By Kris Sayce, editor, Casey Daily Dispatch
It’s hard to think of a more controversial president than Donald J. Trump.
There’s no arguing he polarized the entire electorate.
His supporters say he brought pride back to America…
Those who dislike him say that he brought shame to America.
But whatever you think of him, no one disputes he made a big-league impact.
Now he’s making an impact elsewhere. This time, it’s not in politics… it’s in the markets.
And it relates to warrants – a subject we’ve covered in-depth for the past two weeks.
We’ll explain all below…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and John Pangere. And from the founder of our business, Doug Casey.
Today, we continue to study our favorite investment class, warrants, and the involvement of former president Donald Trump.
Trump Disrupts the Markets
Last week, the markets saw some extraordinary action.
It was around a company called Digital World Acquisition Corporation (DWAC).
The stock climbed from $9.96 last Wednesday to an intraday high of $175 on Friday. That’s a gain of 1,657%.
Over the same timeframe, the warrants for that stock climbed from 51 cents on Wednesday, to an intraday high of $79.22.
That’s a 15,433% gain.
In other words, the warrants outperformed the stock by almost 10 times.
The reason for the rapid rise?
Donald Trump. Specifically, the announcement that the former president would launch his own social media company, called Truth Social Media, and that it would receive financial backing from DWAC.
By the way, DWAC is a Special Purpose Acquisition Company (SPAC). SPACs are a quicker and simpler way for smaller companies to go public.
A SPAC brings together investors and business owners. The SPAC raises funds from investors, then begins looking for companies to merge with. To incentivize investors for getting in early, the SPAC lists as a “unit,” which it then splits into “shares” and “warrants.”
Both then trade separately, with unit investors receiving a set number of shares and warrants, depending on the number of units owned.
It’s the warrants in these listings that attract the attention of Casey Research investment expert Dave Forest and his team.
The reason is that warrants offer investors a leveraged way to play an investment idea. But whereas leverage in most other types of investments involves taking on more risk, with warrants, that leverage can allow you to take on less risk.
That played out in the DWAC and DWACW price performance last week.
A $1,000 investment in the stock would have turned into $17,570 in just two days.
But a much smaller investment in the warrants – say, $200 – would have turned into $31,066… also in just two days.
That’s less money down… less to lose if things don’t work out… but more to gain if they do. See how it works?
Now, we’ll be clear… we absolutely do not recommend buying either the DWAC stock or the DWACW warrant. As we mentioned at the top of this essay, Trump has made a big impact here, and in all likelihood, it won’t be a positive result for the investors who hold on for the long term.
Trump vs. Bezos? We’ll Take Bezos
You see, here’s the problem with this deal and the sky-high stock and warrant prices.
Right now, the SPAC is just a “cash box.” It holds approximately $10 in cash for every share issued.
That’s how most SPACs work. They have a listing price of $10, and then trade around that level until they merge with a business.
Depending on the merger, the SPAC share price will move accordingly. Most of the time, the share price will move up to 30% in either direction, depending on how the market views the deal.
What doesn’t normally happen is for the share price to rise 1,657% after the announcement. For the simple reason that right now, any investor who buys DWAC at Friday’s closing price of $94.20 is investing in a stock with just $10 per share in assets.
Oh, and the hope of a successful Trump social media business.
To us, that doesn’t seem like a great deal… even for Trump fans. But saying that, just like the meme stock craze that took off this year, it’s possible that this, too, will become a craze of its own.
But it’s not our thing.
We like speculations… but we like speculations with substance. We like the Purple Innovation warrants speculation that resulted in a 4,942% return in around 15 months.
We like the Blink Charging warrants speculation that helped Dave’s readers clock up a 2,805% gain in a year. We like Dave’s biggest open winner right now, Custom Truck One Source, which is currently up 1,407% in just over a year.
These are solid companies with great business ideas, which are generating revenues today.
And most of all, we like the warrants play that Dave revealed to a mass audience of investors last week. This is a play that Dave says will piggyback off the involvement of one of the world’s biggest companies (Amazon) and the world’s second richest man, Jeff Bezos.
Given the choice of the “Trump” play or the “Bezos” play… it may not be the most popular thing to say… but if the aim is to invest for profits, we’ll take the “Bezos” play every time.
You should, too. Check out the details here.
Editor, Casey Daily Dispatch