“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Thus wrote Charles Mackay in 1841, describing the madness that overtakes crowds captured by a popular delusion of which investors are often prone.
When I hear about innovations that promise to democratize investing, I foresee madness ahead.
This time, Wall Street has been publicly bemoaning the decline in the number of IPOs because that change has limited the opportunity of the average investor to tap into emerging companies. As more and more companies stay private for longer, the riches accrue to professionals able to access private equity, so the story goes. Not fair, say the ever-charitable Wall Street types.
Ah, but, Wall Street has a solution: the special purpose acquisition company, better known as a SPAC, a cure-all for the ills plaguing the ever-shrinking U.S. public market. A SPAC is a publicly-listed shell company seeking to merge usually with a private company, thereby taking it public.