It's All About SPACs

There are countless ways the 2020 stock market will be remembered in the history books. A painful selloff, a crazy rally, and stock prices that seem disconnected from economic reality. But the rapid change in investors' appetite for risk is most apparent in the demand for initial public offerings, and, more specifically, special purpose acquisition companies, or SPACs, for short. 

SPACs are a unique investment vehicle, in which investors essentially hand a blank check to executives to go find a business. Some of the year's biggest success stories started as SPACs, including electric truck maker Nikola, online betting company DraftKings, and space exploration firm Virgin Galactic Holdings. All three of those companies are up more than 100% year to date. Some 55 SPACs have gone public so far this year. Some of them are still searching for businesses to buy.

Noted hedge fund investors Bill Ackman is leading his own SPAC. Billy Beane, the Oakland A's general manager, of Moneyball fame, is involved with another one. 

So should you be investing alongside SPACs? After all it's about as close as most retail investors can get to being a venture capitalist. My fellow Review & Preview writer Nicholas Jasinski answered that question and much more in his Barron's cover story this past weekend. The simple answer is, probably not. Sorry.

SPACs demand caution, knowledge of complex details, and a willingness to dig through Securities and Exchange Commission filings.

And, yet SPACs aren't going anywhere. And they're likely to be an increasingly important part of the IPO dynamic. Ackman wants to make a major splash when his SPAC finds its target. “We want one of the great businesses of the world that we’re happy to own for a decade," the noted investor told Nick. “We’re a unicorn looking to marry another unicorn.” Nick adds: 

A guessing game of what Ackman could buy has been making the rounds on Wall Street. Giant unicorns like home-sharing upstart Airbnb and data company Palantir Technologies are among the names most speculated about for a merger, as is financial information behemoth Bloomberg.

SPACs are a complicated subject but get used to hearing more about them. Nick has much more in his cover story here.