You have more than one option if you want to invest in a company.
I recently got an email from Ramon asking me about one way:
I would like the thank Money & Markets for all the good information that we receive every week, and I would like to see if you may share information regarding investing in warrants.
Informed investors want to know the differences between warrants and options, as well as the pros and cons.
In this episode of The Bull & The Bear, I’ll tell you about stock warrants and whether they make good investments or not.
Warrant Use Driven Up by SPACs
Warrants aren’t uncommon, but their use has been driven up by special-purpose acquisition companies (SPACs).
SPACs, or blank-check companies, are publicly traded companies whose sole purpose is to raise funds through the public market to buy one or more private companies.
When the SPAC buys a private company, that private company becomes public, thus avoiding the traditional initial public offering (IPO) process.
According to SPAC Insider, 248 SPACs raised $83.3 billion in 2020, overtaking the record of $13.6 billion raised in 2019.
80% of SPACs Included Warrants in 2020
Of those 248 SPACs, 80% of them included warrants in their structure.
This means investors could buy a share and the right to purchase additional shares at a predetermined price after the SPAC went public.
There are pros and cons to buying warrants. I’ll tell you what those are and give you my take on buying warrants.
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The Bull & The Bear
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Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.