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Author: Jon408 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 461  
Subject: Re: Slide due to mortgage worries? Date: 9/26/2002 9:58 PM
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1000nam,

There are a couple of articles under "NEWS" that might be of interest, and I suspect that, taken together,
they may have driven the momentum a bit harder, but weren't by themselves of prime concern.

Here:
http://quote.fool.com/news/symbolnews.asp?guid={2B4976C5-3B35-4BEE-BA4F-FC10C4128D5E}&currticker=hrb&symbols=hrb&nx=&bx=

And here:
http://quote.fool.com/news/symbolnews.asp?guid={06E383CD-4BC6-47DF-8E8D-514C527FAFD5}&currticker=hrb&symbols=hrb&nx=&bx=

The first article on the Liberty Tax situation is actually old news, and while the outcome is something that
investors don't like to see, I suspect that it was somewhat anticipated (HRB merely lost an appeal
that had already been decided against them).

The second article is somewhat confusing to me, since I don't short stocks, and don't know what efforts
(if any) might have been taken by traders to keep HRB's price below the $50 mark for an extended period of time.
As far as I am concerned, the article is poorly written—in that it does not clearly spell out to lay investors
what is actually going on.

A more interesting article, at least to me, is this one, from Forbes Magazine—which mentions HRB and
WM (Washington Mutual), among others, in a very positive light:

http://www.forbes.com/2002/09/18/0918sf.html?partner=fool&referrer=

HRB has a history of pulling back to support on occasion (which it came very close to touching down on today,
near the $40 mark). So this is just another of those occasions.

Savy investors taking new positions usually wait for these pullbacks, knowing that everyone else in the market is
looking at the same data.

If you look at the pullbacks in December, April, and August, that $40 mark becomes significant. This drop was
of course from a higher level, but the market has been in a decline for some time (while HRB was holding up very well),
so it is no surprise to me that we dropped this much this time. You will also notice that the highs in August and
September were higher than the highs reached back in late March after the big runnup, and I think that the pattern
will be repeated.

In both April and in August, the support level (at or near $40) was reached on more than one occasion, and I would
expect the same thing to happen this time as well.

One of the things I particularly like about HRB is that is can run counter to the market for sustained periods of time.
This, plus the predictability of the stock and its fundamentals make it (in my opinion), a pretty safe investment.
About a year ago I began compiling a list of such companies, which I called "Steady Climbers", and HRB is still on that list.

As to your other comments and/or concerns; I don't believe that HRB is going to be spinning off its mortgage business,
since it got into that business rather recently. That plus their investment services are intended to add to the
scope and depth of the company; I actually expect that HRB will be making announcements of similar diversification...
perhaps enhancing their investment services, for instance.

HRB is a very well-run company, with both consistant growth and income, plus the rather solid backing of
Warren Buffett. If this company were to seriously tank, it would probably be due to some news of Buffett hedging
or exiting his position (which I believe he has held for about two years now). Barring that scenario, HRB is simply
a company that does drop down to support from time to time, driven mostly by momentum.

The good news is that the company itself is so stable that anyone interested in the stock (barring any seriously negative news),
can watch for such pullbacks and use them as an investment opportunity. It is my belief that sound investing is
based on fundamentals, but triggered by technical analysis.

That is, I first look for companies that are not in a negative sector (such as fibre optics), that also have reasonable
growth, solid cashflow, and stable earnings announcements. The second part is buying at the right time—
which means looking at the annual (or even two year chart), and looking for the perfect time to buy, based on pullbacks
to major support. HRB is at or nearing that point right now (as is WM, by the way). Which means to me
(after adding everything up), that as long as HRB holds support at or near the $40 price level, it is a sound,
long-term investment. Given that it pays a regular dividend is a plus, but not a requirement;
but in today's market, that dividend is an added bonus to be considered carefully.

Jon

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