Of the plethora of special-purpose acqisition companies "so many people are cranking out" in "a land rush," only "a handful are good," Barry Ritholtz says.
Indeed, investing in SPACs is "rolling the dice," he argues in an interview with ThinkAdvisor.
The issue is: "You're essentially betting on a management team to find a company they'll be able to do a deal with," he explains, identifying two SPAC experts he recommends that investors consult.
The candid co-founder, chair and chief investment officer of Ritholtz Wealth Management is a market-wise veteran FA, 59, with "a nose for BS" — as RIA Ken Fisher put it in a USA Today column — and a nose for news too.
A pioneering financial blogger, Ritholtz's The Big Picture draws 500,000 page views a month; and his "Masters in Business" podcast, on Bloomberg Radio, is streamed or downloaded 8 million to 10 million times a year. The writer has conducted a weekly Bloomberg Opinion column since 2013.
Meanwhile, his advisory firm, launched in 2013, manages $1.8 billion in client assets.
Ritholtz used to have a reputation for being a perma-bear; now people tell him he's a perma-bull since he's "very constructive" when it comes to the market," he notes.
In the interview, he shows his unabashed bullish side, forecasting that the coronavirus pandemic will have released its grip enough for some level of U.S. normalcy to return by October. Still, he ponders how much upbeat anticipation will already be priced into the market.
Press coverage of the GameStop frenzy had him fuming, he noted. It was merely a fluky event overblown by the media and generated no earthshaking change to the nature of stock market investing.
In our conversation, he lauds the "fascinating change" to advisors' practices forced by the pandemic, expresses a little caution about investing in Bitcoin and explains his unusual approach of matching clients' risk tolerance with strategies named for NASA spacecraft missions.
Ritholtz, whose firm is based in New York City, uses a combination of quantitative data and behavioral economics in formulating his strategies.
The most critical job for FAs right now is to not let "meaningless day-to-day noise — market bubble, inflation forecast, GameStop craziness, and so on — distract clients from "staying on track with [their] long-term [financial] plan," he insists.
ThinkAdvisor held a phone interview with Ritholtz on Feb. 22. The advisor, author of "Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World" (2009), was speaking from his home on Long Island, New York. A sidebar chat started out to be about one of his favorite leisure pursuits but somehow wound up with his outlook for a major U.S. industry.
Here are excerpts from our interview.
THINKADVISOR: What's your take on the SPAC trend?
BARRY RITHOLTZ: There's a land rush going on — so many people cranking out SPACs. The problem with SPACs is that you're essentially betting on a management team to find a company they'll be able to do a deal with. There's a handful of good SPACs and lots of mediocre SPACs.
What chiefly should investors keep in mind?
If you want to own SPACs, be aware that you're rolling the dice. So if you feel compelled to own one, make sure that the management team has a great track record. If you want to throw a couple of bucks into a SPAC, I'm not going to tell somebody, "Don't do it."
Any other guidance?
It's important to look up [experts] [Mariposa Capital's] Martin Franklin and [Hudson Executive Capital's] Doug Braunstein. These guys have a really good record with SPACs in being able to identify opportunities with a lot of upside for clients.
With respect to the pandemic, what do you foresee happening in the market over the next several months?
The market has been telling anybody who would pay attention that this [disaster] is going to get better sooner than later. The early move off the lows in March 2020 that perplexed so many was the market looking over the valley of the pandemic and saying, "We will eventually have a vaccine and herd immunity and return to normalcy." So far, it seems like the crowd did a good job sussing out how quickly we'd see some of that return. We're definitely close to the end of the pandemic.
How close?
That's the question: Is it three months? Six months? I can't imagine going much past September or October — getting to herd immunity between April and August isn't unreasonable. The biggest question is, if you're a trader, not an investor, how much of that good news is already built into the stock market?
How much do you think?
If people want to argue that a lot of it is, I won't push back on that too much. You could have said the same thing six months ago — that the market was seeing a recovery and a lot of that was built into the price. But here it is six months later, and [the market's up] another 15%, 20%.
Folks are worried that higher inflation is en route. What you think?
People have been wrong about inflation for a long time. After the financial crisis, in an open letter to Ben Bernanke [Federal Reserve chair] that ran in the Wall Street Journal, [economists, professors and fund managers] warned of hyperinflation. But we didn't even see inflation!"
What about getting rising inflation now?
