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Betting on someone dying....??

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September 27, 2012 – Comments (2) | RELATED TICKERS: LPHI

Turning a few pitches into blogs, or blogs into pitches.  Looking for feedback. 

 No one's perfect and yes, I "missed" on my Capshot call during the $3.00-$3.10 lull yesterday after Life Partners Holdings, Inc shot up 100%. The lull no doubt caught fresh shorts as the 50% float turnoff spiked another few million shares on new short covering from $3.10 to $4.12 or a 170% one day gain. Trading was erratic this morning as speculators, daytraders, profit takers, and short covering created another 25% gyration.  Overall, I've been "pretty good" with my timing on a few recent calls.  I either score or lose quickly!!

The news that Life Partners won their court case against the Texas Attorney General was definitely welcome news for the then "current" shareholders. The drop from a 52 week high from $7 to $1.50 was worse than a fall from a bucking bull, (at least the mechanical kind). The court case pretty much had Life Partners hanging near bankruptcy with the Attorney General questioning Life Partners asset reconciliation and requesting they be put into receivership.

So why the downthumb when Life Partners wins it's court case, especially at only about 50% of a prior 52 week high? Several reasons. One Life Partners was never worth $7 to start with. They paid out $0.80 in dividends last year, but had dropped the rate to $0.40 for this year, $0.10 per quarter. Looking at their books, they are paying out dividends much faster than they are booking revenue. They claimed in court that not only were they solvent, they had $10 Million in cash and no debt. True, but they had twice that, or $22 Million three quarters earlier. Dividend flow of $3.7 Million per quarter from the $10 Millon cash, forward that a few quarters assuming some current income.....and..... -- 0 --

Another reason for my dislike....?? Security or not, the concept they operate under is just "creepy". Seriously, I can see someone looking to capitalize on a life insurance policy "today" if they need money, rather than wait until they die. Do people sell them who are chronically ill because they want to spend the money and not leave it to the heirs? Or do they sell them because the doctor told them they had another 20+ years left?

The buyer, however, buys the policies at a discount and "waits"....and "waits".....and finally they capitalize because someone died....??!!

Maybe what the Attorney General should do is an analysis of the average life cycle of people who have had their policies sold? What are the cause of death??

Creepy operation, questionable financial metrics. I don't see any long term value here. Not at $7.00, not at $3.00, not at .....

 

TSIF

2 Comments – Post Your Own

#1) On September 27, 2012 at 6:57 PM, EnigmaDude (94.28) wrote:

I actually briefly considered buying a few shares when it was trading for around $3 just to catch the upward surge and try to make a quick profit then get out.  But then I started to review the financials and realized what you pointed out.  They seem to be burning thru their cash pretty fast!  And yes, then there is the way they make money that is tough to endorse even if just for a quick swing trade.

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#2) On September 27, 2012 at 8:21 PM, TSIF (99.96) wrote:

I didn't "see"the second "surge" coming, hence getting caught with the less opportune downthumb.  I'm not adverse to buying something for a profit, even something zombie-like, but it's hard to call the top on this type of play.  Earnings, short covering, and other catalysts I can "play" sometimes with reasonable risk reward, but I didn't expect this one to churn 50% of the float over a dividend play, especially one where $0.10 was already waiting to be paid out to people who already owned the stock....tough swing trade, but someone got away with it......

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