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Faisal Laljee of Stocks & Blogs Apr 10, 2008 Email this article to a Friend  Printer friendly page

April 15th is perhaps one of the most feared deadlines that every American has to contend with every year. But there are two companies (unless you consider Uncle Sam to be a company in which case there are three) that make a living off this one deadline.

insert.a.chart.HRB

First, over 50 years ago, H&R Block and then more recently, Intuit decided it would make filing taxes its business. Its a great idea - every American needs to file taxes, and the tax code gets more complicated every year. But both HRB and INTU have not performed well as stocks for quite some time. Why?

Well, let's look at the easier stock first. Intuit was the first online tax preparation software and cornered the tax software market with Turbo Tax. It defied HRB's brick and mortar model and single handedly changed the landscape for tax preparation and filing. But aside from its Turbo Tax software, which goes through minor revisions every year, what revolutionary piece of software has Intuit really come up with? Quicken? Quickbooks? Both good software, but not exactly market makers like their tax sibling. So INTU has to solely depend on gaining market share in a market that is already quite saturated. Broadband internet usage in the US is close to 90% now and most US households are online. So organic growth has slowed down considerably. Then there is the question of beating the competition - well here too, Turbo Tax has only market share to lose considering its dominance in the space for over 10 years now.

HRB is more difficult. This company made the terrible mistake some 15 years ago, of not taking the internet seriously. They laughed at Turbo Tax, thinking online tax filing would never catch on. Then, when they realized that a good chunk of tax filers did ditch the Block offices for their living room and pj's, instead of buying out Turbo Tax, they purchased a second tier software called Tax Cut from Kiplinger and since then, despite trying to immitate Turbo Tax's success, Tax Cut has fallen short and failed to gain too much market share. At the same time, Tax Cut has in some way, cannibalized Block's higher margin brick and mortar business. Moreover, it was not long before more software popped up all over the internet (TaxAct comes to mind) advertising free e-filing. Competing tax businesses like Jackson Hewitt and Liberty Tax started also taking some (albeit not so much) market share from Block. So once it was realized that Block would need more than just a new branding initiative to grow their business, they branched out to financial services, mortgage lending and business accounting with limited success. The financial services business never really took off and the mortgage business collapsed after initial success. So what is next on the cards for them?

Only one thing is certain - both companies need to figure out another way to grow their business. Tax filing is just not cutting it anymore and shareholders would be better off putting their tax returns to work in other stocks.

by Faisal Laljee (Stocks & Blogs)

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Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk.

There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.