When the shoeshine boy starts sharing stock tips, it is time to get out of equities; or so Joseph Kennedy Sr is said to have remarked as he exited the market ahead of the 1929 crash.
So what should investors do when college students start promoting special purpose acquisition companies, or Spacs? This week it emerged that University of Pennsylvania students have created a so-called “Penn Spac” club to celebrate these new equity vehicles. Known as blank-cheque companies, Spacs raise money from investors, via a public listing, and then merge with a private company, in effect taking it public while avoiding a traditional initial public offering.
For the students, this is probably a smart move — at least if they want to find internships with finance companies that are profiting from this trend. For everyone else, though, it is a worrying sign of froth.