[HN Gopher] SPAC Wipeout Is Punishing Followers of Chamath Palih...
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SPAC Wipeout Is Punishing Followers of Chamath Palihapitiya
Author : CPLX
Score : 75 points
Date : 2021-04-17 15:09 UTC (7 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| aparsons wrote:
| Chamath is one of the most self-serving-pretending-to-be-
| altruistic salesmen to ever set foot in SV. If you were still a
| "follower" after doing even the slightest bit of due diligence
| into the man, you deserve to lose money.
| gamblor956 wrote:
| For an example, he claims he was "early on Amazon"...in 2014,
| or nearly 20 years after the IPO, and Tesla...in 2015 (IPO'd in
| 2010), and Bitcoin...in 2012 (or more than 2 years after the
| infamous pizza purchase that drew the first wave of media
| attention).
|
| His primary skill appears to be promoting himself as a first
| mover when he's always a johnny-come-lately.
|
| And on the particular topic of the article: Bloomberg notes
| that "His three open SPACs are all in the bottom 20th
| percentile for returns since the market top" compared to other
| SPACs, and over the course of the past 2 months alone, have all
| lost at least 20% of their value.
| jpgvm wrote:
| Definition of a snake oil salesman. Even great companies like
| SoFi that went public via one of his SPACs still end up
| screwing investors because of disadvantageous promote and PIPE.
| When the ticker change happens watch it drop and then wait for
| PIPE dump and it will drive it below IPO of the SPAC itself.
| dralley wrote:
| Strongly agree. I listened to Chamath's talks for a couple
| hours. The impression one gets is a smart, charismatic and
| driven guy... Who uses every dishonest fake-populist rhetorical
| trick in the book.
|
| I still think he's an interesting listen, but you've got to be
| thoughtful about it. Slippery dude.
| FooBarBizBazz wrote:
| I was put off by the way he attacked Vlad Tenev.
|
| Tenev became a scapegoat for the GME fiasco, and, as the
| facts came out, it seemed he really didn't deserve to. I get
| that Tenev's "we don't have liquidity problems" answer was a
| little disingenuous, but it also wasn't totally wrong if you
| include a bunch of fine print, and I get how it was
| necessary. In the end, it turned out that the whole T+2
| system was stupid, and leaked through the abstractions built
| on top. He didn't have enough capital to handle a crazy
| outlier, and he went back to get more money for next time.
| What else was the guy supposed to do?
|
| So attacking Vlad for "ethics" was low. Remember that, before
| Robinhood, we all paid a bunch of trading fees. The dude
| _has_ done some good. Chamath just piled on to an easy
| target. I don 't like people who cast stones so they can look
| good.
|
| I don't know why I'm here doing Robinhood's PR for them. I
| guess Chamath's grandstanding just left a really bad taste.
| toomuchtodo wrote:
| > In the end, it turned out that the whole T+2 system was
| stupid, and leaked through the abstractions built on top.
|
| While T+2 is antiquated, that doesn't excuse Robinhood
| giving margin accounts to unsophisticated participants (who
| don't understand the consequences of trading on margin),
| fronting them funds with "instant funding" while their ACH
| transfers are in flight, all while having limited capital
| on hand. Vlad could've come out honestly and pointed out
| their sleight of hand was also a contributor alongside
| clearinghouse requirements, but instead, smokescreen.
| google2142 wrote:
| Then you still don't understand the problem. This had
| nothing to do with consumer margin; they could have not
| offered margin as a product and still ended up in this
| situation. The TLDR is that DTCC requires cash from the
| brokerage firm for buying a stock until settlement
| clears, which means the money you pay to buy $100 worth
| of apple, a percentage of that amount must be paid
| directly by the brokerage i.e. not from the $100 you gave
| but from the businesses account. During the gamestop
| fiasco, the percentage of money required from the brokers
| increased in orders of magnitude for GME and other meme
| stocks which caused a pseudo liquidation issue, but not
| actually since no one's balances were at risk yet.
|
| It's ironic because this prevents small brokerages from
| building their own clearing houses and reducing
| competition in that space. Robinhood innovated to push
| the feature development cycle faster and got punished for
| it due to an archaic rule about settlement time. T+2 is
| really 99% of the reason this happened -- sure RH could
| have raised additional funds, but a black swan event
| isn't usually what a smaller bank plans for.
| [deleted]
| omeze wrote:
| T+2 is an artifact of fund transfer settlement times
| isn't it? Or to rephrase, why do we still have T+2 for
| equities?
| Armisael16 wrote:
| Financial markets appreciate having a little time to call
| back mistakes. Also, transactions are a lot easier and
| cheaper if you can do them at the end of the day instead
| of immediately.
|
| We could probably switch to T+1 without significant
| problems. Real-time settlement would be a whole other
| kettle of fish.
| paulgb wrote:
| His attack on Vlad was especially disingenuous given that
| he was SPACing a competitor (SoFi). Especially since he
| specifically targeted PFOF, which SoFi also engages in.
| quickthrowman wrote:
| Re: fees
|
| The discount broker always gets paid. It might be from fees
| or it might be from PFOF and lending shares in margin
| accounts and pocketing the proceeds, but either way, they
| get their money.
|
| Other brokers like IKBR charge fees for all trades, but
| split the share lending proceeds with you 50/50.
| briefcomment wrote:
| It usually sounds like he believes what he's saying himself,
| instead of being consciously deceptive.
| tracer4201 wrote:
| I'm curious why you believe he's a self serving salesman. I've
| seen a few of his interviews on YouTube and particularly some
| of his CNBC interviews. I can't recall him trying to give me
| specific investing advice, but his analysis on a lot of recent
| events has made sense. And a lot of his general life advice is
| great.
|
| I'm a follower of Chamath, but that doesn't mean I believe he
| can predict the stock market any better than I can.
|
| What are his self serving/pretending behaviors? Who has he
| conned, and how?
|
| Edit: I'm genuinely curious and asking to get better informed.
| Why the downvotes?
| vmception wrote:
| So basically funds cannot advertise to poor people, or at all
| because poor people might hear. Those are the regulations in
| this country. To get around that (aside from using a
| different registration exemption), a person in the fund is
| elevated to mythical celebrity status and just talks about
| money topics _a lot_ , while the fund self fulfills this
| person's prophecies by throwing money at all problems
| (investments inside the company to make them profitable,
| whether the fund can liquidate at those prices or not)
|
| Chamath being Mr-Correct-and-influential-Money-Guy is only to
| be a self serving salesman
|
| Wealthy enough people hear about it and can buy into Social
| Capital as a limited partner. Or be a SPAC co-sponsor, or
| part investor in a new SPAC, or be part of the retail
| investing hoard that also provides liquidity.
|
| There is no other reason for him to talk at all.
|
| Riding and stoking the populist sentiment is only self
| serving. That doesn't mean he conned anyone (the grandparent
| post did not use that term), maybe ripped off but this aspect
| is no different than any other investment that you're allowed
| to take risks on. There isnt anything special about Chamath,
| except that his niche involves pandering to "the little guy".
| pottertheotter wrote:
| The thing is he says a lot of things that are very true that
| others aren't willing to say publicly. I guess that's the hook
| he gets people with. He then mixes the truths with a lot of
| half truths or false statements to pander to his audience.
| jariel wrote:
| I'm really hoping for the Kumail Nanjiani spin-off of Pied
| Piper where he plays Chamath.
|
| The new era of RobinHood traders has brought an incredible
| degree of financial populism, youtube is crowded with people
| giving their opnion.
|
| Some of it is really great, often more insightful and detailed
| than what a lot of banks dare publish - but a lot of it is
| rubbish.
| Apocryphon wrote:
| Funnily enough, it's been said that Aziz Ansari bears closer
| physical resemblance to the man, and they are both of Sri
| Lankan descent.
| WillSlim95 wrote:
| Aziz Ansari is of Tamil descent not Sri Lankan descent.
| [deleted]
| Apocryphon wrote:
| Good catch
| paulpauper wrote:
| Scammers have also made millions of dollars in Bitcoin with the
| twitter giveaway scam impersonating Chamath. The people who
| follow Chamath and other gurus tend to be 'professional morons'
| ---people in professional lines of work who have a lot of
| disposable income and wealth but are also somewhat dim and easily
| swindled and persuaded by jargon. Think the pointy-hired boss
| from Dilbert. See also Putt's Law.
| ianai wrote:
| Everyone is "dim" about many, many things. It's not a great
| thing to validate someone's victimhood for simply being used by
| a scammer.
| brandnewlow wrote:
| "To be fair, all of his SPACS are up since IPO"
| jb775 wrote:
| That isn't a realistic representation.
|
| SPACs usually start at $10 when formed, then shoot up at least
| 4x on announcements and hype, the early investors (i.e. people
| like Chamath) cash out at the peak, then the stock price tanks
| to $15. Technically the stock is "up" from the original listing
| price, but it's really just a big scam.
| ethanolburner wrote:
| You grossly misunderstand SPACs if you think they shoot up at
| least 4x on announcement & hype.
|
| This is a very rare phenomenon, and even with the most
| prominent SPAC sponsor (Chamath), of his current 4 SPAC deals
| that are post-DA, only 1 has exemplified what you
| characterize (Virgin Galactic's $55 ATH). The others have
| never broke $40 or above. This includes every SPAC he has
| been in the PIPE (5) with exception of 1 (NYSE: MP) which has
| broke $40.
|
| Therefore, of the 9 post-DA SPACs that have had some form of
| association with the one of the most popular SPAC sponsors
| (Chamath), only 2 exemplify what you describe.
|
| However, I do agree with the general premise of your comment.
| SPACs without founder and PIPE lockups are most likely
| destined to perform poor in the long term.
|
| Is this a big scam? Considering the fact that most of the
| 130~ SPACs that have a DA do not fit into your
| characterization (most do not shoot up even 2x after LOI/DA
| announcement & hype, most sponsors have not cashed out -
| whether that be peak or not, most do not trade at $15 but
| rather way closer to NAV), I would be inclined to say they
| are not scams in that regard. I would say they are unfair
| rather than scams (most SPACs have a high % of founder
| shares, no lockup etc).
| jb775 wrote:
| Ok maybe I should have said my description is the _ideal_
| scenario in the eyes of SPAC creators. Obviously not every
| one will have a 4x price surge, and not every one will
| completely tank. There 's a reason why they try to attach
| celebrities or well known businesspeople...purely to build
| hype. If you (and the creators of the SPACs) agree they're
| destined for poor performance, how is it not a big scam?
|
| It's kind of like around the time of the Dutch East India
| Company when tons of bogus companies popped up and publicly
| sold shares that completely tanked shortly after (e.g. a
| company claiming it invented a perpetual motion wheel
| machine, etc).
|
| I'm referencing tickers such as APPH, NKLA, HYLN, THCB,
| LACQ. I'd wager a bet that most of the early investors for
| these examples are already cashed out at a significant
| profit knowing they would tank shortly after they did.
| edoceo wrote:
| IPOC which became CLOV isn't
| nrmitchi wrote:
| > To be fair, all of his SPACS are up since IPO, except for
| the ones that aren't
| imtheantinoob wrote:
| I like to view SPACS as synthetic bonds. Bonds are boring so
| let's instead describe them a different way.
|
| SPACS are loot boxes. You have a chance at some point in the next
| 2 years that it may open. If you don't like the opened stock, you
| can get a refund of 10$ plus interest. If it doesn't open the
| same thing occurs.
|
| As long as you are buying spacs (not companies that have
| completed the spac merger) at or below NAV you won't get burned.
| You just pay in opportunity cost. If you pay for a pre LOI spac
| above NAV u are taking on risk and it is expected that you will
| get burned.
|
| Lots of Chamath's followers over paid for his spacs which
| ultimately burned them.
| blinding-streak wrote:
| "it's been Palihapitiya's SPACs that have been among the worst
| bets. His three open SPACs are all in the bottom 20th percentile
| for returns since the market top."
| seattle_spring wrote:
| Chamath was on the board of Premise Data for 6 years, one of the
| scummiest companies I've ever had the misfortune of associating
| with. That alone brings his trustworthiness into question.
| tomc1985 wrote:
| Yet another reason not to listen to "thought leaders"
| nceqs3 wrote:
| Everybody hated him at Facebook. Nobody was willing to work on
| his team because he was so rude. [0]
|
| 0 = Steven Levy's Facebook: The inside story
| kbos87 wrote:
| I know very little about him but was initially intrigued because
| he's often referred to as a "good guy" with altruistic motives
| who also isn't afraid to call others out.
|
| Then I saw him on CNBC in the midst of the GameStop fiasco,
| railing against Robinhood on the premise that people should be
| outraged because Robinhood almost ran out of money and had to
| restrict trades.
|
| Whether or not that's something to be outraged about is one
| question. What turned me off is that he seemed to be completely
| ignoring parts of the story, instead finding new angles to throw
| on the fire to keep people riled up. The whole thing was a major
| red flag for me.
| nrmitchi wrote:
| What you're describing here is, unfortunately, very similar to
| the Trump playbook. And is something to be very wary of in the
| future.
| adamcstephens wrote:
| SPACs should be banned. They're a vehicle for perpetuation of the
| market as a gambling platform, while undermining the transparency
| requirements of the market.
| lordnacho wrote:
| > SPACs should be banned
|
| That's just treating the symptoms, though?
| adamcstephens wrote:
| Sure, but this didn't seem like the place to discuss
| replacing the market economy with one which exists in
| equilibrium with the planet.
| geuis wrote:
| I agree.
|
| When I first started hearing about them a few months ago (oddly
| enough because I was listening to one of Jason Calacanis's
| shows with Chamath) they sounded off. Had also just recently
| rewatched The Big Short.
|
| Back in 2006-ish an old boss at the time was doing some hinky
| shit with penny stocks. First time I had ever heard about them
| back then.
|
| After doing some research to learn about SPACs, the whole
| concept is incredibly scammy. It's all just a weird mutated
| combo of penny stocks and the crap being pulled in 2007. I
| know, that's not an exact true definition. I'm trying to make a
| generalization.
| [deleted]
| ianai wrote:
| I wonder whether the same laws that legalized stock buybacks
| had anything to do with SPACs. (Buybacks were long considered
| insider trading.) Though I suspect spacs may just be too new.
| ethanolburner wrote:
| "while undermining the transparency requirements of the market"
|
| Then why don't you propose to just ban forward-looking
| projections and including more transparency?
|
| SPACs have their distinct use cases and have unique advantages
| and disadvantages compared with IPOs & DPOs. A blanket-ban on
| these vehicles is, in my opinion, limiting optionality, which
| wouldn't be a problem if the IPO & DPO processes were perfect,
| however, they are not.
| [deleted]
| dehrmann wrote:
| I don't think they should be _banned_ , but I seriously don't
| understand how someone could invest in one. You don't know what
| it's going to acquire, so it's a bet that the leadership finds
| a good company at a good price that you'd be interested in
| owning. SPACs have nothing else going for them. That said, it
| sounds a lot like VCs who invest in the founder, not the
| company.
| cstejerean wrote:
| As I understand it, if you don't like what the SPAC acquires
| you can demand your money back.
| nikanj wrote:
| Minus fees, obviously. They make money no matter what
| drivel they buy.
| ivalm wrote:
| I don't believe minus fees. The fees are generally the
| extra shares when it de-spacs. In fact for spacs that
| trade below nav they are like variable cash instruments.
| enraged_camel wrote:
| SPACs have a price floor of $10 pre-merger. This is the NAV
| -- Net Asset Value.
|
| This doesn't necessarily mean SPACs cannot go below $10
| before a merger. It just means that you as a shareholder have
| the ability to ask for your money back at $10/share
| regardless of the stock's current price.
|
| Surely you can see why this can make SPACs an attractive
| place to "park" one's money. The potential upside is pretty
| large, whereas risks are relatively low as long as you don't
| continue holding post-merger (where the price can indeed go
| down to $0 and you are no longer protected by the NAV floor).
| ethanolburner wrote:
| I would break SPACs currently in the market down into 2
| categories; pre-DA and post-DA.
|
| In other words, there are a number of SPACs which have
| already posted their target company, their financials, future
| projections, as well as other things like PIPE investors, %
| SPAC ownership etc. Most of these, due to the current
| climate, are trading at or slightly above NAV, therefore,
| they are akin to buying stock in any other company with a
| small downside if the deal does not materalise [1].
|
| What you would be referring to in your example are pre-DA
| SPACs, in which you are correct as it relies on the sponsors
| prior performance and praying they will find a good target at
| an appetizing valuation. However, even here there is a small
| downside, since of the 430 SPACs searching for a target [1],
| the majority are trading at or below NAV with very few
| breaking this rule, which is why it is so lucrative for
| investors and arbitrage HFs.
|
| For instance, if you do proper due diligence on a particular
| SPAC sponsor and have mild conviction on their ability to
| obtain a good target, chances are their SPAC is trading at or
| below NAV, therefore, it opens an opportunity to invest in
| something near risk-free. If a deal does not materalize, then
| you get $10 (or NAV) back, and if it is a good target you
| reap relatively good rewards. If it is a bad deal or you do
| not like the company, you have the ability to sell at or near
| the same price you bought (provided it was close to NAV),
| since very rarely in the window of post-DA to de-SPAC will
| the SPAC price fall below NAV. The only significant downside
| is opportunity cost since the core idea revolves around
| parking money and not utilizing until the sponsor announces a
| deal, and other investments even in index funds may have
| provided higher returns in that timeframe, which could be a
| good or a bad thing, especially in volatile markets.
|
| [1] - https://spactrack.net/activespacs/
| [deleted]
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