How I Lost $1.2 Million in SPACs and Why I'm Still Bullish (The Backwards Alpha Origin Story)

I’m going to tell you about the most expensive education I’ve ever received: how I lost $1.2 million in SPACs, why I was simultaneously completely right and catastrophically wrong, and why this disaster became the foundation of my most profitable investment strategy.

This isn’t a redemption story. This isn’t about how I “learned from my mistakes” and became a better investor. This is about how spectacular failure taught me that being right about direction means nothing if you’re wrong about timing, position sizing, and human psychology.

And why, despite losing more money than most people make in a decade, I’m more bullish on contrarian investing than ever.

The Setup: Being Right for All the Wrong Reasons

In early 2021, I published a research note titled “The SPAC Bubble: Why 90% of These Vehicles Will Trade Below $10.” I was early to call out the structural problems: dilution from warrants, sponsor promotes, PIPE discounts, and the fundamental misalignment between SPAC sponsors and retail investors.

My thesis was mathematically sound. SPACs were trading at premiums to their cash value based on pure speculation. The redemption floor at $10 was theoretical—most retail investors didn’t understand the mechanics well enough to actually redeem. The whole structure was designed to transfer wealth from retail to sponsors and institutional PIPE investors.

I was completely right. And I lost $1.2 million anyway.

The Execution: How to Be Right and Still Get Destroyed

Here’s where I fucked up, in order of magnitude:

Timing: I started shorting SPACs in February 2021. The bubble didn’t peak until March and didn’t truly collapse until late 2021. I was early by almost a year. In markets, early and wrong are the same thing.

Position Sizing: I was so confident in my thesis that I allocated 40% of my portfolio to SPAC shorts. This violated every risk management principle I’d ever learned, but the opportunity seemed so obvious that I convinced myself normal rules didn’t apply.

Leverage: Because I was “certain” about the direction, I used margin to increase my position size. When you’re leveraged and early, small moves against you become portfolio-threatening events.

Psychology: I doubled down when positions moved against me, convinced that the market would eventually see what I saw. This is the classic value trap—confusing being early with being right.

Liquidity: I was short individual SPACs rather than using a more liquid instrument. When I needed to cover positions, I was dealing with wide bid-ask spreads and limited borrow availability.

The result? I watched my positions move 50-100% against me before the market finally agreed with my thesis. By the time SPACs started collapsing in late 2021, I’d already been forced to cover most of my positions at massive losses.

The Lesson: Markets Are Voting Machines Longer Than You Think

Benjamin Graham said the market is a voting machine in the short run and a weighing machine in the long run. What he didn’t mention is that “short run” can last years, and “long run” can happen overnight.

I was right about SPACs being overvalued. I was wrong about everything else that mattered:

• How long irrational pricing could persist
• How much capital I could lose while waiting to be proven right
• How quickly sentiment could shift once it finally turned

This taught me the most important lesson in contrarian investing: being right about direction is worthless if you can’t survive the journey.

The Birth of Backwards Alpha

My SPAC disaster became the foundation of what I now call “Backwards Alpha”—a methodology for generating returns by betting against consensus while managing the risk of being early.

The core principles:

1. Assume You’re Early: If a contrarian position feels obvious to you, it’s probably not ready yet. Build positions slowly and expect to be wrong for longer than seems rational.

2. Size for Survival: Never allocate more than 10% of your portfolio to any single contrarian thesis, no matter how confident you are. The market can stay irrational longer than you can stay solvent.

3. Use Time as Leverage: Instead of using financial leverage, use time leverage. Build positions over months or years, not days or weeks.

4. Find Asymmetric Structures: Look for situations where your maximum loss is capped but your potential gain is unlimited. This is the opposite of most “obvious” trades.

5. Embrace Being Wrong: Plan for the scenario where your thesis is completely incorrect. If you can’t afford to be wrong, you can’t afford to be contrarian.

Why I’m Still Bullish: The SPAC Opportunity Redux

Here’s the twist: I’m more bullish on SPACs now than I was in 2021.

Not because SPACs are good investments—they’re still structurally flawed vehicles designed to transfer wealth from retail to sponsors. But because the pendulum has swung so far in the other direction that genuine opportunities are emerging.

The Current Setup:

• Most SPACs are trading below their cash value
• Retail investors have completely abandoned the space
• Institutional investors won’t touch anything SPAC-related
• Quality companies are avoiding SPAC structures entirely
• The few SPACs that do get done are priced for failure

This creates what I call “failure arbitrage”—opportunities that exist precisely because recent failures have made everyone irrationally pessimistic.

The Backwards Alpha Play

I’m currently building positions in what I call “zombie SPACs”—vehicles trading at 70-80% of their cash value with competent management teams and reasonable timelines. These aren’t growth plays; they’re arbitrage opportunities with built-in downside protection.

My thesis: Some of these SPACs will find decent acquisition targets and trade back to fair value. Others will liquidate and return cash to shareholders. Either outcome generates positive returns from current prices.

The key difference from 2021: I’m sizing these positions at 2-3% of my portfolio each, building slowly over months, and using no leverage. If I’m wrong, I lose 20-30% on small positions. If I’m right, I make 30-50% on the same positions.

The Meta-Lesson: Productive Paranoia

The real lesson from my SPAC disaster isn’t about SPACs—it’s about the psychology of contrarian investing. The market is designed to punish people who are right too early and reward people who are wrong at the right time.

Backwards Alpha isn’t about being smarter than the market. It’s about being more patient, more disciplined, and more paranoid about your own conviction. It’s about finding opportunities in other people’s disasters while avoiding the disasters that come from your own overconfidence.

I lost $1.2 million learning this lesson. But that education has generated multiples of that loss in returns since then, precisely because I learned to be wrong in profitable ways.

The market will always punish hubris. But it will eventually reward patience, discipline, and the willingness to buy what others are desperately selling.

That’s the backwards alpha: being comfortable with discomfort and finding opportunity in other people’s despair.

Ty Blackwood is Slop Shop’s Contrarian Correspondent and manages a focused alternative investment fund specializing in failure arbitrage. His “Backwards Alpha” column appears weekly, exploring counterintuitive investment strategies that work precisely because they feel wrong.

This information is for educational purposes only and does not constitute financial or investment advice. Past performance does not guarantee future results, and all investments involve risk. Before making any financial decisions, consult with a qualified financial advisor. We disclaim any liability for losses arising from reliance on this information, and any financial decisions you make are your own responsibility.