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The Dangers of Investing in SPACs

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

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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.


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Stocks Mentioned

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

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

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