In today's video, I look at the dangers of investing in SPACs, and I also talk about how to manage those risks. Romeo Power (RMO -3.23%) and XL Fleet (XL -3.97%) are two SPACs that are down almost 75% from their all-time highs, and are prime examples used in this video.
Here are a few steps to mitigate the dangers of investing in SPACs
1. Understand the business stage. There are numerous stages of a business, and these are the most likely stages that SPACs are in:
Stage 1: Brand new market/company with low revenue, nowhere near profitability but with solid future expectations.
Stage 2: A company with a history of revenue, strong growth expectations, and foreseeable profits in the upcoming years.
Stage 3: A company with solid revenue and modest revenue growth, that has achieved profitability.
2. Mitigate exposure. The stage that the business is in will determine how much I am willing to invest.
Click the video below for my full thoughts.
*Stock prices used were the closing prices of April 1, 2021. The video was published on April 4, 2021.