Special purpose acquisition companies, or SPACs, are a clear stock market trend as 2021 gets underway. Over 200 of these so-called blank check companies went public last year, with more being added to the investable universe every week. 

With so many to choose from, how should investors approach the world of SPACs? In this Jan. 14 Fool Live video clip, Fool.com contributor Matt Frankel, CFP, explains to fellow contributor Brian Feroldi why he's chosen to invest in a select few pre-deal SPACs and what he looks for.

Brian Feroldi: Matt, when you say you're a SPAC investor, do you mean that you're buying SPACs before they even have a deal in place?

Matt Frankel: Yes, I own six. Do you want me to tell you what they are?

Feroldi: Sure

Frankel: Well, now there's five. I own Chamath's three outstanding SPACs, IPOD [Social Capital Hedosophia Holdings IV] (IPOD), IPOE [Social Capital Hedosophia Holdings V] (IPOE), and IPOF [Social Capital Hedosophia Holdings VI] (IPOF). IPOE just announced that it was acquiring SoFi. I think being that was this fourth, all four of the SPAC deals he's done so far have been very impressive in my opinion. That alone is reason to take a flyer on IPOD and IPOF. I own Starboard Value's SPAC [Starboard Value Acquisition Company] (SVAC) just because they are investing style really resonates with me. The ticker symbol for that one is S-V-A-C, if you want to type it into the chat.

Feroldi: S-V-A-C?

Frankel: Correct.

Feroldi: Okay.

Frankel: That is Starboard Value. They are arguably the most successful activist investors of all time. I like where they're going with that one and that one doesn't trade at a giant premium like a lot of these other ones. I own Yellowstone Acquisition (YSAC.U), Y-S-A-C, I had to think for a second. That is Boston Omaha's (BOC 2.30%) SPAC. I like their managers. If you've heard of that company, I like their managers. It's actually Warren Buffet's grand nephew running the show there. Again, their investment style just speaks to me. They've always puts shareholder interest first. I like that. Finally, I have a little bit of Bill Ackman's SPAC, Pershing Square Tontine Holdings (PSTH), PSTH. That's the biggest SPAC in history. They raised over four billion dollars. He's going after a mature Unicorn, as he puts it. There's a lot of rumors that Stripe could go public with that one. But a company of that magnitude is what they're looking for it.

Feroldi: Do they have a certain time period where they have to acquire something?

Frankel: In most cases, it's two years. In some, it's shorter. The Yellowstone, the one I mentioned, it's 15 months. That's the shortest one I've heard of, but it's usually anywhere between 18 months and two years, and shareholders can vote to extend that if they can't find one.

Feroldi: Okay. That's interesting that you're buying them before the deal is announced, because I can understand doing it after, yes, I'm going to become a shareholder of SoFi. It's interesting that you are doing it before you even know what you're going to be investing in.

Frankel: Again, it's a bet on management. With Chamath's SPACs, I don't know how you could really make the case that those are going to be bad ideas. [laughs] The other ones, I could see being a little hesitant, but worst-case scenario, they don't find a deal, I get my money back. If they don't find a deal within that two-year period, they liquidate and everyone gets their money back, plus whatever interest it's earned while it has been sitting in an escrow. It is a lower risk way to park cash that you don't want to use anytime soon.

Feroldi: Is there idea that once the deal is announced, does the share price typically go up?

Frankel: Usually. Well, with Chamath's, that's been the case.

Feroldi: Okay.

Frankel: IPOE popped, I think like 50 percent the day they announced the SoFi deal. That's a company I love. I'm a SoFi customer, so I was thrilled to see that. But I owned some when IPOC acquired Clover Health (CLOV 3.67%). I ended up selling that because I'm not that much of a long-term investor in healthcare. But I still made a decent profit on it and it worked out well. I can't really bet against him.