The world of finance is changing rapidly. In the last 6 months we've seen three new trends all with profound implications: community-based investing (Reddit/GME), SPACs, and NFTs.
Retail investors are hungry for new products and want to capture growth instead of being passive participants. This has big implications for the energy transition and SPACs are the medium through which these investors are communicating with the market.
Passive investing emerged in the 1970s with the creation of the first index fund for individual investors. It was a new type of mutual fund, pioneered by John Bogle, the then-CEO of The Vanguard Group.
The sales pitch to investors, which is still highlighted in Vanguard's materials today, was, "Don’t look for the needle in the haystack. Just buy the haystack.”
The implication: sell funds and indices to immunize clients against human error for minuscule fees. But maybe that pitch was perfect for the time and doesn't fit the wants of today's retail investor.
The late '70s and early 80s were the perfect time to sell stability. The US stock market had two major declines in 6 years. First, in 1973-1974 the markets dropped 45% over 694 days. Then, in 1981 the markets fell another 24%. (source)
Throw in the oil crisis of 1979 and the market looks drastically different than the current 12-year bull run.
But, stability comes at a cost too. As Howard Lindzon put it on a recent episode of Odd Lots, "we ended up with Wells Fargo and Verizon in our portfolios and we hate those companies". A large share of people now want to invest in, and capture the value of, the companies that will move us forward to meet the challenges of the 21st century
Private market investors have reaped the benefits of companies staying private longer. Robinhood and Coinbase will enter the public markets at valuations of $30B and $100B respectively. The customers who put them there and share their values for democratizing finance couldn't participate in their valuation growth.
There is a massive contingent of people who feel the same way about climate change and the energy transition. To date, your only good public options to date were: Tesla, Nextera, Enphase, and Sunrun.
Now, thanks to the SPAC movement, you have 50+ stocks at your disposal. Most of those stocks have prices in the range of $10-20 with market caps of less than $5B. Not all will be winners, but at least you can participate in the ones that will.
Buying the haystack is a viable option and one that almost everyone should have in their portfolio. But, with new challenges like the energy transition on the horizon, it's okay to want to build those haystacks too.