Should You Buy YOLO, FOMO, LMAO and BUZZ?

My colleague Andrew Willis recently said to me, "LMAO, are you tempted to YOLO because you have FOMO from all the BUZZ?"

It may sound like gibberish. But the fact is, every one of those words either is or soon will be, a ticker for security. LMAOU (which is shorthand for ‘Laughing My A$# Off’, with a U tacked on at the end) is the ticker for LMF Acquisition Opportunities Inc Units, a special purpose acquisition company, or a SPAC …which is owned by a company called LMFAO (sorry, can’t print this one out). YOLO (You Only Live Once) is the ticker for AdvisorShares Pure Cannabis ETF.  FOMO (Fear of Missing Out) is a planned ETF. While BUZZ (which stands for… well, Buzz) is the VanEck Vectors Social Sentiment ETF backed by Barstool Sports’ Dave Portnoy.  

That’s a lot to navigate. Why are these coming into the spotlight now?

Ben Johnson, Director of Passive Strategies at Morningstar, “Words and phrases see their popularity surge and fade no different than fashion trends or fad diets. Today it is YOLO. Two millennia ago it was carpe diem.”

He also warns that investing in hot themes tends to result in lukewarm outcomes. “By the time these themes have their own ETF with a cute ticker, odds are that the market has priced much of investors’ enthusiasm into the share prices of the companies that these funds own. The second is that the fund could fizzle out and close—leaving investors out in the cold. Historically, thematic funds have proliferated in the late stages of bull markets, aiming to capitalize on whatever the hot trend of the day might be. Most have failed to live to jump on the next bandwagon,” he notes.

Let’s look at these securities, see what they do and whether you should consider them.

LMFAO? You Won’t Be If You Lose Money!
LMF Acquisition Opportunities Inc is a blank check company. According to Morningstar Pitchbook data, the company received US$13.5 million of development capital from undisclosed investors on January 28, 2021, through a private placement. 

LMF Acquisition intends to search for a target in the financial services industry, including potentially the financial technology sector and related sectors. It is directly owned by LMFAO Sponsor LLC, a Florida company. LMF Acquisition will be managed by LM Funding America's management team.

Should you buy this or any SPAC? As always, we guide caution, for four reasons.

1. You do not know in advance the acquisition target you’re taking a bet on the founder of the SPAC – in this case, a fintech company. Retail investors rarely have insight into the minds of founders, and can only make bets based on public perception. This is a risk.

2. Even if the founder has a target in mind, the SPAC might not be able to close the deal. If this is the case, and you get your money back a few years after the initial investment, that is an opportunity cost. An opportunity cost is what you lose in gains you could have potentially made, had you not invested in the SPAC.

3. There’s a lot of people making a lot of money from SPACs – and those people don't seem to be retail investors.

4. The success of the SPAC depends on the success of the company it acquires. As established, the research, due diligence and checks behind these acquisitions may not be as stringent as they would have been in the case of a traditional IPO, or public company acquisition. It again seems like the investor is the loser.

YOLO… Because I’m Not a Cat?
Almost a year into the coronavirus pandemic, a Texas lawyer was unable to master Zoom – and was stuck in court with a cat filter on. As he desperately tried to take the filter off, he can be heard telling the judge, “I’m not a cat!”. But were he, he would have eight more lives than the rest of us and would be the only one who would be exempt from YOLO. 

For the rest of us, there’s AdvisorShares Pure Cannabis ETF. The ETF, with the ticker YOLO, was launched in 2019 and is an actively managed ETF with a dedicated cannabis investment mandate domiciled in the United States. But before you invest in a theme – in this case, cannabis – you should ask what the outlook is for the said theme.

Morningstar Sector Director Kristoffer Inton thinks that the medium-term outlook for cannabis is promising. “We think there’s support for federal legislation on cannabis in the U.S. While the Democrats control the White House and both Houses of Congress, they’re going to need Republican support to get cannabis laws passed. But we think they’ll get there. On the company level, U.S. MSOs continue to see solid topline growth and margins growing, and we expect that to continue as more states are added, more dispensaries are open, and more consumers convert come into the legal market. Canada’s been more challenging than the U.S. given we saw companies build up faster than legal demand grew. A big part of that problem was the lack of dispensaries, but as those continue to open and access becomes easier, we think the potential for the Canadian market will be unlocked,” he said.

With a promising cannabis outlook, does it make sense to invest in an ETF? “Given the massive rally in cannabis names since November, we see mixed attractiveness in the sector. We see companies like Aurora and Curaleaf as undervalued, but see others like Cronos and Tilray as overvalued. The challenge is if you buy an ETF you’re going to get a mix. Furthermore, if you’re planning to buy an ETF as a play on U.S. federal legalization, it’s important to take a look at what the ETF holds. Some ETFs hold mostly Canadian names, which don’t really have direct U.S. THC exposure with the exception of Canopy,” Inton says.

FOMO – Here We Go Again
Well, with everything that’s going on, you’d be worried about missing out on all the gains – and there’s soon to be an ETF to take advantage of that fear. 

Earlier this month, Collaborative Investment Series Trust filed a request with the U.S. Securities and Exchange Commission to create the actively managed FOMO exchange-traded fund. The fund will be advised by Connecticut-based Tuttle Tactical Management and intends to invest in “securities that reflect current or emerging trends,” according to a registration statement.

It will target everything from stocks across both developed and emerging markets to SPACs, other ETFs, derivatives, volatility products and both leveraged and inverse funds. The filing notes that its tactical approach and frequent trading may result in a “high portfolio turnover rate.”

BUZZ – The Buzz is Already Priced in
VanEck Vectors Social Sentiment ETF (BUZZ) seeks to track, as closely as possible, the performance of the 75 large-cap U.S. stocks that exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources including social media, news articles, blog posts and other alternative datasets. 

“Given that this fund’s index cues off positive social sentiment, which itself is often a result of positive share price performance, there is a real risk that investors in BUZZ will be buying high in hopes of selling higher still,” Johnson notes.

The Final Word – Should You Buy?
Investing isn’t gambling. Karen Wallace points out that if you’re only buying shares of a business because its stock price has skyrocketed, you’re not investing. 

“Investors should first realize that they likely already have exposure to these themes in their portfolios. For example, a global total stock market index fund is the ultimate thematic fund. It rolls up every theme under the sun. It even owns a bit of bitcoin! Know that these funds were often designed with marketability in mind and not necessarily durable investment merit. If you want to take a shot at investing in one of these themes, know that your odds of winning are small and size your bet accordingly,” Johnson warns.

Morningstar Behavioural Researcher Sarah Newcomb acquiesced that speculation can be fun, but dangerous. “It's why a lot of people love investing, and if you speculate with only money you can afford to lose, events like these can be exciting and sometimes profitable. Still, if you are new to investing, don't understand the difference between fundamental value and market price, or you are considering putting money on the line that you need for your present or future security: stop, breathe, and walk away. No crowd of anonymous Redditors deserves your life savings, period,” she notes.