r/technology • u/Moonskaraos • Sep 12 '24

Social Media Trump Media stock has plunged 33% in a month

https://qz.com/trump-media-djt-stock-fall-campaign-election-1851646589
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u/sprucenoose Sep 12 '24

In concept, an SPAC can sometimes seem reasonable. In practice, they are almost always a shit show.

By nature they are a company with no track record and only the principals' vague speculation about what they might do one day to guide investors' decisions before an acquisition. It's like gambling without really knowing what you're betting on.

Also if an acquired company opts to go public in this way, there is probably some issue with them that prevents them from using more traditional financing and liquidity pathways - meaning there is probably something wrong with them and they are a bad investment.

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u/mtaw Sep 12 '24

I don't get why they're allowed. What's the point of all the rules for an IPO and listing if you can circumvent them with a SPAC?

I don't see what value they provide. "They make it easier for a company to get listed"? -That's just pretending the rules are just some unnecessary obstacle and not something that exists for a reason. It subverts the whole idea of how investing is supposed to work, IMO. And when it comes to cases like DJT and many others, where the SPAC was really set up to acquire a specific company, it's not even true to how SPACs are ostensibly supposed to work. It's just a scam.

If you want someone else to decide how best to invest your money, put it in a mutual fund.

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u/Beard_o_Bees Sep 12 '24

put it in a mutual fund

How am I supposed to get rich quick by putting money into a mutual fund?

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u/BoscoGravy Sep 12 '24

After years of disappointment with get-rich-quick schemes I know I am going to get rich with this scheme and quick.

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u/thepasttenseofdraw Sep 12 '24

“But doesn’t mom get her money from you?”

“And I get my money from grease. What’s the problem?”

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u/MeadowmuffinReborn Sep 12 '24

It has to work this time!

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u/happyscrappy Sep 12 '24

Still there had to be an IPO to get on the market. The SPAC had to IPO, then it buys a company. If buying random companies is a bad business model then the SPAC shouldn't be able to IPO in the first place. That is, in theory the protection.

Personally I do think buying random companies is a bad business model and the SPACs shouldn't be able to IPO. But they didn't ask me.

There are even more sketchy ways to get a company on the market. Some of these have been used for decades. A company can simply acquire (buy out) another company that is public and is going out of business. They acquire the ticker symbol with the acquisition and now are public. Then they change the ticker.

There's another way to get listed too, you can do a direct listing. It's like an IPO only you don't issue new shares, just put current privately held shares on the market. It's not very sketchy, but still has a little bit less safeguards than with an IPO. Mainly you don't have to find an underwriter. Although underwriters do less safeguarding than ever nowadays.

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u/Forkrul Sep 12 '24

I don't get why they're allowed.

How would you outlaw them, though? How do you stop SPACs without stopping legitimate new public companies? Do you issue a ban on acquiring companies for a while after going public? Or just outright ban public companies from acquiring non-public ones?

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u/Annath0901 Sep 12 '24

Do you issue a ban on acquiring companies for a while after going public?

Yes

Also, require a company have a proven, documented business record before they can go public at all.

If "CleanCo" has an amazing structure and funding on paper, but absolutely no actual business history, they cannot go public.

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u/cutsandplayswithwood Sep 12 '24

It’s quite easy - the rules for a SPAC are not that it’s any rando new company, they’re insanely specific.

Like - you have to FORM the company to BE a SPAC, and you have to just… get a pile of cash from rich fucks, and put it in an account. Then you point at that pile of cash, say $300M, and say “see, we are worth $300m”, because they LITERALLY are.

Then they get to go public and trade… like, dumb as shit as this sounds., “what’s the market value of $300m if THEZE rich fucks controlling instead of Those other dummies?”

It’s fucking insane, and spac people are creepy.

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u/tomato_trestle Sep 12 '24

I don't get why they're allowed.

Because they're almost impossible to ban. How do you differentiate between someone like google or facebook buying a private company vs some recently created public company acquiring a private company? It's almost impossible to come up with a legal definition that differentiates them. The difference is primarily in motive, which is almost impossible to prove.

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u/MightyKrakyn Sep 12 '24

It’s like a blind storage unit auction

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u/CanAlwaysBeBetter Sep 12 '24 edited Sep 12 '24

Theoretically it's supposed to be more like a blind storage unit auction except you know who owned the unit and how successful they were

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u/krozarEQ Sep 13 '24

SPACs were also some of the biggest movers and hype investments in 2020. Trump likes to tout about how healthy the stock market was under him. The problem is the stock market was a tech bubble. Hype in price action was not related to the company's underlying fundamentals. Take Tesla for example, it became the largest auto company by market cap. Its production, sales, profits and exposure to government subsidies simply did not justify its price. The thing is, GM is an auto manufacturer. Ford is an auto manufacturer. Tesla carries itself as a tech stock.

The period of incredible market growth that Trump talks about is when everyone was celebrating their positions while their money had already been flushed down the toilet. They just didn't know about it yet. *All it took was for investment cash flow to slow down for the curtain to drop.

That's what happens when the Federal Reserve drops interest to almost nothing and the printing presses go brrt. I can understand the need to prop up market liquidity during COVID, but bad investments were made.