This teaser solution was originally published on January 22, 2019, when we first saw the ad running. The ads have still been running in recent weeks, and we’re getting questions about it again, so we’re re-posting it here for your information. The ad has not changed, and my article below has not changed, though the stock is down about 30% from where it was then. I’ll add some quick updates at the end.
I don’t think I’ve ever written about Profits Run before, but they have an ad running now that got me intrigued… mostly because I’m always curious about the “next Warren Buffett” and “next Berkshire Hathaway” teases we see from time to time.
Here’s the intro that got my attention:
“This ‘Shocking’ $4 Stock Could Hand You A Lifetime of Retirement Riches… Starting Today
‘This stock is so shocking, I couldn’t believe it. Thank goodness I took a second look because what I’ve discovered could be like buying Berkshire Hathaway back in 1967.’
– Co-founder of Profits Run, Bill Poulos”
The service they’re trying to sell is called Premium Income Letter ($49/yr), which I’ve never heard of before… they describe it as “for people who want a safe and easy way to grow their portfolio with as little involvement as possible.”
Using “The $4 Stock That Could Fund Your Retirement” as their headline makes it seem like they were perhaps inspired by The Oxford Club’s incessant promotions for its “Retire on one $3 Stock” pitch, or hired the same copywriter, but maybe it’s just a coincidence… but I digress, you want to know what the stock is, right?
OK, let’s dig in and find you some answers.
Apparently it’s a stock that’s been around for a while… from the ad:
“Just like Berkshire Hathaway, which has a long history stretching as far back as 1839, it was founded back in 1994 to operate in a completely different sector.
“Back then it was founded as a telecommunications provider – acquiring licenses everywhere from Australia to the United Kingdom.”
And he draws the comparison to Berkshire’s founding, on the back of a failing textile mill:
“By the mid-2000s its main business of providing dial-up internet and long-distance phone services was quickly fading.
“Just like Berkshire Hathaway’s textile operations.
“It’s share price fared even worse. By the time the 2008 Financial Crisis arrived its stock had fallen by 99%.”
And then the “Warren Buffett” figure steps in…
“All this drama is what attracted the company’s CEO and major shareholder.
“Fresh on the heels of making billions in profits for his he and his hedge fund clients, he began looking for a new project.
“A relentless competitor that even had a stint as a professional hockey player decades before, he had always known the power of the ‘Buffett Blueprint’….
“he bought a controlling 40% interest and installed himself as CEO.”
And apparently this new CEO got them started snapping up new subsidiaries right and left… so now it’s a “diversified holding company” and has divisions that include…
- One of the largest steel fabricators in the country with contracts that include Apple’s massive “Spaceship” headquarters.
- A leading provider of service and installation for underwater cables.
- A life sciences division focused on “moonshots” that could generate over $100 million in value.
- Broadcasting assets that spanned over 130 markets.
- And of course,…
An insurance operation offering long-term care, life, and annuity products.
Poulos even says that “It wouldn’t be a stretch to say this tiny stock is a ‘Berkshire on Steroids.'”
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And he thinks there is good news to come, partly due to a recent acquisition of a big insurance company…
“Once completed it will send this $4 stock’s investment portfolio up 153% overnight! ….
“Based on the company’s investment returns for 2017, I estimate that this company stands to make an additional $90 million dollars over the next 12 months!
“That’s because this acquisition brings a portfolio of $2.4 billion in cash and investments with it.
“If this company manages to just generate the same exact returns on this mountain of cash that it made last year from its much smaller insurance operations it will have managed to more than double its investment profits for FY 2019.”
And one more bit of hype for you — Poulos does cite Markel and Fairfax Financial as other “Buffett Blueprint” stocks that did extraordinarily well (I own large positions in all three of those companies, so that caught my eye)….
“Naturally, ‘Buffett Blueprint’ stocks don’t come along every day.
“And once you’ve found one, it takes decades for the huge gains that Berkshire, Markel, and Fairfax Financial have produced to come to fruition.
“My team and I spent countless hundreds of hours every year looking for the best trades for the thousands of individual investors just like you who come to our door at ‘Profits Run’ looking to learn how to invest profitably.
“We’ve never seen anything like this ‘Buffett Blueprint’ stock.”
OK…. so enough clues and teasing, what’s the stock? Thinkolator sez we’re being pitched HC2 Holdings (HCHC), the most recent conglomerate built by former hedge fund guy Philip Falcone.
Yes, Philip Falcone was a hockey player — he played varsity at Harvard in the mid-1980s, and briefly played professionally in Sweden, though he’s best-known as a hedge fund titan thanks to the blockbuster returns his Harbinger Capital had in the first decade of this century, including a big 2007 short on sub-prime mortgages… and as the one who was taken down by the SEC for securities fraud in 2012. He did pay some massive fines, and admit to things that raise plenty of questions with investors, but he seems to have come out of it OK. This is the Forbes description of Falcone from the last time he made the billionares list, in 2014:
“Former Harvard hockey star made $1.7 billion for himself and billions more for investors in his Harbinger Capital by shorting subprime in 2007. Had a rougher time of it lately. His next big gamble, LightSquared, filed for bankruptcy in 2012 amid claims it would interfere with GPS systems; now Falcone is battling Dish Network founder Charlie Ergen for control of the company’s still-valuable wireless spectrum. Banned from hedge fund business under 2013 consent agreement with the Securities and Exchange Commission, Falcone is turning publicly traded Harbinger Group into a mini-Berkshire Hathaway instead, with interests in everything from insurance to Rayovac batteries.”
He left Harbinger Group in 2014 to focus on the limited work he’s still allowed to do with Harbinger Capital in facilitating redemptions (though his ban from the hedge fund industry might be over now, I’m not sure, maybe he’s more involved in the hedge funds again), and, it was said at the time, to focus more on his second holding company, HC2, his second attempt to build a mini-Berkshire of sorts. Harbinger Capital also holds a minority stake in Ligado, the successor to Lightsquared, though I don’t know if Falcone is still involved. Harbinger Group last year merged with its major portfolio company Spectrum Brands (SPB), and now trades under that name… I don’t know what happened to HRG’s other investments, including its insurance subsidiaries.
And yes, HC2 did recently acquire a big new insurance portfolio, the long-term care assets of Humana, putting another $2.4 billion under management to go with its existing insurance run-off portfolio (totaling over $4 billion now).
The stock, however, has been uninspiring for most of its four years as a publicly traded company… and it has been particularly weak in the past few months, so what’s the story?
As I see it, the problem is both that Wall Street is a bit worried about long-term care insurance… and, of perhaps more immediate concern, that HC2 has a lot of