The Five Keys to Successful SPAC Trading and Investing

In the first of my three-part series on SPACs, I outlined exactly what Special Purpose Acquisition Companies (SPACs) are, how they work, and the 400%, 500%, or more in gains they can yield investors.

Unless you’ve been hiding from the market, and heaven help you if you have been, you know SPACs are the hottest sector out there right now, and with good reason. There are new SPAC IPOs being minted literally daily, sometimes two or three a day. Traders are playing them, and investors are plowing into them. And there are going to be spectacular winners. And there are going to be lots of losers.

What you need to know, because there are so many SPACs coming out, is which ones are going to be the winners and which ones are going flounder or fail. Because, needless to say, not all SPACs are created equal, and any advice you’ve heard about skimming the cream of the SPAC crop is probably very wrong.

While the likes of QuantumScape Corp. (NYSE:QS) can hit a whopping 1,200% peak during their run, other enticing-looking SPACs can be snakes in the grass. The difference between knockout winners and bottom-of-the-barrel slugs isn’t always obvious.

That’s because there are lots of nuances, lots of details that matter when it comes to SPAC sponsors and founders, the teams they convene to look for acquisition targets, the price they pay for operating companies, how those acquisition targets are valued before a deal is reached, who invests in target companies under what deal and valuation terms before they are acquired, who are the investors providing PIPE (private equity in public companies) financing for the acquisition/merger deal and what are their incentives and deal terms, how much operating capital will be injected into the new company, what are its real prospects?

Those aren’t hard questions to answer. In fact, the answers are simple, you just have to know where to look for all those details, because they’re out there. They’re in deal documents, in disclosures, in regulatory filings, in proxy materials.

They’re everywhere I look. And I look everywhere.

But you may not be looking everywhere, so to consistently cash in on the winners while dodging the losers that could drain away your profits, you need a powerful but simple strategy to follow.

And I have one.

I’m giving you that strategy, the five keys to successful SPAC trading, right here, right now in Total Wealth – so that you can start making money today.

The Five Keys to Successful SPAC Trading and Investing

I’ve been trading for a long time – as a seat owner and market-maker on the floor of the Chicago Board of Options Exchange in the early 1980s, as the head of the futures and options division of one of the United Kingdom’s biggest bank, as a hedge fund manager, as an investor and an entrepreneur in the trading and investing space. And I long ago made a “discovery” that’s helped define my career – and the investing results of those who’ve invested in me and with me and those who’ve followed my work.

That discovery, which came after several early years of mining and drilling down into the depths of strategies is: There is power, consistency, and great success in simplicity. The simplest strategies are not only the most elegant, but they deliver the biggest, most predictable windfalls.

I’ve got simple trading rules I apply in bull markets, in bear markets, in flat markets, for trading growth stocks, cyclicals, every sector where nuances matter. So, of course, I’ve got simple rules for buying, selling, and winning with SPACs.

The fact is that there are five rules, or keys, to unlocking SPAC success. These are the keys to finding winners and maximizing your gains. It’s my strategy – and now it’s yours:

Winning SPAC Key No. 1: Never Overpay

There will be temptations, especially when there’s a buzz about any particular SPAC. Ignore it. Never overpay. You never want to buy a SPAC when its share price is way above its IPO price, which is usually $10. The fact is, you always pay the IPO price if you’re able to get into the actual IPO before it debuts on its first trading day. However, in the aftermarket, you want to search out high-potential SPACs whose shares have been knocked down to maybe $9, or $8 if you’re lucky, or some other dollar value below the IPO price. That kind of bargain-hunting can lead to huge windfalls.

Winning SPAC Key No. 2 The Players Matter

You have to do some homework here – studying the sponsors, their background, expertise, and track records. Buy dealmakers. Ignore the dreamers and storytellers. None of those dreams are likely to turn into a real business that Wall Street will value when a deal is done. Invest with dealmakers who have run real businesses and who’ve then sold them for huge profits. You want to favor SPACs run by people who have done leveraged buyouts (LBOs), are M&A gurus, rule the landscape in private equity, or are real estate dealmakers and mogul. Turnaround artists and distressed-debt investors will have the instincts needed to find businesses with big potential and the shrewdness to get those companies at prices Wall Street will love, and you will too.

Winning SPAC Key No. 3: Avoid the Inane

It sounds pretty basic, but in the heat of the moment when SPAC deals are grabbing headlines, this is easy to forget. If the SPAC concept is a bad one, move on. Lousy ideas deliver lousy results. Hot markets are magnets for schemers, posers, and wannabes pitching ideas that are weak, nonsensical, or downright bogus. If the concept is inane, doesn’t make sense, if the acquisition target is a trumped-up pipe dream, just walk away and don’t look back. There are plenty of really good opportunities as the next key shows.

Winning SPAC Key No. 4: Tap into Strength and Innovation

The best SPACS are the ones that will benefit from powerful social, demographic, and economic trends. Or that tap into fast-growing market sectors. Or that zero in on high-upside innovations. Or that address a huge unmet need. And when you have strong players tapping into a Big Idea, you’ve got the ingredients for a runaway winner. Even better, combine this with Key No. 2 to tap into the real winners.

Winning SPAC Key No. 5: Protect Your Profits

There’s an old saying on Wall Street: When the market hands you a profit, take it. Part of making money has to do with what you pay (Key No. 1). But you also want to keep what you make. After a deal is struck, and you see a big pop in a SPAC’s share price, use a trailing stop-loss to keep the money you’ve made.

Those are the keys – and it’s all you need to start your foray into the realm of the New Age IPOs.

This is the second slice of a three-part report on SPACs that I’ve put together for you. I’ll be back with your third installment, your very first SPAC “Buy” recommendation.

So, stay tuned.

— Shah Gilani

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Source: Total Wealth