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Helphire (LON:HHR)

This was one of my most successful investments of 2012-3, since the company delivered a remarkable turnaround, somehow persuading their Bank to write off a big chunk of debt, and raising large fresh funds from shareholders. However, once it became clear that they were copying Quindell's business model, and essentially becoming a company to facilitate fictitious whiplash claims (by acquiring an industrial-scale "personal injury" solicitors), then I sold out, at about 6.7p.

You have to be very careful in this sector, as they dress up their activities in all sorts of deliberately confusing language, but the bottom line is that the big money maker is whiplash claims. Fraudulent whiplash claims are big business, and despite the reality that few people actually suffer serious whiplash, the cost of whiplash claims is now higher than the physical damage done to the vehicles in aggregate, in car crash insurance claims. It is regarded as something like a bonus payment to car crash victims, with payments of several thousand pounds being the norm, irrespective of whether anyone has really been hurt or not. Seatbelts, air bags, crumple zones, etc, mean that real injuries are fairly rare these days, other than in the most serious of accidents.

It is you and I that bear the cost of this widespread fraud, with our car insurance premiums inflated by about £90 each, per annum apparently, to fund the cost of this scam.

The number one rule of investing, is to ask the question, "Are profits sustainable?" In the case of Quindell, and HelpHire, and others the answer (in my opinion) is "probably not". Sooner or later Governement will (and should) tackle this area, and start sending people to prison for fraudulent whiplash claims. When that happens, it will stamp out the vast bulk of claims instantly. People only lie because they think they can get away with it, and are actively encouraged to submit false whiplash claims by intermediary ambulance-cashing companies, and usually won't even be questioned about the authenticity of their supposed injuries.

HelpHire say that Q3 trading has "exceeded the Board's expectations".

Cash collection in HelpHire's historical business (which is the supply of hire cars to no-fault accident victims) has improved further, and is relatively good, at 128 days. However, margins are thin on that line of work,…

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