5 Experts Warn Retail Investors to Be Cautious Regarding SPACs
Nov 1, 2021
Donald Trump’s latest deal sparked a retail trading frenzy and led some to argue that the former US president is making SPACs great again. After it was announced that Trump Media & Technology Company will go public by merging with Digital World Acquisition Corp., shares in the blank-check company soared by over 1,000% to the $130 level. That briefly gave Trump’s new venture an implied value of over $8 billion. A Special Purpose Acquisition Company, or SPAC, raises capital through a public listing before merging with an existing firm. These vehicles surged in popularity earlier this year, with 298 SPACs priced in the first three months of 2021, although activity levels have fallen in subsequent quarters.
One investment firm made $136 million on paper because they previously owned DWAC shares, while Bloomberg reported that two retail traders it spoke to made at least $12,000. Analysts compared the surge in investor interest to companies like GameStop and AMC, which achieved ‘meme stock’ status earlier this year. “DWAC is certainly attractive to the day-trading Reddit speculator set,” Julian Klymochko, whose firm Accelerate Financial Technologies offers a SPAC exchange-traded fund, told Insider in a recent interview. “Over the past week it was the second-most traded stock behind Tesla — and everyone knows that people like to speculate on Tesla.”
Jim Osman founded the Edge Consulting Group, a research firm that analyzes special-situation investments. He agreed that DWAC has quickly achieved meme-stock status. “GameStop is a great analogy,” Osman told Insider. “In fact, this could be the first meme SPAC.” But that status means investors should be extra cautious before placing their bets. Insider spoke to Klymochko, Osman, and other experts about DWAC’s price volatility, Trump’s plans for a new social media platform, and the future of the SPAC market.