It’s Friday, which means it’s mailbag day here at The Daily Cut.
This is where you send in your burning questions about how to profit and protect your wealth.
And we publish responses from our team of analysts here at Legacy Research.
It’s the publishing alliance behind Jeff Brown, Teeka Tiwari, Dave Forest, Nick Giambruno, Jason Bodner, Tom Dyson, Doug Casey, Dan Denning, and Bill Bonner.
Before we dive in, if you have a question for Jeff, Teeka, or anyone else on the team, email us at feedback@legacyresearch.com.
This week, one of the profit themes on your fellow readers’ minds was SPACs. That stands for special-purpose acquisition companies. But you’ll often hear SPACs called blank-check companies.
That’s why Jeff’s new SPAC-focused advisory is called Blank Check Speculator.
Blank-check companies exist to fulfill one goal – raise billions of dollars to merge with private companies they think will soar and take them public.
As we’ve been showing you, SPACs allow ordinary investors to buy into companies right as they’re going public for the first time.
But lately, SPACs have been selling off.
After rising as much as 55% between November and February, one popular SPAC exchange-traded fund, Defiance Next Gen SPAC Derived ETF (SPAK), is down 34%.
And one reader wants to know Jeff’s thoughts on this price action.
We’ll get to that… along with a question about Tom Dyson’s education preferences for his children… in a moment.
First, a question about crypto…
As you’ll know if you’ve been following along in these pages, the crypto revolution is one of the most profitable market megatrends we track for you.
It’s also one of the most popular topics we cover.
On Wednesday, colleague and world-renowned crypto investing expert Teeka Tiwari hosted an online event about a “supply shock” he believes will send bitcoin – and some smaller crypto investments – skyrocketing. (Catch the free replay here.)
If it all plays out as Teeka predicts, folks will have the enviable “problem” of figuring out how to pass on their crypto fortunes to loved ones…
Reader question: How does one deal with cryptocurrencies in one’s will? If one includes the “passwords,” they could be stolen…
If one does not, the inheritors could not access the coins. A sealed envelope in a safety deposit box? It is a conundrum for which I’ve seen no suggestions anywhere.
– Paul M.
Teeka’s response: Thanks for getting in touch, Paul. It’s a great question. A sealed envelope in a safety deposit box is a good option.
It follows the golden rule of making sure your crypto is secure: Never store your private keys online. Your private key is a form of cryptography that allows you to access your cryptocurrencies.
So don’t store them in your iCloud, your Evernote, or your Microsoft OneDrive. Instead, you want to keep your private keys on a thumb drive – preferably an encrypted one – and on pieces of paper.
As long as you don’t store your private keys online, and you keep them in a physical form – in a bank, in a safety deposit box, or wherever – they’re safe.
Also, please don’t keep the bulk of your coins on online exchanges unless you have to. It’s a bit of a pain in the neck to custody your own coins. But while it’s not super easy, it’s not rocket science, either.
The alternative to spending a few extra minutes to make some backup copies of your passwords/keys and to move your coins off exchanges into your wallet is… they can get hacked or go bust, or somebody in an exchange can steal your money. And once your coins are gone, they’re gone. There’s no FDIC insurance, like there is with banks, to make you whole again.
There might be at some point, but not yet. So please take that to heart. The loved ones who inherit your crypto holdings will be glad you did.
Now back to Jeff Brown… and that question about SPACs.
After the fall of many SPACs since the sector peaked in February, one of Jeff’s readers wrote in to share his concerns…
Reader question: In April, The Wall Street Journal ran a series of articles on SPACs that raised real concerns about them. One headline was “SPAC Insiders Can Make Millions Even When the Company They Take Public Struggles.” It said, “Many individual investors take losses on SPACs, while insiders benefit from discount stakes.”
That runs contrary to your thesis about SPACs and the suggestion that they allow small investors to benefit from IPOs as big insiders do.
I’m curious about why you’ve chosen to be silent in the face of these major articles in America’s most widely read newspaper focused on business and investing. And, of course, I hope you’ll address the concerns raised by the WSJ articles and why or why not they’re affecting your strategy with regard to SPACs.
– John H.
Jeff’s response: Thanks for the great question, John. You’re right. There has been some negative press about SPACs.
I read the article you mentioned. It looked at a handful of SPAC listings that have underperformed over the past year. It also looked into claims that sponsors have unfairly benefited from these deals while other investors have suffered huge losses.
It mostly examined the underperformance of Churchill Capital’s MultiPlan SPAC IPO and the ensuing fallout among its backers. This is based on claims that its board didn’t sufficiently evaluate the deal it entered.
I wouldn’t have invested in this SPAC anyway. Churchill has a reputation for being aggressive in valuating companies it takes public. And its incentive structure is skewed to heavily favor them over investors.
At Blank Check Speculator, we thoroughly vet the management team and sponsors of each SPAC we recommend. We also carefully examine the structure of the SPAC. We want to make sure its interests align with ours. That way, we can profit alongside some of the best investors and entrepreneurs in the world.
SPACs almost always issue “sponsor shares.” These reward the sponsor for taking the risk of setting up the SPAC and finding a business to merge with. Typically, these are for 20% of the new company.
The sponsor shares convert into normal shares on the completion of a business combination. That’s when the SPAC merges with the private company it wants to take public. If there is no combination, sponsor shares become worthless.
If a sponsor can then sell these shares immediately, we keep our distance from that SPAC. Because our interests are not aligned. A sponsor then could theoretically merge with a questionable company, collect and sell his shares, and leave unsuspecting investors with big losses.
We also don’t like it when the sponsor shares automatically convert to common shares on the consummation of a deal – even if there is a lock-up period. In that case, a sponsor can still profit even if the price of the investment goes down to $1 a share.
We want to see the sponsor agree to hold on to shares for a long time after the business merger is complete. This means the sponsor will make more money if shares rise over the following years.
It’s also worth noting that many articles I’ve read in the mainstream press confuse SPACs with ex-SPACs. I recommend investments in SPACs, which hold only cash. They tend not to be volatile during the period they are looking for a business to combine with.
We are NOT invested in any ex-SPACs… that is, the entities after the combinations have taken place. Ex-SPACs can be volatile, as they trade on the underlying fundamentals of the company the SPAC has brought public.
Many of the articles detailing major losses in SPACs have these two terms mixed up.
We’ll wrap up today’s dispatch with a question that’s struck a chord with your fellow readers: Is a university education a waste of time and money?
Legacy Research cofounder Doug Casey thinks it is.
In a recent edition of Casey Daily Dispatch, Doug said young people should think twice before investing in a college degree…
It’s a gigantic mistake to sit in a classroom with other young people who know as little or less than you do, while dissipating $200,000 or $300,000 and four or more years […]
College has become an extremely expensive and stultifying way to transform kids into […] no more than drones, cogs in the wheel.
It’s a topic gold investor Tom Dyson also recently addressed in his free daily e-letter, Postcards From the Fringe…
We hope our children never set foot in an academic institution of any description, including university. However, if they decide they’d like to go to high school or university, they will be free to do so, as long as they pay for it themselves.
This prompted one of Tom’s readers to get in touch…
Reader question: When you wrote that you hoped your kids never set foot in an academic institution or that they would have to pay for it themselves, I became curious. Please elaborate further!
It would be advantageous if you could also address the fact that your kids are in a unique situation in that they have at least one parent who is highly financially literate and is making sure they understand economics.
How do you think your outlook on education would be different, if at all, if you were not financially educated and/or did not have an international perspective? And how do you view the need for college for kids who do not come from financially literate households?
Tom’s response: This is such a deep and nuanced question. Forgive me if I don’t do it justice here… or if I sound like I know what I’m talking about, because I don’t. (We’re making it up as we go along.)
But here goes at answering your question…
As we see it, our job as parents is to prepare the children for independence. And there’s so much more to this preparation than just financial literacy or a college degree.
For example, Kate and I have always said the only quality we care about is that our children are kind. I’m not even sure we can control this, but that’s the big goal.
Also, we hope our children are humans that other humans like being around, which requires a whole host of “soft” interpersonal skills.
Our relationships with others are the most important “assets” we have in life, and we hope that if our kids are charismatic people, many doors will open for them.
Also, we’d like our children to respect their bodies and minds… to eat properly… to exercise… to meditate… to manage their feelings and emotions. Good health is so important.
So these are some of the ideas we set the dials by…
Now back to your question: How would I feel about homeschooling if I were not financially educated or I didn’t have an international perspective?
It’s impossible to say, but I’d like to think none of what I’ve said above would change.
That’s all for this week’s mailbag.
Remember, if you have a question for anyone on the Legacy team, send it to feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
May 14, 2021
Barcelona, Spain