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Strategies & Market Trends : Value Investing
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To: Tom C who wrote (37252)4/4/2010 11:50:03 AM
From: Dan Meleney  Read Replies (2) of 78750
 
HRB: I took a long look at their 10K this morning. I like the businesses they're in, but I can't quantify any margin of safety. Two key risks will keep me from investing:

They were slow to book expected losses on mortgages; they took 2 years to raise Allowance for Doubtful Accounts to 10.23% from 0.25%. At 20.23%, delinquency is 16 points higher than in 2007. Significant potential exists to sink the firm with losses here on the 700M+ portfolio of mortgages.

Litigation settlement on RAL cost 70M+ in 2006 and pending litigation on POM (peace of mind) could provide another huge hit for which I don't see reserves. This lack of litigation reserves is appropriate, since the loss is neither certain nor measurable yet.
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