Can You Hear the Bubble Bursting?
Shhh. Do you hear that? If you listen really closely, you can almost hear the bubble popping.
I’m not talking about the bubble in the FAANG stocks, or the work-from-home stocks, or the markets in general. Those will probably pop, too, but I’m talking about a different bubble today.
And today may actually go down as the day that bubble officially popped.
You’ve no doubt heard a whole lot about special purpose acquisition companies this year. Also known as SPACs, these are blank check companies that raise funding and go public through a shell.
The reason you’ve been hearing so much about them is that this year has been the biggest ever for these kinds of companies. So far in 2020, 116 SPACs have held IPOs and raised nearly $44 billion.
For reference, that’s more than the past five years combined according to data compiled by SPAC Insider.
The other reason you’ve heard a lot about them is that some of this year’s best-performing stocks started as SPACs.
Virgin Galactic, DraftKings, and Nikola all went public through SPACs earlier this year. Virgin Galactic was up over 200% within the first two months of trading. DraftKings soared 469.3% so far in 2020. And before investors realized Nikola was a sham, its shares rocketed up nearly 700%. They’re still up 150% even after shedding about 75% of their value at the peak.
But the thing is... nobody knew what companies the SPACs were going to take public when they were formed. That’s why they’re often called “blank check companies.” The founders have carte blanche to buy whatever business they want.
Wall Street holds all the cards in this game. So, what can individual investors who want to profit from these kinds of companies do to level the playing field?
Enter the White Knight, or Not
If you believe them, Defiance Next Generation ETFs has the answer. And it made its stock market debut yesterday under the ticker symbol SPAK.
It’s an ETF entirely focused on SPACs. And it's marketed as a way for retail investors to get diverse exposure to the SPACs currently on the market. It sounds pretty great at first blush.
And usually, I’m a fan of ETFs for passive investors. If you’re not willing to take the time to do some research and actively track your investments, an ETF can be the best place to park your money and watch it grow.
But I’ve got a little problem when an ETF claims to give diverse exposure but only follows one type of company. That’s not really diversification at all.
And these sector-focused ETFs tend to pop up when interest in said sector is extremely high. Another way to put that is to say, “They seem to appear near the top of the bubble.”
They also typically charge pretty high fees and add on hidden charges related to all the trading that goes on in the ETF’s portfolio. But fees aren’t that big a deal if they’re making you more money in gains.
But that just never seems to be the case with these kinds of ETFs, and I’ve got a few examples from recent history to drive my point home.
Getting in When It’s Time to Get Out
Remember a few years ago when everyone was buying cannabis stocks and they could never go down? If a company was involved in the cannabis industry, it was going to be a goldmine for investors and just keep going up in value.
Well, there were so many companies on the market it would have been pretty tough for a regular investor to get exposure to all of them. So, the ETF brigade came to the rescue and created several cannabis-related ETFs for investors to capitalize on the booming market.
Here’s how the three biggest fared:
The ETFs formed at the top of the cannabis bubble and have done nothing but lose investors’ money since.
Or what about the cryptocurrency boom that saw Bitcoin prices soar to nearly $20,000 apiece? Remember that? People were saying the digital currency would be worth $100,000 a coin by the end of the year.
Now Bitcoin has had a pretty decent run since its bubble burst, but it’s still only worth about half what it was at the peak. And the ETFs that sprung up when everyone was fascinated with Bitcoin and Ethereum aren’t even worth that.
Since its inception, back at the peak of the bubble in cryptocurrencies and blockchain anything, the Blockchain Technologies ETF is down over 53%. If you bought when it was formed, you’ve lost more than half of your money.
But there are even more recent examples of these trendy ETFs making negative returns for investors. Think back to a few months ago. Think about all the so-called “work-from-home” stocks that were soaring.
Now take a look at the performance of the Work From Home ETF since its inception a few months ago:
Work-from-home stocks peaked over the summer. The ETF launched right around the peak. And, while investors who bought it haven’t lost money yet, they haven’t really made much either. And they’ve been paying fees to hold the fund this whole time.
So, there’s my evidence that trendy ETFs aren’t a great place to park your hard-earned money if you want it to grow. I think it's pretty damning.
And this new SPAC ETF just seems like another trendy fund trying to capitalize on the buzz surrounding special purpose acquisition companies this year.
So my advice is to avoid it. If you’re interested in investing in SPACs before they make their merger announcement, do your homework.
Learn about the fund managers. Have they been successful in bringing private companies to market and growing shareholder returns?
Read the prospectus and see if there’s any clue as to the type of company or industry the SPAC will target.
And keep an eye on the value of the fund’s assets. If it’s trading for more than it’s holding in cash, unless it buys the next DraftKings, there’s a good chance shares will fall in value.
But if you’re not really interested in SPACs and really just interested in getting a piece of these private companies before they’re bought out by a fund like DraftKings was, there’s an even better option out there for you.
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Become a Venture Capitalist
The folks who bought into the SPAC that became DraftKings made out pretty well. Every $1,000 they invested at the start of the year is worth nearly $6,000 today.
But the private investors who funded the company before it got bought and taken public made those gains look like losses.
DraftKings' current market cap is $22.06 billion. In 2019, venture capital investors in its final private funding round invested at a valuation of $2 billion. They’ve got a 10x return so far since last December.
But the investors who got in just a year earlier in the Series F round got a valuation of $1.5 billion. They’re up 1,371% as I type. And the ones who invested in the Series E round before that in 2017, they got a valuation around $1 billion. That means they’ve made 21x what they invested, or a 2,106% gain!
And those were the last investors to get in before the company went public. Back in 2013, the company raised about $1.4 million in its seed round. The valuation of that round isn’t public, but you can estimate it at around $100 million at the very most and as little as $4.7 million.
That means at the high end of the valuation, those investors are looking at a 21,960% gain. And at the low end of that valuation range, they’ve got a 469,262% gain on the books.
I’m talking about turning every $1,000 invested into at least $220,600! And the potential to have watched every $1,000 grow to be worth $4,693,617 today.
Kind of makes that 470% public market gain this year look like chump change, huh?
But that’s how investing works. Early investors make all the profits. It’s a cold hard fact of finance. And the earliest investments are pretty much off-limits to retail investors. At least, they were until just recently…
Landmark Act of Congress
You see, up until a few years ago, private investments were illegal for 99% of investors. There was literally a law that said you had to have at least $1 million in liquid net worth or make at least $200,000 a year before taxes. If you didn’t meet those criteria, tough cookies, the market was closed.
But that’s not the only hurdle you had to jump. You also had to know about the investment opportunities. That means you had to be connected out the wazoo just to find out about opportunities like DraftKings.
And on top of that, the minimum individual investment in those kinds of funding rounds was usually $50,000 or higher. How many people really have $50,000 to put into just one investment?
If you guessed not too many, you’re right. And that’s why this lucrative part of the market was essentially off-limits for nearly every investor in the world.
But that’s all changed now — literally all of it…
Thanks to a landmark act of Congress, the private markets are now open to anyone over the age of 18.
You no longer have to be super-wealthy to make massive profits from private investments!
But that’s not all, this act of Congress also lowered the minimum investments. Now, you can get in on private companies like DraftKings with as little as $100.
I know I said everything changed, but maybe that was a bit of an overstatement. It’s still tough to find out about these investments. And most people have no idea they even exist.
But, while Congress didn’t fix that problem, I’m here to offer my solution.
Main Street Ventures
I’ve been investing in private companies for a while. I was fortunate enough to work on Wall Street for one of the biggest banks in the world. And I was fortunate enough to learn how to evaluate private companies while working there. And I was fortunate enough to build a network of other investors and entrepreneurs that helped me find the best opportunities.
But everyone can’t be so fortunate. And that’s why I founded Main Street Ventures — I want to share my good fortune with you and help you find the best private investments the way my friends did for me when I was just getting started.
I want you to be the venture capitalists turning $1,000 into half a million. I want you to be able to brag about your 10x gain as you exit your first company. I want you to know the feeling of never having to worry about money ever again.
When I was in the process of founding Main Street Ventures, a lot of people told me I had to charge at least a couple thousand dollars per person per year to make up for all the time I spend vetting these deals. And honestly, at just a couple grand a year, it would still be a steal.
This kind of research and the recommendations that come with it are what my former clients at Morgan Stanley paid hundreds of thousands in annual fees to get access to.
But those people were super-wealthy, so those fees really didn’t even make a dent in their bank accounts.
And I just said I want to help retail investors get into the same investments I helped my old clients get into. Charging you an arm and a leg for access just doesn’t seem very helpful to me.
So after much negotiating, begging, and pleading with the owners of our parent company, Angel Publishing, I got approval to offer a special price to anyone who joins me as a founding member of Main Street Ventures.
You won’t have to shell out hundreds of thousands of dollars like my former clients at Morgan Stanley. You won’t even have to pay the couple of thousand I could easily charge.
For less than the cost of a membership to Amazon Prime, you can get access to the same kind of investments that let the DraftKings seed funders turn every $1,000 into a potential $4.7 million windfall.
I know it seems cheap, but that’s the point. I’m tired of helping people who don’t need any more money make more money. That’s why I left Wall Street and started my own firm. And it’s why I contribute to Wealth Daily and co-author The Wealth Advisory.
I want to help the people who really need the help (and the extra money). And I’m not going to do that by charging exorbitant fees for my services.
And frankly, I don’t need to charge those fees. I made my money. I don’t have to worry about that anymore.
That means I can devote the rest of my time to helping you get to that point, too. And I don’t have to charge thousands to make sure I can keep living my life how I like.
Nothing Lasts Forever
But the owners of Angel know how valuable this research and these opportunities are, so they only gave me a limited amount of time to offer such a heavily discounted membership.
The simple fact is that I’m going to have to raise the price pretty drastically in the very near future.
So I’m imploring you to take some time today to learn more about this market and the opportunities it presents for retail investors like you.
I’ve put together a presentation all about the market, how I analyze the investments, and how you can join me and my investors and get started today. All you’ve got to do is click this link and give me a few moments of your time.
And I know that not everyone likes a video presentation as much as I do, so I’ve also put all the relevant information into an easy to read report. You can access that by clicking here.
Either way, I’m begging again, but this time it’s to get you to take advantage of this incredible opportunity before I’m forced to raise the price or close the doors entirely.
So, take a little time today or over the weekend and learn how to join me and the thousands of other investors just like you who are already looking forward to their first successful exit.
Just click here and I’ll tell you everything you need to know.
I hope you’ll join us as we capitalize on this once exclusive corner of the market and pull in those venture capital profits like the funders of DraftKings, Airbnb, and Virgin Galactic.
I’m looking forward to seeing your name on my list when I send out the next venture investment opportunity in the coming weeks.
To your wealth,
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter, and co-authors The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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