You’ve probably heard of special-purchase acquisition companies—SPACs for short—which raise money in initial public offerings from investors without actually revealing how they plan to deploy it, and then trade on exchanges—often at high multiples—with nothing more to offer investors than cash in the bank and the promise to someday invest it wisely.  Eventually, the SPAC will buy a private company or two, and shareholders in the resulting public company will have, in theory, a viable business in their portfolios.

In theory?  There is something of a SPAC boom going on right now; the marketplace has roughly 600 of them on the market, so many that they’re having a hard time raising the cash for whatever mysterious purposes they plan for it.  As a result, some of the offerings have cast around for celebrity names to attach to their ventures—and you can probably predict the results.  Of the 33 SPACs tied to famous figures, 21 posted negative returns for 2021.  If an unlucky investor had invested alongside all 33 celebrities, he or she would have experienced an 11% drop in value.

The cannabis-focused Parent Company associated with rapper Jay-Z has experienced a particularly awful 84% plunge, and Beachbody, with ties to Shaquille O’Neal, and Martha Stewart’s AppHarvest, Inc. were both down 66% in 2021.  Meanwhile, during the same time period, the boring S&P 500 index was churning out a 27% gain—before dividends.

Not that other SPACs were doing much better.  In fact, the DeSPAC Index, which is tracking 25 companies that went public by merging with a SPAC, is down more than 40% this year.  A broader IPOX SPAC Index of 50 SPACs that have made purchases and some that have not, is down 16%.

Just like you may not want to purchase your face cream from actress Gwyneth Paltrow (how does acting make you an expert in molecular biology?), you may want to exercise the same caution when a celebrity recommends an “investment.” We think this opens an even broader conversation about who we trust for guidance in our financial lives. Please remember that success in one area – football, acting, dentistry, real estate, leading the PTA, etc. – does not automatically equate to the vast financial market, economic, and personal knowledge required to provide YOU with financial guidance.

 

Every client that walks through our door is family. Your goals are our goals, and that’s why we work hard to provide a true Place of Possibility™, so we can help you meet and exceed them. Our wealth management services work to navigate life transitions and take advantage of unique planning opportunities that leave you feeling calm and confident. We offer solutions based on you and your needs, not strategies that make us a quick buck. No matter how life unfolds, we’ll help you connect the dots and always have your back. The door to our Alamo, CA-based headquarters is always open. How can we assist you? Call us at 925.736.6410, send an email to Info@APlaceOfPossibility.com or jump right into our calendar and select a date and time that works for you and let’s talk.

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