How to Evaluate and Invest in SPACs

In this episode of Industry Focus: Wildcard, Nick Sciple and Motley Fool contributor Luis Sanchez take a deeper dive into SPACs. They talk about SPAC investing strategies and factors to consider when investing in them. What is the difference between a SPAC and a stock? What is the best time to get into a SPAC? They also share some SPACs by issuers with good track records, and some SPACs to watch out for, and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on October 7, 2020.

Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. 2020 continues to be a record year for Special-Purpose Acquisition Companies, with SPAC IPOs grabbing more headlines than seemingly ever before. Motley Fool contributor Luis Sanchez returns to the podcast this week to take another look at the SPAC craze. Luis, thanks for joining me, as always.

Luis Sanchez: Thank you, Nick. I hope you're having a SPAC-tacular day.

Sciple: I am now. That pun really just brought my day to the next level. So, I'm really excited to get into this topic with you here today, Luis. As I mentioned, we did a podcast back on July 8th called What Are SPACs and Why Are They So Hot Right Now? I'm going to toss a link in the notes for this podcast back to that previous episode, maybe go a little deeper into SPACs on the podcast today. If that first podcast was SPACs 101, we're going to jump into SPACs 102 here today.

But high-level, just to remind folks, Luis, what is a SPAC?

Sanchez: Sure. So, SPAC stands for Special-Purpose Acquisition Company. What it is at a basic level, it's just an alternative way for a company to go public. So, a SPAC is a shell company, has no formal business, it raises money through a normal IPO. And once it's IPO'd, it's essentially a pile of cash, it's publicly traded, anyone can invest in it. And the goal is to use that pile of cash to acquire a private company. And in the process of acquiring a private company, the company they acquire becomes public, and then it just becomes a normal stock.

And why are people doing this? It's an efficient way for companies to go public. It can happen really quickly. They can get certainty of their IPO price. And from the investor's standpoint, it's an opportunity to invest in an exciting new public company. Some of these companies are fast growing, they're like late-stage VC, they're like traditional IPOs. And there haven't been as many IPOs lately, so a lot of people are finding these really interesting.

Sciple: Right. You talk about how there's been fewer traditional IPOs lately. People have complained about that in the past. But when it comes to SPAC IPOs, [laughs] there's no complaining about a lack of those. So, looking back at my notes from our July podcast, I wrote, so far this year we've seen 38 SPACs that have IPO'd, raising more than $12 billion, that compares to $13 billion raised in all of 2019 from SPACs. That was back in July.

Luis, when we look at those SPACs numbers today, what are we looking at in terms of just the number of SPACs out there and dollars raised?

Sanchez: It's a boom. So, you're talking about $13 billion year-to-date raised in the first half of 2020. In the last three months that number is up to $49 billion and over 100 SPACs. So, it's more than 3X or 4X in the last three months. It's a really hot market right now, it seems like everyone and their mom is creating a SPAC. [laughs]

Sciple: Well, literally. I mean, some of the celebrities that you see sponsoring SPACs, maybe we'll talk later, you know, Mitt Romney's son, a former Speaker of the House, Paul Ryan. Anybody who can slap their name on a SPAC seems to be doing that this year. That raises a question for me, Luis, there's got to be more competition for these SPAC deals now than ever, just with so many different companies out looking for private companies to acquire?

Sanchez: Yeah, sure. So, that's absolutely true. I mean, there's more than 100 companies looking to acquire private companies. So, you got to think that if you're on the other side of the table, if you're the seller, you could actually start putting SPACs against each other, like, you can field offers from multiple SPACs or you could also field offers from a traditional IPO or from a strategic acquirer. So, I think that it's probably a really good position to be in if you're one of those hot companies. And there's almost no excuse at this point of why you can't go public, because I can assure you that you can get a good valuation in this market.

Sciple: Right. I mean, just to use another analogy, if you have a hot IPO and a company people are excited to invest in, you always have a little flash. But right now, I mean, these are definitely the prettiest girls in school for sure when it comes to just so many people looking for private companies to bring public. And within that, that brings to, I want to talk about, investing in SPACs, different ways you can go about doing that. You mentioned a SPAC comes public, at first, it's a bucket of money, and then once it acquires a company, once there's a deal, it's maybe more like a traditional company. So, when it comes to the strategies for investing in SPACs, what factors do you consider when choosing to invest pre a deal being announced or post a deal being announced for a SPAC?

Sanchez: Yeah. So, probably the biggest distinction when it comes to investing in SPACs as an investing strategy is, do you invest pre-deal? And by pre-deal, I mean, when it's just a pile of cash and the team hasn't announced what they intend to buy, or do you buy into the SPAC post-deal? So, that could mean, they've announced a deal, but they haven't had a shareholder vote, so it hasn't completed yet or it could just mean, once the deal has completed and it's a normal stock. And I think, the big trade-off here is really, just the certainty versus uncertainty. So, if you really like a deal team, if you think that the guys who are running the SPAC have a good track record of making good investments or have just an interesting way to source a good potential acquisition candidate, then that makes investing pre-deal a little bit more compelling. The flipside of that, you know, you're still dealing with uncertainty, though, because you don't know what the deal is. So, for people who want more certainty, investing post-deal can be interesting. But what you tend to find is, you know, you get rewarded for uncertainty. So, if you invest earlier, you can buy it at a better price often.

And I think that other than investing pre-deal and post-deal, the other big distinction that I would make is, do you pay a premium or do you pay a discount. And what do I mean by that is, do you pay a premium or a discount to the value of the cash that's being held by the SPAC. So, if a SPAC has raised, let's say, $200 million, just to give an example, and the current market capitalization of that SPACs is $190 million, well, technically it's trading for less than the value of its cash. And that opportunity exists. Actually, there's dozens of SPACs out there that are trading for less than the value of their cash. But the flipside also exists, there are some SPACs out there that are trading for more than the value of their cash. And what you tend to find is that the teams that people have a lot of trust in to deliver a really good deal, those tend to trade at a premium. And then the deal teams who are running the SPACs, the teams that people maybe just aren't that familiar with or don't have as good of a track record, people want to put more of a discount on that. And I think there's a real trade-off and I don't think that there's really one way to go when it comes to investing in a SPAC, there's multiple ways to be successful at it, but it's just worth noting those distinctions.

Sciple: Right. And sometimes you can see, I believe it was the Chamath SPAC that was announced earlier this week that actually traded down after the deal was announced, because of that premium that was baked into the price, is that correct?

Sanchez: Yeah, exactly. So, that's a great example. So, Chamath Palihapitiya, he has successfully raised several SPACs already. His first SPAC that he did last year, which I think we talked about on a podcast, was Virgin Galactic, you know that's up pretty significantly from the time it IPO'd. Then he just raised another one a few weeks ago for Opendoor, that one is trading really well. So, he had this third SPAC, the ticker is IPOC. And people, who can see that the first two SPACs did really well, so people were willing to pay a premium for this SPAC. I think it was trading at, like, $12 or $13 before the deal was announced. But then he announced the deal, it was for an insurance company, a health insurance company. And frankly, a lot of people just didn't want to own a health insurance company given the nature of the business and the political climate. So, people were disappointed by the deal, and the stock actually fell when he announced it. So, that's the downside of the uncertainty and that's the downside-- you know, the uncertainty got you because you didn't know what you're going to buy. If you knew it was going to be a health insurance company, maybe you wouldn't have bought it. And then you paid a premium, so you didn't really have that margin of safety if you didn't like the deal.

Sciple: Right. So, that's one thing to consider is valuation, just like any other company factors in pre a deal is announced. Obviously, post a deal is announced, things are going to be valued based on whatever the company is that's acquired, which is reflected in how the market reset post that deal being announced for the Clover Health acquisition that came out this week.

Sanchez: Right. It's probably worth mentioning as to why the cash matters, because before a deal is closed, if you don't like the deal, you can actually request your cash back.

Sciple: Right. So, that's a nice little option to get things back. And as we said earlier, with the amount of SPACs being out there and the total number of private companies being competed over, it's quite possible that a number of these will end up having to return their cash at some point. I believe that's a two-year window they have to acquire a company, is that correct?

Sanchez: It varies. It's interesting. So, it used to actually be an 18-month window, that was the standard. And now the standard is a 24-month window. So, now it's two years. But even more interesting is, despite the fact that the window that a SPAC is giving itself to find a deal has lengthened, if you look at the data, the average SPAC is actually finding deals quicker. So, now you're seeing some SPACs that they launch a deal and March and they close a deal in May. Some SPACs take their time. It takes a year or two years; they take the whole time.

I think, you know, just to go back to Chamath, This IPOC literally launched, you know, it wasn't that long ago. It's definitely within the last few months. But because he had worked on IPOA and IPOB, you got to think that he was already thinking about it, and he probably already had sourced a lot of potential candidates for future SPACs. So, you tend to see that if there's like a serial SPAC founder. And I can assure you, Chamath has already done three SPACs. He has announced that he's going to do a lot more; he's probably already fielding offers for IPOD, IPOE, IPOF. So, he's probably already ahead of the game, so who knows, like an IPOD, it could IPO next month and he might find a deal before the end of the year. It's an interesting dynamic.

Sciple: Right. That track record is something significant to discuss. Because we're moving into that and discussing some folks who've had success with SPACs in the past. I want to move on to Bill Ackman SPAC. We've got a couple listener questions about that particular SPAC, and that's one I'd like to dive into a little bit. And so, for folks at home, that's Pershing Square Tontine Holdings, the ticker symbol is PSTH.

First, just high-level, what can you tell us about this SPAC and Bill Ackman's track record with SPACs historically?

Sanchez: Yeah, absolutely. And just full disclosure, I like this SPAC, I own and I am long on this SPAC. I think that it's really interesting. First, I would say that a lot of people respect Bill Ackman as an investor. He's managed his hedge fund with a really good track record for a long time. And so, the first thing you can say about Bill Ackman is that he's a good investor, he's going to look for something interesting and he has a really interesting framework for evaluating deals. The second thing is that this SPAC itself has some interesting characteristics that make it unique, which is another really interesting thing if you're investing in SPACs, as you try to think about what makes this SPAC different? Why is this SPAC going to stand out and find a good deal?

So, the first thing is that he just launched the largest SPAC ever. It IPO'd with a $4 billion war chest and he's backing it with a commitment of up to $3 billion of additional funding from his hedge fund. And that's like, if you want to put that, I think the next biggest SPAC is maybe $2 billion, and the average SPAC that's launched is, like, $300 million. So, he's an order of magnitude bigger than other SPACs. So, you want to talk about SPACs competing for the same deals. He's not competing with other SPACs for deals. You know, he's in his own league, which makes it really interesting.

The second thing is that he has a really shareholder-friendly structure. So, one of the dark sides of SPACs that definitely gets discussed, and it's a criticism of the structure, is that the SPAC management team is compensated and they typically are compensated by taking somewhere between 15% to 20% of the shares. And Ackman has actually eliminated that compensation structure. So, his SPAC is just a better deal than the average SPAC. And there's also some other nuances. He has a warrant structure which is interesting, it aligns the unitholders for the long-term.

And beyond that, you know, then let's talk about track record. This isn't his first SPAC, he did a SPAC back in 2012, which was used to acquire Burger King, that company eventually merged with Tim Hortons, it's now traded as Restaurant Brands. When he did that deal with Burger King in 2012, the valuation was about $4.8 billion. Today, Restaurant Brands is an $18 billion company. So, that was a great deal, that was a great investment; one of the greatest SPAC investments of all time for sure. So, there's a lot of great things going for this company.

Sciple: Right. So, it's more than just -- I mean, you see a lot of these folks and they've got some name that you're familiar with at the top, but you were saying, based on his track record and the way this thing is structured, it's more than just, you know, a figurehead at the top of this, there's really a lot of things to like in the structure of the way this is put together. He was doing SPACs before SPACs were cool.

Sanchez: Yeah, you could say that. [laughs]

Sciple: Yeah. So, when we talk about sourcing SPACs, I know that's an important thing I think about. Chamath, obviously has been able to source deals in a way that I think is really impressive relative to a lot of folks out there. There's been some rumors that Bill Ackman reached out to Airbnb and was pushed away; maybe he was talking to Stripe. What companies do you think might be on his list of businesses to go out and go buy?

Sanchez: Yeah. So, the way that Bill Ackman has described this, as he's hunting for, what he refers to as a mature unicorn. So, he's really looking for one of these companies where the alternative would be to go through an IPO and it would be one of these, like, Airbnb-type IPOs, where everyone gets excited. So, yeah, there's rumors that he's spoken to Airbnb, apparently Airbnb has rejected him and they want to go through a traditional IPO. There's rumors that he's engaged with Stripe, which is a very large private payments company that competes with MasterCard and Visa, that would be really interesting.

But you know, the crazy thing about this is, because he has so much money and he only really wants to take a minority stake, somewhere between like 20% to 30% of the company that he merges with a SPAC, you have to think really big, right? Because he has $4 billion to, call it, $8 billion raise, so he's looking for something that's like $20 billion, $30 billion, potentially $40 billion of valuation. So, there's a short list of companies that are privately valued that are +$20 billion. And then you have to start thinking about companies like SpaceX, or a company like Robinhood, or a company like Coinbase. And these are really hot companies, where you can really start to understand why people would get excited about investing in these companies and why people might be willing to pay a premium.

And then you even look at a company like Reddit, which would be a really cool IPO. But Reddit's last valuation was somewhere around $5 billion, so that's actually probably even too small for Ackman SPAC. So, you can really get excited about what he could potentially buy, and hopefully, he'll live up to the hype.

Sciple: Yeah, I know. As you mentioned, he's kind of in a class of his own. You know, Ackman, well-known for being a longtime attendee of the Warren Buffett meeting. He's probably competing with Warren Buffett's elephant gun out here for some of these deals. The company that comes to mind for me that I would love to have a chance to invest in, that's private, that's not on the hotlist for everybody, is Bloomberg. I mean, that company is a monster, right? You talk to anybody in finance, you have to spend, gosh! Who knows how much every year on your Bloomberg terminal, and that company is still private. It seems like it would be perfect for him; I don't know if that's ever anything they want to do. But that one would get me really, really excited.

We've talked about Chamath, we've talked about Ackman. As we move away from folks who are maybe getting time on CNBC, you know, on a regular basis, what are some other companies that are pre-deal SPACs that you find interesting today?

Sanchez: Absolutely. So, as I mentioned, when I'm looking at a SPAC, I'm looking for a management team or a stated investment strategy which I think is really compelling, something that stands out. And you hinted at this earlier, but this is another SPAC that I own, it's Enterprise Network Partnering Corp, [Executive Network Partnering Corp] (sic) the ticker is ENPC.U. I believe it's still trading as a unit. I'm not sure if the shares are trading yet, but this is essentially a politically connected SPAC.

So, the Co-Founder is the former Republican Congressman and Vice-Presidential Candidate, Paul Ryan. His other Co-Founder, his name is Alex Dunn, he's worked at other successful SPACs, including one that launched earlier this year called Vivint Smart Home. And then the financial sponsor behind the SPAC is Solamere Capital, which is run by Tagg Romney, Mitt Romney's son. So, you know, there's already multiple political figures here.

And what I start to think about is, any company that's contracting or selling to the government this -- there's a differentiation here where, if you have Paul Ryan and, you know, the Romney family in your camp, I think that's going to help you if you're selling to the government, right? And you know, the cherry on top with this one too is that it trades at a discount. So, you could actually get this at cash value or even slightly below cash value for a SPAC that in my opinion is clearly very interesting and differentiated.

Sciple: Right. You talk about, you know, at the end of the day this is a bucket of money, what are the people that are holding this bucket of money going to be able to go and do particularly special with that? And you can tell a story about, clearly these people are very well connected and have a lot of friends in high places.

You mentioned this distinction between the units and the shares, Luis. That is something I wanted to mention earlier or pull the thread on earlier. When folks go look at SPACs, you'll often see two or three different ticker symbols for the same underlying business, can you break out, when we talk about these units versus shares, versus sometimes warrants, what is the distinction between those?

Sanchez: Yeah. So, this gets a little bit technical, but when a SPAC IPOs, it typically IPOs at units, and units are a combination of one share of the stock. So, it's like a normal share, plus a partial warrant. Now, what is a warrant? A warrant is essentially like a "call" option, it's a long-dated call option, it usually has a five-year duration. So, it's levered upside, right? So, if you buy a unit, you get a share plus this derivative. You can also just buy the shares or you could also just buy the warrants. You know, there's multiple ways to invest in this.

And what I would say is that, be careful with the warrants. Because they're derivatives, they're just like investing in a call option, and they can go to zero if the stock doesn't hit the strike price. And usually, that's like 10% or 15% above the IPO price. So, fast-forward five years, if the SPAC performs really well, you know, you're going to make a lot of money if you own the warrants. If the SPAC doesn't perform well, you're going to go to zero. If you own the shares, you're not going to go to zero, you're going to retain whatever that residual value of the business is. If you own the units, you have the shares and you have like a little bit of a kicker, this upside. And then the way to know what's what is, the units have a "U" at the end of the ticker. So, we just mentioned ENPC, the enterprise or --

Sciple: Executive Network Partnering Corp.

Sanchez: That's it. Yeah. It's ENPC.U. So, that's the unit. If you just wanted to buy the share, it would just be ENPC. And if you just wanted to buy the warrant -- the warrants are going to show up differently on different financial terminals, but you'll probably see a "W" at the end or a "WS" or something like that.

Sciple: Right. And so, it's different. The warrants are going to be the most risky, the most option-like, the shares are going to be the most like owning a normal company, and then the units, kind of, halfway in-between, is that the best way to understand that?

Sanchez: Yeah. Exactly.

Sciple: Okay. So, we mentioned Executive Network Partnering Corp as one pre-deal SPAC you find interesting. You also have GO Acquisition Corp on your list as another one to look at. What can you tell us about that SPAC?

Sanchez: Yeah. So, GO Acquisition is another one that I like and I own. This is a SPAC that is seeking to acquire a company in the travel industry. And my view on this is, it's probably a good time to buy something in the travel industry. There's probably a lot of distressed companies that will sell at a good valuation. So, I like the thesis, and then the guys who are running it. One of the guys, his name is Greg O'Hara, he's on the Board of TripAdvisor. He's also heavily involved with John Malone's companies, he's on the Board of Liberty TripAdvisor, he's on the Board of American Express Global Business Travel. He's also on the Board of The World Travel & Tourism Council. So, this sounds like a guy who knows the travel space really well. He can probably find a really interesting company within the travel space. So, I think the thesis makes sense, I think the guy running it makes sense.

The other Co-Founder has been involved with other successful SPACs. So, he has a little bit of the team and some SPAC experience too. And then again, this trades at a discount, it trades at a discount to cash. And it seems like, you know, this is the kind of thing where I wouldn't be surprised if they just announced a really interesting deal at a good valuation and people got excited about it down the road. And it's kind of running under the radar, because there's just so many SPACs, that it's just really hard. It's like finding a needle in a haystack, you know, which ones are the interesting ones, which ones are, kind of, the run-of-the-mill SPACs.

Sciple: Right. So, again, another one that you can tell a story about why this management team has a particular access to deals that other folks won't have. And again, at a discount to cash. So, you know, that's a good one to add to your watchlist.

Okay. So, we talked about those two as far as pre-deal SPACs. We also had another couple of companies that are post-deal SPACs that have already announced a deal that could be interesting to take a look at. One of which we mentioned earlier, that's Opendoor, that's another Chamath SPAC acquired with his IPOB vehicle. Why does Opendoor look interesting to you, Luis?

Sanchez: Sure. So, the pre-deal SPAC, you don't know what they're going to buy; the post-deal SPACs you know what it is. So, IPOB, Chamath's second SPAC announced recently, I believe it was last month, that they're going to merge with Opendoor. Opendoor is a real estate technology company. They are in the iBuying market, so they're using technology platforms to identify and bid for houses, and they're flipping houses, that's what they're doing. But it's really interesting for a number of reasons. You know, if you're familiar with the iBuying process or if you've ever sold a home, you know that iBuying is a very convenient thing to do. If you're selling a home, you can just sell it immediately. It's something that's actually taken a lot of volume share from the housing market in the last year or so. So, there's a lot of growth, it's a huge market, a huge total addressable market. It's run by some really interesting guys who have had some success with other companies that they've successfully run. And you know, basically this Opendoor company is competing against Zillow and iBuying, but they're doing it more profitably than Zillow, and they're doing it at greater scale.

So, if you like what Zillow is doing with iBuying, theoretically you should probably like what Opendoor is doing. It's just a really interesting and growing industry. And I think Chamath has just a really good eye for some of these more interesting tech-focused companies, and I think this is just a great example.

Sciple: Right. I mean, because this is the pureplay iBuying company, the companies that come to mind for me when you talk about iBuying that are public, are Zillow and Redfin, but obviously, those are tacked on to other businesses. I think iBuying is interesting, you look at the U.S. real estate market, this is a multi-trillion-dollar market. So, if someone can solve that problem, clearly there is a lot of value. And there's lots of other ancillary services to sell, like, mortgage and things like that. So, plenty of potential there. Obviously, execution is a question that everybody raises for this industry, I'll probably be watching Opendoor with a close eye for a few quarters to see what data they're putting out there, but I'm excited to have a company that gives me a more direct look at iBuying versus being inside some of these other businesses.

Sanchez: Yeah, Nick, it's one of these things, I think we were joking the other day, where on paper, this business model sounds crazy, right? You're going to use technology to spend billions of dollars buying houses and then flipping them, it sounds crazy, but it's so crazy it might actually work, because they seem to be doing it successfully. [laughs]

Sciple: Right. It's one of those where if you asked 100 people, 50 of them will say it's crazy, and 50 of them will say it's crazy like a fox. So, we'll just have to see. That's the fun part about investing is everybody gets to see how things play out. So, Opendoor, very interesting company, one to pay attention to for sure. You also have FEAC. [Flying Eagle Acquisition Corp] What is this SPAC and the company that it is acquiring?

Sanchez: Yeah, FEAC, this is another post-deal SPAC. They announced a deal to acquire a company called Skillz, which is a mobile gaming esports platform. And the first thing that caught my eye with this, and the reason it's on my radar, is because this is the same team that used a SPAC to take DraftKings public. And DraftKings has, like, 5X or 6X'd since its SPAC IPO'd, making it the most successful SPAC IPO of the last year or two. So, you know, I see that. I think this team has that great track record with a post-deal SPAC.

So, I look at it and I wonder, OK, what can they do with this? And I was reading into the business, and it's another one of these companies where it's a technology platform serving a very large and growing market, it's serving mobile gaming, which is actually the largest and the fastest growing slice of the gaming market. And they're growing really fast. They reported to be growing this year 88% on a +$200 million revenue base. And they're basically selling, it's like a B2B software, where they're selling their gaming platform to game developers. And potentially they're creating another network effect business. And a lot of things about this strike me as interesting.

Sciple: Right. I mean, again, this gaming theme, esports, etc., obviously getting a tailwind from the pandemic and lockdowns. Then you've got a company, again, that has a strong track record with DraftKings. So, another one to add to your watchlist.

Kind of wrapping things up, Luis, a lot of excitement in SPACs, a lot of people want to go invest in this space today. We talked about some important things to look for; obviously, check out the sponsors of the SPAC, understand how they're going to source the deal, then obviously, once the deal is announced, evaluate it just like any other company.

For folks that are starting to invest in SPACs, wanting to learn this space, what advice do you have for them and what are some big mistakes you see for folks that are starting in this space?

Sanchez: Yeah, the first thing I would say is, when you're investing in a SPAC before a deal is closed, it's not the same thing as investing in a stock. And I think if you've made it this far on the podcast, you've heard all these nuances, there's weird warrants and units, and you can ask for your money back, it's not the same thing. So, understand the differences between a SPAC and a stock, understand what you own, and just kind of understand that before the company has converted into whatever company it acquires, it's something different. Now, on the flipside, once the company has converted into the company it acquired, once the SPAC IPO process is complete, then it's like an almost stock, then think of it like you would any other stock. Would you have invested in it if it was not a SPAC? I think that's probably the best way to think about it.

As far as like, what I've seen people make mistakes on is, sometimes when a really hot deal is announced, like IPOB Chamath SPAC buying Opendoor or one of these other ones, you'll see, like, a really big pop, almost like an IPO pop, like, on the day that it's announced. And you know, that's not always the best time to buy into it. [laughs] So, if you're early, if you buy the SPAC before there's a deal announced, you can usually get a better price. If you're going to buy post-deal, just be really careful, know what you're paying, know the valuation. I think what I've seen some people get burned on is, they get really excited because a SPAC just announced a really interesting deal, they load up on it after the pop or they even take on leverage by buying warrants, which are just much riskier than buying the actual shares, and that's where people can really get burned if you buy it at the wrong time, use leverage, you know, take on too much risk, and you don't actually know what you own or you're just not as convicted in it.

Sciple: Yeah, Luis, maybe one last question as well. You see this exciting new space, a lot of folks probably think about, OK, maybe I can go invest in this space with an ETF. Just this past week or so, there's been an announcement that a new SPAC ETF is going to come out. Do you have an opinion on whether that is a prudent way to invest in SPACs?

Sanchez: You know, I'd say, I don't actually know exactly what the ETF strategy is going to be. I think that it's one of these things where we'll have to wait and see. I think that, if you're looking at these SPACs on an individual basis, you'll tend to notice that there's a lot of differentiation between the SPAC structures and between the quality of the management teams. So, do I think it's a better idea to try and pick out which management teams look more interesting or which SPACs have better structures. Yeah, I think that's a good way to do it. If you don't have time to go through and analyze the hundreds of SPACs that are available and you just want exposure, maybe the ETF is a good way to do it. I'm not sure. It's basically, you're adding another -- if you think about these SPACs as they're kind of financial securities, they're kind of weird and they have a lot of weird embedded things in them. What is an ETF doing? It's kind of just adding another layer of financial complexity to it, right?

So, I think there is an advantage to it. If you just want to bet on the whole category, sure, like, why not? I think that what I would say, versus like either ETFs is, in my opinion, SPACs are actually a much more inefficient market than the S&P 500 just because of all the nuances we just made. And because they're complicated, that lends itself probably better toward trying to pick out the winners from the losers.

Sciple: Yeah. So, I would just say, just, you know, full disclosure of my opinion there. I think, yeah, the best way to, if you want to invest in this space, is try to evaluate deals individually. Luis and I were talking about when we were prepping the show, it's like a garbage versus gold distinction in this industry; there can be really great deals, but there can be some that aren't great. So, I think this is one where if you want to look and identify specific companies that are interesting to you to invest in, I think that's a good way to go. If you just want to throw it in the "too hard" pile, I think that's a great way to go too. I don't know that I would be using an ETF strategy as a way to get exposure to SPACs, just because it is such a mixed bag.

But you know, [laughs] this is the biggest year for SPACs ever. We'll see where it ends up as of the end of the year, I'm sure we're going to see more companies come public via SPAC IPOs over the next year or so than we've seen in a really long time. And Luis, I'll be excited to have you on as we have more companies to talk about.

Sanchez: Yeah, I'm sure there'll be plenty of new deals and interesting dynamics. I mean, look how much changed since the last time we spoke about this in July, it's like night-and-day.

Sciple: Yeah. Well, I'll be looking forward to it.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for mixing the show. For Luis Sanchez, I'm Nick Sciple, thanks for listening and Fool on!