YouSaid · the spoken record

Chris DeMuth Jr.

lines on the record: 62
first: 2021-12-03
most recent: 2021-12-03
sittings or episodes: 1
sources: podcast

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“I've never done corporate action before. So corporate actions are sometimes a hard fit for new investors on phone-based trading apps and then warrants frequently are as well.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“If you are on some of the online trading apps, you can't trade the warrants, so the warrants get kind of orphaned. Secondly, you frequently don't have a lot of corporate actions. I mean, I feel like my brokers hound me on corporate actions just as an excuse to have a lot of interaction. I don't think I've ever in 20 years missed a corporate action. I always vote, but sometimes something trading in the public market at $25 and you have a vote on whether or not you want to approve the deal that if it was voted down and collapsed would be liquidated at 10 and they have to delay because they can't get a majority because people just don't vote for these things. So we do podcasts like this and we blog and we write and we kind of interact with a kind of a breadth of investors. And one of the things we do is we own the same things. Please vote this vote your shares. And frequently I'll get a note. Somebody say like, how do you vote shares?”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“The weird little securities tend not to. So you have somewhat weird things like warrants. Those tend to be illiquid and trade irrationally. And then you have weirder things like rights, which are only the kind of this seedy underbelly of the SPAC world. It's basically kind of a bribe to beg people to invest in otherwise uninvestable structures. And those get crazy. I mean, nobody really follows them that carefully and they're not that institutionally owned. They don't tend to have that much liquidity. Their price doesn't make sense. There isn't this aspect of tens of billions of dollars in weight to keep the price almost to the penny rational.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“No, that was a rare case for us that we just bought the units in the public market. So the units, there's no magic to it being 10. It's kind of an industry norm. You can make it 20 or 25 if you pick other prices, but call it 98% of these 10. So you can typically glance at a spec if it's trading at 20 or 30 or $40. the market liked it and if it's trading at two or three or four dollars the market hated it after it's despacked this was simply the unit had IPO'd the market had lost interest in it It was trading at not a huge discount because as I said increasingly funds are kind of keeping the price fairly efficient to the trust value but it was less than $10 per unit and that was a function of COVID really. That was a function of just as the market tanked we were able to take advantage of that while the equity gets quite buttressed”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“Then the warrants get completely disconnected from the equity. Equity gets completely disconnected from the options typically bottom to top in terms of market reaction. So both on things that I quite like, like Lucid and things that I don't like at all, like Nicola, QuantumScape, quite a few of these others, you have these just crazy disconnects in price where the price just breaks for a while. Typically that leaves us writing calls, getting some equity called away and being very, very long the warrants typically, but we're indifferent. I have no principle at stake. I just like owning cheap stuff and I'm happy to be a service provider to sell expensive stuff if that's what people want. And then on things that are frauds or things that are frenzies, you can do the opposite and kind of leg into the short side of it similarly with these kind of arbitrages within the different securities. So in any event, volatility is great.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“And half of them go crazy and you own the equity and the warrant, and you can sell for the market price. So to give a description of where the volatility went, we could get back our cost basis writing at the market calls against just the equity for a single month of premium. That's what the volatility did. Volatility is great. both for the warrants and for what options trade, especially because of the strange interaction between retail-oriented trading apps. They create crazy arbitrages within the capital structure because these apps tend to have certain securities but not others. If Robinhood loves options, likes equities, and doesn't trade warrants.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“It's a weird phenomenon that I'm in the middle of this. That was the biggest investment I ever had in anything ever. Actually, the one that you mentioned earlier this year, disclosure we can do at the end or now, I still own Lucid, but the phenomenon is we bought a large stake of the predecessor SPAC at a discount to trust value. We actually weren't in the original IPO. We actually came in later and simply bought in the secondary market. Almost all of our investments are in the primary market either via SPAC IPOs or pipes. We do very, very little in the stock market, although this was one that we were able to buy a huge stake at a discount to trust. And it was pretty clear to us that they were going to do this deal. There was an overlapping chairman of LUSISI.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“Are now doing a form of SPAC arbitrage where they're simply buying the equity side at fairly tight spreads, but shorting out short duration debt against it at even tighter spreads. So that keeps the downside even before the redemption date, typically to $9.70. So like a 30 cent spread is kind of the lowest quality trashiest back given almost no credit for an equity upside typically is held to about 970 and there's this huge amount of liquidity. So most shares, you kind of lower penny by penny. Sometimes it affects the price. I mean, these will just get hoovered up at any scale. You could sell tens of millions of dollars in a print when you hit a yield that some hedge fund wants to set up first back yield arbitrage. Different strategy than mine, but it kind of gives you a lot of liquidity, the period, in the downside, even before the redemption date.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“Process so it can be an advantage to kind of flip it fairly quickly and have a little sense of urgency from the company side. But you have a few months to think about what you want and it's getting market tested. You can either do a lot of deep, pensive, thoughtful work on the company, or you can just glance at the stock price. If the stock price goes from 10 to 50, you probably don't want to redeem and get the 10 bucks back. If you hate the deal and the market loves it, you can simply sell it in the open market. If you love the deal and the market hates it, you can hang on. And if you both hate it, you can just get your 10 bucks back. So the one thing I would say is that it has taken a little longer. So you have several months typically. And then the second thing I would say is a strategy out there that is not mine that's fairly new with these very, very low riskless rates of return where huge hedge funds with big calls on tens of billions of dollars that are well situated to use tons of leverage.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“Yes, so it is fairly typical SEC review process that's actually been slowed down massively this past year because with this glut of SPACs, the SEC has kind of been swarmed with things to do. And so it's now kind of a matter of months between a deal gets announced and then you have to get the definitive proxy approved. So sometimes you have a few preliminary proxies. They go back and forth, approve it, 20 business days vote, redemption deadline. So you have a little time to analyze it. And typically the sponsors have a lot of incentive to do a full IPO style press of advisors putting out information and press and conferences and so forth. So there's a decent amount to hear from. Now, from the founder's side, that brevity is a virtue because you don't have a lot of flux in terms of employees and other problems where it's actually shorter than the whole IP.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“If things go horribly wrong, well, SPACs literally contractually hand you that. You make the investments, and if it goes horribly wrong, you get your money back. And so the free put is the right to redeem the cash in trust. The free call is you also get a warrance with your equity and you're paying par. So you pay 10 bucks, you get a share, you get some warrants, upside kicker, you get cash and trust, downside production. And you get some dude who looks for a deal. You try to pick a good dude, you try to, you know, somebody you know typically, somebody that you have confidence in their history and skills as somebody defined a deal, but you have this structure that was uniquely interesting to me, and that's why I got involved.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT
“So I'm definitely a value investor. I definitely think primarily about the downside and risk and kind of my day job is quantifying risk. And if there's good news, it's kind of the inverse to whatever you've put at risk. I like interesting structures and I like quirky processes that you can kind of analyze. And so we've been doing this for a long time. It's only recently become kind of part of the media interest and vernacular in investing. But what was interesting to me was that the structure involves a free put in the form of embedded trust value and that trust is redeemable. So I've kind of joked about speculative investing and kind of cool kid growthy stuff. I would love to do that if only I could get my money back if it didn't work out. And to me, value investing is having some kind of margin of safety that you're going to get something.”
2021-12-03 · We Study Billionaires · TIP401: The Most Important Company Is Going Public w/ Chris DeMuth Jr. · IDENTIFIED FROM THE TRANSCRIPT