets.

He has a portfolio of approximately $ 50,000 and approximately 60% of his holdings are linked to blank check companies. Some of his positions are early on in shell companies such as Social Capital Hedosophia Holdings Corp. VI,

while others are based on rumors related to possible deals from companies such as Churchill Capital Corp. IV.

The company’s shares have more than doubled since Bloomberg News reported on January 11 that it was in talks to partner with electric car company Lucid Motors Inc. Trading has gotten so frantic that PSPC issued a statement. a week later saying she wouldn’t. t comment on the report and always assess a number of possible transactions. The stock has been running ever since.

Investors who bet on PSPCs even before such reports are extraordinary because the underlying value of a blank check business before closing a deal is the amount of money it collects for a public listing. This figure is generally set at $ 10 per share. Still, it has become common for investors to buy at higher prices such as $ 11 or $ 12 to support the founders of big name PSPCs such as venture capitalist Chamath Palihapitiya and former Citigroup Inc trader. Michael Klein.

In another sign, blank check companies are now frequently traded by individuals, several PSPCs and companies that have merged with them recently joined GameStop and AMC on a list of stocks that had position limits on Robinhood Markets Inc. ., a popular brokerage house for day traders. These restrictions included Churchill Capital IV by Mr. Klein and some SPAC by Mr. Palihapitiya in the Capital Social Hedosophia SPCE 2.74%

franchise.

The rushing stream of money is a concern to skeptics who fear that ordinary investors do not understand the dangers of trading. Even recent losses at a few hot companies such as electric truck start-up Nikola Corp.

NKLA -0.39%

and healthcare company MultiPlan Inc. which merged with blank check companies are not deterring investors because of gains in other PSPCs.

“It’s a huge amount of speculation,” said Matt Simpson, managing partner at Wealthspring Capital and investor PSPC. His company invests when PSPCs go public or shortly thereafter, then profits when stocks rise and typically sells before a trade is closed. He announced an expected return on the strategy of 6% to clients, but last year he returned 20%.

Ninety-one PSPC have raised $ 25 billion so far this year, putting the market on track to break last year’s record of over $ 80 billion, according to data provider SPAC Research. .

Quick gains in stocks can mean big profits for their founders and early investors in blank check companies like Mr. Simpson. These early investors always have the right to withdraw their money before a transaction is completed. Traders who enter later do not have these same privileges, but it has not been a deterrent.

“If you don’t take a risk, there really is no opportunity,” said Chris Copeland, a 36-year-old man from upstate New York who started day trading on the Robinhood platform with his girlfriend on the month. latest. About three-quarters of its portfolio is tied to PSPCs like GS Acquisition Holdings Corp. II.

Trading volumes at many popular blank check companies have increased in recent times, a sign of increased investor activity. This trend is even catching the attention of some of the founders of SPAC.

“It worries me,” said Bill Foley, seasoned investor and creator of PSPC. Trade volumes increased at one of the SPACs founded by hockey team owner Vegas Golden Knights, especially as it announced a $ 7.3 billion deal to take over Blackstone Group Inc.

BX 0.21%

– supported benefit provider Alight Solutions public last week.

One of the reasons traders are branching out into blank check companies when it’s all about cash reserves is that the time it takes for a PSPC to unveil a deal has decreased. Blank control companies normally give themselves two years to acquire a private company, but many these days only need a few months.

Investor speculation about acquiring a blank check business is not slow to develop either, especially as PSPCs can point to the industry in which they hope to strike a deal.

The excitement can be sparked by a PSPC pioneer like Mr. Palihapitiya, who occasionally hints at his more than 1.2 million Twitter followers when the activity is coming up. Former Facebook Inc. executive took over space tourism firm Virgin Galactic Holdings Inc.

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

Even if he invests in a number of blank check companies other than his own – often when PSPCs need to raise more money to close deals – the shares of his own companies can climb as a result of these tweets. One example came on January 21, when one of his blank check companies rose about 4% after Mr. Palihapitiya started a tweet saying “I am finalizing an investment in ‘???.’“

PSPC has since returned those earnings after no news of an acquisition came out and it was revealed that Mr. Palihapitiya’s investments were in companies unrelated to his own. He declined to comment.

Mr Palihapitiya also plunged into the frenzy of activity around GameStop trading, announcing an options trade last week on the stock and taking profits.

Reports of possible mergers like those surrounding the Churchill Capital IV SPAC and a possible combination with Lucid Motors are also quickly attracting hordes of buyers. This blank check company is now owned by many people, including Messrs. Prieto, Copeland and Jack Oundjian, a 40 year old man who lives in Montreal.

“I’m very happy that we have a chance to be able to participate in what could be future unicorn companies,” or startups valued at $ 1 billion or more, Mr. Oundjian said. He said he viewed PSPCs as long-term investments rather than quick deals, and sector-related holdings made up about 30% of his roughly $ 1.2 million portfolio.

Write to Amrith Ramkumar at [email protected]