The Dangers of Investing in SPACs

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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 (NYSE: RMO) and XL Fleet (NYSE: XL) are two SPACs that are down almost 75% from their all-time highs, and are prime examples used in this video. 

© Provided by The Motley Fool The Dangers of Investing in SPACs

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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Jose Najarro has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policyJose is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

 

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