financial assignment
Prepare a 2 pages analysis on the risks associated with SPACs.
These are the materials discussed in class
Article to analyze:
Beware of SPACS
Background material:
SPAC_overview
Beware of ‘Get Rich Quick’ Investment
Ideas
The stock market has been posting solid gains of late, with the S&P 500 rising +4.4% in
March and up +6.2% for the first quarter. Massive liquidity measures – courtesy of the
Federal Reserve and federal government stimulus – are supporting higher prices, as
are rising expectations for strong earnings and GDP growth in 2021.
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My outlook
remains largely positive for the year.
At the same time, I have been noticing a trend of investors moving too far out onto the
risk curve, and I am starting to see signs of froth in certain areas of the market.
Investors are reaching into unproven asset classes like SPACs and cryptocurrencies for
extra returns, while paying sometimes exorbitant premiums for future cash flows. There
appears to be a sense that money can be made anywhere and easily in this market,
which gives me some pause.
Instead of Chasing the Heat, Focus on Key Data and Fundamentals
Many investors may have the urge to make hasty financial decisions in times like these,
but don’t fall for the ‘get rich quick’ investment strategies. While the equity market is
strong today, there are pockets of froth building up in some areas and in some
‘alternative’ asset classes. Now is the time to focus on fundamentals, hard data, and
quality.
To help you do this, I am offering all readers our just-released Stock Market Outlook
report. This report contains some of our key forecasts to consider such as:
• S&P 500 earnings growth
• Outlook for underlying U.S. economy?
• U.S. returns expectations for 2021
• What produces 2021 optimism?
• Is it time to buy U.S. stocks?
• Update on U.S. fiscal stimulus
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• And much more
If you have $500,000 or more to invest and want to learn more about these forecasts,
click on the link below to get your free report today!
IT’S FREE. Download the Just-Released April 2021 Stock Market Outlook
2
At Zacks Investment Management, our best defense against overt risk-taking in
‘haywire’ asset classes is to do what we’ve always done – leverage research to analyze
companies and deploy our ranking methodology to be selective in our investment
approach. We do not add companies to portfolios based on trends or gut feelings. Each
recommendation has a check and balance system where it is fully vetted by our
investment committee before we buy or sell. I do not believe enough investors are being
this deliberate with decision-making in the current market.
SPACs are a good example of risk taking that seems excessive in the current
environment, in my view. Many readers have probably heard of the SPAC craze lately,
so it is worth explaining briefly to you in my column. SPACs, also known as “blank
check companies,” are essentially shell companies formed to raise enormous amounts
of cash. SPACs raise the cash in order to then target and acquire companies—often
start-ups with flashy new products and growth profiles—with the ultimate goal of taking
the company public at windfall-generating valuations. Oftentimes, the companies that
SPACs take public have no positive earnings or free cash flows yet.
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The appeal of SPACs is the same type of appeal that draws investors to the IPO
markets: the possibility of fast, outsized returns gained from investing in a small start-up
or a company with major growth potential. But on the other side of the SPAC coin is
what investors should expect to encounter – very high risk and opaque information.
For one, start-ups and other companies that go public via SPACs don’t face the same
constraints as traditional IPOs, particularly in the realm of financial disclosures and
projections. For instance, companies that go public via SPACs often tout wildly positive
growth expectations, but traditional IPOs would be sued by the federal government for
doing the same thing. In this sense, investors often don’t know what they’re paying for,
which I think is problematic.
Underscoring the depth of risk-taking, the pace of SPAC money-raising has far
exceeded what we saw during the IPO boom in the late 1990s. SPAC issuance has
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been running at an approximately $28 billion monthly clip, while at the height of the dot-
com bubble, it was more like $5 billion. There is a lot more liquidity in the current
environment, but this to me is essentially the definition of froth.
I used SPACs as an example here, but the goal of my column this week is to remind
investors to be cautious around any trend setting investment idea or asset class. Don’t
get lured into the ‘get rich quick’ ideas of the moment. You can reach your long-term
goals by focusing on quality and adhering to a disciplined approach like we do here at
Zacks Investment Management. In the current environment, I believe research-based,
fundamentally-driven investment ideas are as important as ever. That’s how we
approach managing money.
Bottom Line for Investors
My goal here is to remind readers to take extra time to scrutinize what you invest in and
know what valuation you’re paying for future cash flows. In some cases, a SPAC
investment may mean investing in companies that have yet to generate positive cash
flows. That’s not a very sound long-term strategy, in my view.
We manage client portfolios based on investment goals, and we drive our decision-
making process based on research. The equity market is strong today, but there are
pockets of froth building up in some areas and certainly in some ‘alternative’ asset
classes, in my view. To me, that’s a clear indication to redouble focus on fundamentals
and quality.
To help you focus on fundamentals, I am offering all readers our Just-Released April
2021 Stock Market Outlook Report.
This report looks at several factors that are producing optimism right now and contains
some of our key forecasts to consider such as:
• S&P 500 earnings growth
• Outlook for underlying U.S. economy?
• U.S. returns expectations for 2021
• What produces 2021 optimism?
• Is it time to buy U.S. stocks?
• Update on U.S. fiscal stimulus
https://nam04.safelinks.protection.outlook.com/?url=https%3A%2F%2Fcl.s7.exct.net%2F%3Fqs%3D92fa36fc4cc4ae6e3113d61438b5c374a03f0237e6bd3ecc3aa6b96aaa2c64b97e7d0b91803dafc84f78e509115b32e347109ab316bff3d5&data=04%7C01%7CNLibrock%40thinkbrg.com%7C232c203ff4c040ad7a9208d8fc295c9c%7Cd51ab61df685446db8c0c371345174f2%7C0%7C0%7C637536601912749814%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=DCIbukEvyDnYzr6TECHqIPuq5xq6f%2B3B3St8S8GnxVo%3D&reserved=0
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• And much more
If you have $500,000 or more to invest and want to learn more about these forecasts,
click on the link below to get your free report today!
FREE Download – Zacks’ April 2021 Stock Market Outlook Report
4
ABOUT ZACKS INVESTMENT MANAGEMENT
Born from Research – Built for Performance
Zacks Investment Management was born out of one of the country’s largest providers of
independent research, Zacks Investment Research. Our independent research
capabilities from our parent company truly distinguish us from other wealth
management firms – our strategies are derived from research and innovation, including
the proprietary Zacks Rank stock selection model, earnings surprise and estimate
revision factors. At Zacks Investment Management, we work with clients with $500,000
or more to invest, and we use this independent research, 35+ years of investment
management experience, and tools we’ve developed to design customized investment
portfolios based on each client’s individual needs. The end result is investment
management that is research driven, results oriented and client focused.
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- Beware of ‘Get Rich Quick’ Investment Ideas
ABOUT ZACKS INVESTMENT MANAGEMENT
Born from Research – Built for Performance