Hi Folks! 👋

Happy Sunday! I can’t believe we are in the final stretch of summer here. Hope you’re all having a great time and enjoying the last bit of warm weather. It’s already started to cool off in the last few days here in Vancouver but today is a gorgeous day and I spent the morning playing tennis. I also saw some of my girlfriends last night and one of the things we ended up chatting about was how to politely say no to a guy when he asks for your number and you’re not interested.

There’s some backstory. Earlier this week, I was working out of a cafe and there was this guy sitting across from me, who also seemed to be working or whatever, I have no idea. We made zero eye contact (this is important) and after a while, I left the cafe and decided to go sit in the sun for a bit and read my book. I was sitting on a bench by the water and had my headphones in and was immersed in my book, when I felt a tap on my shoulder and realized it was the same guy from the cafe. He asked if he could sit next to me on the bench. Thanks for asking stalker, but yeah go ahead, it’s public property. I went back to reading and saw he was taking some photos and just sitting idly. I finished reading and got up to leave, and suddenly (and of course in hindsight), he also got up to chat me up. He told me that he was visiting from Germany and loved Vancouver and blah blah blah. Then he extended his hand for a handshake and I facetiously said that I guess we can shake hands since we are fully vaxxed now. But apparently that was a wrong assumption on my part because turns out, the handshaker was an anti-vaxxer. 

I was a bit surprised by his admission but whatever, his body, his choice. I was ready to say bye but he decided that he was going to educate me on why vaccination is a bad idea. So off he went on another rant for ten minutes, and even took out an ‘anti-covid herbal potion’ from his bag that he suggested I take. Finally, after having enough of my patience tested, I said to him that even though I strongly believe in getting vaccinated, I didn’t try to convince him once. However, he felt he had to defend his anti-vaxx stance to me but the folly in that entire argument is that even if he convinces me, I can’t undo my vaccination. So really, what’s the point? Trust me, I said it as politely as I could, and he was stumped but admitted that I made a good point. But then, he proceeded to stump me by saying that he is also in the dating market right now, and maybe going forward he should just play along and pretend he’s vaccinated. (WTF?!) And then as if all of this wasn’t enough, he followed up by asking me for my number! (Excuse me?! Are you F*ckin kidding me?) I wish I was kidding. The guy had balls. Or did he?!

So anyways, that’s the long backstory why we were brainstorming some of the polite ways to tell a guy to back off. But speaking of Covid, it seems like even double vaccination is not foolproof against the new Delta variant, especially Pfizer and AstraZeneca. The indoor mask mandate is back in Vancouver. Folks please be safe out there and say no to handshakes from strangers!

Ok enough chit chat. Because like the emerging variants of Covid, SPAC trading is on its own fifth wave here as well. The first wave was the run up in SPAC names before the merger close like $DKNG. Next came the pre-deal announcement run up like $IPOD, $IPOF (which seem almost orphaned by the Italian nobility aka Chamath). The third wave was SPAC warrants being the hot commodity, like the $AGCWW. The fourth was shorting the de-SPAC names like $CLOV. And now, the fifth wave seems to be ‘squeeze the heavily redeemed, low float de-SPAC names’, like $EFTR ($LWAC merger with Effector Therapeutics) and $IRNT ($DFNS merger with Iron net Cybersecurity).

On Wednesday (August 25th) when the $LWAC merger closed and they announced that 97% of their shares had been redeemed with only $5.2M float left, the squeezers were like oooh yeah. This is one of the highest redemptions on record, but the stock went from trading below NAV to an intra-day high of $29, before closing in at ~$17.

The story is similar with $DFNS. On Thursday (August 26th), when the $DFNS merger closed and they announced that 93% of the shares had been redeemed, leaving only a $12M float, the squeezers came to pump it up. The stock went up from $10 to $18 before closing around $13. Apparently, squeeze watchdogs are looking at $SV next as it hits the redemption deadline tomorrow. Here is the formula, as described by one of the twitter dogs: “buy under $10, under $30M float, >70% redemption and voila!”

Let me clarify though, that this kind of trading is definitely outside of my comfort zone, so I am just sharing what I’m observing. It is interesting though, because the trading in SPACs or crypto for that matter, is more about momentum. Yes, there are people trading jpegs and Bored Apes and making millions, but the broader population only recently started learning about crypto and is only now looking at Ethereum as a potential long term holding. To put things in perspective, only 17% of the US population currently owns Bitcoin.

And therefore the current trading environment in these new esoteric asset classes is reflective more of that euphoria rather than the underlying fundamentals. For example, let’s look at the Fintech sector which has been one of the shining stars recently. Andreesen Horowitz has said that “every company will be a Fintech company”. With such solid tailwinds helping the sector, I was curious to see how the performance looked for the Fintech companies that went public in the last year, both via traditional IPOs and SPACs, and wanted to see if the route to go public mattered. Apparently it does as depicted by the results below. All Fintech de-SPACs show negative returns since merger close compared with traditional Fintech IPOs, which have all done exceptionally well except for $AFRM. And as a reminder, these are companies that have been public for less than a year.

Of course, this doesn’t account for the underlying quality of the company. And a dud is a dud, even in the best sector. So I wanted to clean up the list a bit and include the names that I hold or would consider holding because of their strong fundamentals. My narrowed list of clean names includes – $UPST, $AFRM, $MQ, $DLO, $GLBE, $SOFI, $PAYO.

Granted there are only 2 SPAC names ($SOFI and $PAYO), but the narrative still holds — that even good quality de-SPAC names have struggled because the trading population is so used to trading them on momentum, that they haven’t really considered researching these names for the long haul relative to their traditionally IPO’ed peers. And that’s why, as I have written before, it’s even more imperative for the de-SPAC names to deliver good quality consistent earnings, so that they can catch up in performance and credibility. It’s almost like they have to pay a “SPAC tax” to move ahead. But at the same time, this remains an opportunity for the patient investors to invest in these names at close to NAV levels.

It feels apropos to end with a quote that I read this week: “Patience is also a form of action” — Auguste Rodin

Have a great week ahead!

-Nikita