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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Grommit who wrote (7252)	5/21/1999 12:43:00 AM
From: James Clarke	Respond to of 78476

SVR - this one's fun - (sorry Mike, you started it) <<(6) Risk on a default is that -- 10% down and a few payments do not cover the high variable costs of marketing and sales.>> OK, that's the risk to earnings. What's the risk to the company if we go into a recession and defaults go up all at once? They say in the 10-K that they have little recourse to go after the "owner" of the timeshare. So the asset goes back into inventory to be marketed and sold again. But in a recession nobody's going to buy it. They also kindly point out that their lenders will only lend on 85% of performing receivables (85% seems extremely high to me considering the default rates in a good economy). So what happens when 20% of customers stop paying in a recession? SVR's banks call in the loans and the company goes "poof". Am I reading this wrong? Did anybody else notice the pricing of these timeshare interests? $7-8,000 per week timeshare? I assume that is for one week per year over the life of the contract, so maybe that's $1,000 per "vacation" (although the 10-K reads as if they charge $7,000 per week. That number just seems so absurd that I'll give them the benefit of the doubt.) Even $1,000 seems pretty steep to me considering where these places are - we're not talking 5 star resorts here. I just ask myself "Would I buy this product?" and the answer is NO WAY. Mike, I'll ask you that as well. Would you buy this product? And if not, might that explain the high marketing costs and the high default rates? This smells like a scam to me. It took about 15 minutes with the 10-K to decide that I would not buy this stock. The three reasons I am spending a bit more time with it is that 1) I like to learn strange accounting so I recognize it next time I see it; 2) In a market like this I am always looking for a possible short; and 3) I want to challenge the belief on this thread that Jim and Mike agree on everything. JJC