Read this Periscope for three silly, but real, things that are happening right now in the investment world.

If you missed Karl Frank speaking about Concentrated Equity Strategies click the video below, or you can find it in our new Investment Advise Video section of our website.

Saying an SP500 ETF is diversified
Right now, the SP500 is 23% or so invested in five companies. Number 6 on the list is Berkshire Hathaway, lead by the famous Mr. Warren Buffet, he comprises less than 2% of the 500 companies. All of the rest of the 494 companies in the SP500 are each less than a 1% position. The next 50 companies could go completely bankrupt—to zero in valuation—and the SP500 would decline in value only by 15%.

Saying that an SP500 ETF is diversified is silly. Really.

SPACs are the Next Big Thing
Today’s world is completely upside-down and dangerous. As proof, I offer the worst investment idea since the next idea in this list. They are called Special Purpose Acquisition Companies or SPACs. I believe SPACs are the best way that an awfully-run company with compelling sales pitch-men (and women) can go public and get rich quickly. The SPAC lists itself, with very few disclosures, as a way that the rest of us can write the founders a blank check.

No really, people are excited about the idea of writing a blank check to a person without a business plan.

Speculators in SPACs hold out the hope that whomever is running this company will go out and buy private companies which, in turn, will make a bunch of money. We have no idea what the SPAC-ulator is going to buy. We have no idea why these companies would make money—except we know that if they were a good company the could do it on their own without the SPAC, like they always have in the past. I believe we live in an upside-down world right now where we’ve lost all common sense. SPACs are not investing, they are speculating—on a hunch.

Confusing a SPAC with an investment is silly. Really.

Chasing IPOs is Making “Amazing Money”
Initial Public Offerings (IPOs) are on fire right now. This, more than anything else I’ve mentioned, is evidence of an upside-down world. It reminds me of the dot-com bust from 20 years ago only this time, it’s even bigger. Take for example the IPO for a company called Snowflake. Snowflake doubled and almost tripled in value the very day it listed. I have no idea whether this company is any good. I’d only heard about it through the rumor-mill before the IPO made headlines. That’s the point—a pre-IPO company can pretty much say whatever it wants, as long as their hired hands at the big Wall Street firm approves of it. If I sound skeptical, it’s from experience.

Many people on Wall Street get rich through an IPO. Take everything you’ve heard about IPOs and print it on triple-ply extra-cushy paper that comes wrapped around a six-inch cardboard tube. We’ve lived through this story before—it didn’t end well in 2001 and I do not believe it will end well now either. The reason Wall Street is not putting IPO companies through a more stringent due diligence process is obvious. The reason the financial press (and other people with big microphones, no financial-due-diligence skills and short attention spans) promote the “amazing money” being made through IPOs is evident in the headline itself. Wall Street, the financial press and every other promoter is making “amazing money.”

Chasing IPOs is silly. Really.

About the author

Karl Frank, Certified Financial Planner ®, MSF, MBA, MA, is the President of A&I Financial Services LLC, a local business that specializes in wealth management, insurance planning, and retirement planning. Karl cares for business owners and the businesses that care for them. Learn More about Karl.