Why chasing $DWAC or $PHUN is not advisable
Hi all,
I am sure many of us witnessed the incredible surge and madness that Digital World Acquisition Corp (Ticker: $DWAC) underwent last few trading days when the SPAC (blank check company) went up multiple folds from just USD $10 to over USD $175, and back to $94.20 as of writing. This blank check company was the hot momentum stock when it announced news that it will be merging with former U.S President Donald Trump's Media and Technology Group. Given that Trump was banned from Twitter and Facebook, it was his chance to get back to the media spotlight with his plans to create this new social media platform.
Following the huge surge in price madness for $DWAC, traders began to search for the next stock that was linked to Donald Trump and they have found it in Phunware Inc (Ticker: $PHUN). The company which was founded in 2009, went public via a SPAC in December 2018 and was found that it had some links during the Trump/Pence presidential campaign in developing mobile apps. Needless to say PHUN rose from ~$1 to over $24 (up over 24 fold!!). After which it crashed back to $8.74.
Some of my friends have asked me if it is still okay to chase the stock. In my view, it is not advisable at this point in time due to the following reasons:
1. Extremely High Risk
Chasing a stock that has went to high within a day is extremely risky as this is based on momentum and FOMO alone and not based on fundamentals at all. Once a stock has went too high in such a short period of time, the tendency for it to drop back is extremely high as well. Hence, the risk to reward ratio is very skewed for the typical retail trader compared to the institutions.
However, given the current market and what we have seen in $AMC or $GME, it is possible that the stock can go even further higher, we cannot rule that out.
2. The 'Trump' Factor
Trump does not have a great history of running publicly traded companies, with his resorts declaring bankrupt many times. Whether his new social media platform will take off, your guess is as good as mine. Therefore, him being in charge, doesn't fill me with confidence.
For me, I will get into DWAC when it is back to the $10 level which is the floor for SPACs (meaning you can choose to redeem for $10 when you have to vote for the merger). But this is also very unlikely. For PHUN, I may choose to avoid it unless it goes back to $1.
To all viewers: only invest with money that you can afford to lose.
To all the readers : Thank you for the support, and please let me know what is the financial content that you are interested in, I will share more. You can email me at jjfinancialblog@gmail.com.
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