Go SPAC Crazy With Social Capital Hedosophia Holdings VI

You might have already heard the name Chamath Palihapitiya as he’s well known for leading no fewer than six special purpose acquisition companies or SPAC’s. The sixth one in that series is known as Social Capital Hedosophia Holdings VI (NYSE:IPOF). After learning more about it, you might be persuaded to purchase a few shares of IPOF stock.

A man holding two puzzle pieces surrounded by more, smaller puzzle pieces. SPAC IPOs
Source: Pasuwan/ShutterStock.com

Palihapitiya is sometimes known as the king of SPACs, but we should also give credit to Ian Osborne, who is also partially responsible for the Social Capital Hedosophia SPAC’s.

Don’t assume that number six will be Palihapitiya’s final SPAC. In fact, I’ve heard that there will be 26 Social Capital Hedosophia SPAC’s in total.

Palihapitiya even went so far as to reserve the ticker symbols from IPOG all the way through IPOZ. So, is there a reason to own IPOF stock now? If you don’t mind accepting some risk, the answer could be a definite yes.

A Closer Look at IPOF Stock

It was on Oct. 9 that IPOF stock was introduced on the New York Stock Exchange. At that time, 100 million units were priced at $10 per unit, which is a typical price for a new SPAC stock.

IPOF stock didn’t stay at the $10 level for too long, however. In fact, the buyers stepped the IPOF share price up to $12 and change by the end of December.

That might not sound like a huge price move, but it represented a fairly quick return of 20%. This was just the precursor to another bull run, though, as IPOF stock then proceeded to touch a 52-week high of $16.24 on Jan. 21.

There was a retracement to the $14.50 area after that, but it’s perfectly normal for stocks to dip from time to time as they work their way toward higher price levels.

So, until further notice, it’s fair to say that the bulls are still generally in control of IPOF stock.

Is This a Deal Breaker?

Even though IPOF stock looks solid from a technical standpoint, not everyone will be convinced that it’s worth owning.

That’s because there’s mystery surrounding IPOF stock. Palihapitiya hasn’t identified which company Social Capital Hedosophia intends to merge with for its sixth SPAC.

Hence, there is a measure of risk involved in owning IPOF stock. With the merger target not yet identified, being a shareholders requires a great deal of faith in Palihapitiya’s judgment and business acumen.

If that’s a deal breaker for you, then I completely understand. I’ve said, “Know what you own,” many times in my life. As a matter of principle, then, I can’t blame anyone for choosing not to purchase IPOF stock which the company is still in the pre-deal-announcement phase.

On the other hand, I also feel that it’s fine to wager on a SPAC stock simply based on the track record of the individual who’s leading it.

Investing Based on a Track Record

Consider this question for a moment. Did every owner of Tesla (NASDAQ:TSLA) stock buy it just because they like the company’s cars?

I would assert that some people bought Tesla stock because they believe in CEO Elon Musk. He’s a charismatic entrepreneur with a strong vision that appeals to many investors.

For a closer analogy to IPOF stock, think about Pershing Square Tontine Holdings (NYSE:PSTH) stock. At one point, I recommended buying PSTH stock because it’s sponsored by Bill Ackman, the famous billionaire and activist investor.

My concept with PSTH stock was, “Bet on the jockey, not the horse.” The same idea can be applied to IPOF stock because Palihapitiya has a solid track record just like Ackman does.

Need proof? The first Social Capital Hedosophia SPAC ended up acquiring Virgin Galactic (NYSE:SPCE), while the second one merged with Opendoor Technologies (NASDAQ:OPEN).

That’s a heck of a track record, as both of those stocks posted strong gains after the mergers were announced.

The Bottom Line

If you own IPOF stock at this point, you’re effectively betting on someone rather than something.

That’s actually not a terrible strategy. After all, Palihapitiya has demonstrated success with previous SPAC’s and his sixth one could be another big winner.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2021/02/go-spac-crazy-with-ipof-stock-but-dont-bet-your-entire-account/.

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