Just when I think the stock market can’t get any stranger, a company like Digital World Acquisition Corp. (NASDAQ:DWAC) stock shows up to say “hold my beer.”
Digital World is a special purpose acquisition company (SPAC) that is bringing the Trump Media and Technology Group public via a reverse merger.
So an investment in DWAC stock is an investment in a “new” social media platform.
In 2021, it’s not unusual for a company to go public via a SPAC. And it’s also not unusual that DWAC is a shell company that was created exclusively for the purpose of bringing another company public.
What’s a little unsettling is that the Trump Media and Technology Group is itself a shell company. The eventual “product” of TMTG is supposed to be TRUTH Media, a social media outlet that will, in theory, cater to supporters of the former president.
What could possibly go wrong? The way I see it the answer is not much if you’re Donald Trump, but there’s plenty that can go sideways for investors. Since I’m not an investor in DWAC stock, I’ll simply make my case and let you decide.
Stocks Have Become a New Addiction
Trading stocks has become a form of entertainment. Perhaps that’s simply an unintended consequence of the global pandemic.
According to a recent Bank of America (NYSE:BAC) report, at the end of the second quarter, equities made up approximately 50% of the nearly $109 trillion in American-owned financial assets. That was a larger proportion than any period of time since 1951.
But like many forms of entertainment, investing in stocks can become an addiction. As with many addictions, things can spiral out of control pretty fast.
The concern is that there is no guarantee that TRUTH Media will ever see the light of day. In the meantime, the company gets the money from going public.
Free Markets and TRUTH Media
I know, I know. The mantra from the libertarian side of the conservative movement says this is just the former president “building his own social media platform.” If we love free markets we should embrace it.
And I’d like to, but here is a sobering point from Dan Ferris of Stansberry Research. The beauty of going public via a SPAC is that Donald Trump will get paid even if TRUTH Media never sees the light of day.
Unless you count the PIPE offering as such, Trump hasn’t raised any private capital. He didn’t take the traditional steps to build a platform and then bring it public.
Without that, it just seems like a cash grab.
“There’s nothing there,” Ferris writes in describing the merger of the two companies. “It’s the same thing as that piece of invisible art in Italy that sold for $18,000 or the two blank canvases that helped the Danish artist make off with $84,000.”
Always remember, SPAC offerings tend to underperform the market. After the euphoria of TMTG going public you, the individual shareholder, are always last in line.
DWAC Stock Is a Fundraiser, Not an investment
At this point, I see DWAC stock as an investment in the former president’s 2024 candidacy. And before you fire up your keyboards, please understand that I will disappoint people on both sides of the political spectrum.
I don’t have a problem with SPAC mergers. I would just prefer them to be a bit more transparent than this one appears to be. Right now, I’m looking at this as an ingenious, if not disingenuous way for the former president to take the temperature of his supporters.
The higher DWAC stock climbs, the more “likes” Trump will count on making another run.
I could turn out to be wrong. And if I am, then I’ll have likely missed out on a chance to buy a lottery ticket on a HUGE (emphasis and sarcasm mine) investment.
If the share price comes down to something resembling the $10 level, I may decide to take another look at DWAC stock. But right now, it’s DWAC and ultimately TMTG that has the burden of proof.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.