Please ensure Javascript is enabled for purposes of website accessibility

The Dangers of Investing in SPACs

By Jose Najarro - Apr 5, 2021 at 10:49AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Many SPAC investors have been burned in the past few months. Here are some ways to mitigate the risk of investing in SPACs.

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.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

XL Fleet Corp. Stock Quote
XL Fleet Corp.
XL
$1.21 (-3.97%) $0.05
Romeo Power, Inc. Stock Quote
Romeo Power, Inc.
RMO
$0.88 (-3.23%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.