I'm sorry that I am disturbing so many people

I’m sorry that I am evidently disturbing so many people by worrying about Bofi. On the BOFI board Andy said to me: I am not sure why you are disturbed with people taking a different side from your views. I can understand stating your case, but after awhile it seems you want everyone to follow you into selling.

He then asked the following two questions:
1. Do you know that any of the articles are true?
2. Is anything that the bank is doing now different then when you first started investing in them?

Here are my attempts to respond:

Hi Andy, Let me try to answer your questions. You said I am not sure why you are disturbed with people taking a different side from your views. I can understand stating your case, but after awhile it seems you want everyone to follow you into selling.

Earlier today Pete, over on my board, said:

I continue to hold my “smallish” position based on financial fundamentals, but I recognize there are many risks.

I wasn’t disturbed with him taking a different point of view. I responded:

Hi Pete, Recognizing there are “many risks” but deciding to take your chances is a rational approach. I was worried about all the people who were in denial about the risks, saying it was “just a short attack” and not even reading the evidence.

Andy, I have lived through many short attacks. You have too. They are usually two or three articles saying this stock is overpriced for such and such reason, comparables are selling much lower, growth won’t last, PE is too high, too much debt, etc. The stock sells off a little, the shorts close their shorts, and life goes on. This bears as much relationship to a regular short attack as a 50-car pile-up on the expressway does to a little fender-bender in your driveway.

As far as your last questions:

Do you know that any of the articles are true?

OF COURSE I know they are true! They are all documented with copies of the documents. Haven’t you read them? What I don’t know is whether the things that they are doing are actually illegal or just shady and skating on the edge of illegal. Is it really illegal to have a convicted felon as one of your vice presidents? Is it illegal to hide risky loans in a different category in your reports, etc. I’m no legal expert on this kind of thing. Are you? But saying that this is just a short attack so we can ignore all these things doesn’t cut it. Not for me anyway.

Is anything that the bank is doing now different then when you first started investing in them?

My god, YES! It’s not that it’s DOING things that are different, but that back then I didn’t know about all the shady, quasi-illegal, and skirting-the-edge kind of things that they actually ARE doing. I thought that this was an honest, on the up-and-up, safe bank.

And look, for all I know this will all blow over. The stock may get down to $15 and then be back at $30 or $40 in a year or two. I don’t know. I do know that this much stuff won’t just blow over by next week.

Best

Saul

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FWIW,
I am neither disturbed or bothered by your posts on BOFI Saul, quite the opposite. And I don’t get the perception that you are trying to argue/convince anyone that they need to believe what you do.

What I have perceived from you is a very caring person (maybe overly, to some, for an online financial board, but that isn’t my opinion) who holds themselves personally responsible for what they say and do, and how they represent that, on this board/service.

I have said it before, and I will say it again, that I appreciate your generosity with your financial wisdom, both the transparency and timeliness among lots of other things.

It would be a shame if you were to take any negative words/comments/views/posts thrown your way too personally as well. But I guess a big heart means you take the good and the bad equally.

A friend just shared with me their opinion that 10% of arguments are about differing opinion and 90% are tone of voice (or way of communication). Not sure how factual that is (none), but it sounds good. At the very least, it highlights a bias in humans. And since we can’t tell by typed words your genuine intentions, care, heart, tone, eye contact, body language, relationship, etc. on here or any board/social media, disagreements are bound to happen.

I think you treat everyone on here respectfully, and take a great deal of care to be humble and empathetic.

Thank you,
Robert

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Saul,
I am happy you are saying what you because you are a successful investor and I want to benefit from what you have learned from your experience.
Many many times people on various boards ask MF for some remark after a stock has gone south and we don’t get any.
what you are doing is very helpful.
Please continue
usha

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Saul,

A reader asked you, Do you know that any of the articles are true?

And you replied, OF COURSE I know they are true! They are all documented with copies of the documents. Haven’t you read them?

Regarding the supposed convicted felon working for BOFI-- how do you know that is true? I did read the documents provided by the author, but they are redacted in important areas. I did a little googling to see if I could connect the dots, but I was unable to completely confirm or refute the author’s claims.

Wondering if you saw something I missed.

Rob

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I actually find all of the back and forth on BOFI quite refreshing. The boards often get boring/plain vanilla when everyone agrees with each other. It’s nice to be able to exercise the argumentative (for lack of a better term) muscles once in a while as long as one does not take the conversations personally.

Fletch

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Andy, I have lived through many short attacks. You have too. They are usually two or three articles saying this stock is overpriced for such and such reason, comparables are selling much lower, growth won’t last, PE is too high, too much debt, etc. The stock sells off a little, the shorts close their shorts, and life goes on. This bears as much relationship to a regular short attack as a 50-car pile-up on the expressway does to a little fender-bender in your driveway.

So far, to me, this one on BOFI seems far more mild than the one I saw on Fairfax Financial (FFH.TO) back when the stock was sub-$100. On that one, there were ongoing articles claiming financial misconduct for a year or longer. Many of them were arguing by analogy and innuendo–basically “a different insurance company B did this thing that Fairfax is doing, and they are now bankrupt”.

The strategy seemed to be to take advantage of the fact that most financials have a significant “black box” component–things that an outsider would have difficulty understanding or simply doesn’t have the information to understand. If the shorter can convince you that the black box is too risky, then they win.

I wrote an article about it at the time (http://www.fool.com/investing/small-cap/2004/09/16/buffett-o…), and one of the shorts wrote to me directly to try to convince me to recant. The problem was that he provided “evidence” that didn’t actually prove anything, but was more based on “if I say a black box is complicated and fraudulent and throw piles of information at you, you’ll believe me because you won’t want to look like an idiot or admit that you don’t understand my evidence.”

From there, they allegedly went on to threaten Fairfax employees and even contacted the minister in the church that the CEO attended in an attempt to mess with his head.

I also lived through something similar with EBIX, buying when it was sub-$10. So to me, this seems not much different at all from short attacks on other financials that I’ve seen.

That’s not to say that I’m convinced there are no problems with BOFI. However, of what I’ve read, the thing that worries me the most is related-party transactions.

The felon complaint actually kind of cracks me up. Businesses aren’t perfect, and I don’t want to invest in businesses that put their resources towards being perfect in areas outside their competitive differentiation–it’s a terrible use of capital.

(That said, in a company I worked for, one of our temps didn’t come in one day. We followed up, and it turns out that he had been arrested for chopping up his fiancée with an axe, stuffing her parts in a suitcase, and dumping them into a lake. So maybe I have a poorly-calibrated standard for feeling outrage about felons in the workplace.)

Richard

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One might also note that “convicted felon” can mean “caught with some weed once” … not quite the same thing as the felony being related to financial fraud.

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Saul and everyone else - - -

I’ve been uncharacteristically silent on the subject of BOFI. I mentioned a couple of times that I bailed semi-accidently with a stop loss order that only triggered in one account, I subsequently sold my position in the taxed account.

Although I was encouraged to buy back in to BOFI, I chose not to. Since selling I had become aware or what I interpreted as untenable behavior of the CEO towards the general staff as well as the absence of an HR department at this medium size organization.

I was also aware of several negative articles that mostly appeared on SA which had been largely discredited. My feelings were and they remain that there are just too many other good opportunities for investment. I was unwilling to have my money tied up with a company that would tolerate behavior from the CEO that was largely demeaning to the employees.

Since that time a number of new articles have appeared which question BOFI for a variety of reasons. None of them that I have read come right out and make a bald assertion of improper procedures or practices, they are couched in innuendo, and well insulated from outright accusation with words like “if”, “could”, “might”, etc.

Nevertheless, I still can’t see why anyone would put their money in a company under so many clouds when there are so many alternatives that are cloud-free. It just doesn’t make sense to me.

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Nevertheless, I still can’t see why anyone would put their money in a company under so many clouds when there are so many alternatives that are cloud-free. It just doesn’t make sense to me.

This is perfectly rational. The hit piece achieved its mission, get the investor to sell.

Denny Schlesinger

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I still can’t see why anyone would put their money in a company under so many clouds when there are so many alternatives that are cloud-free

Because the sharp drop in the share price provides an opportunity to double your money - or more - within a reasonably short time scale.

It’s just a matter of whether you prefer ‘high risk, high reward’ or ‘low risk, low reward’.

Judging whether the reward is appropriate to the risk is the difficult part - and what makes investing so interesting.

As far as I can see, even if every allegation made by the shorts turns out to be true, when stripped of the hype, there is nothing that will have a material effect on the long term progress of the business. In my view the level of reward more than justifies the level of risk.

So, for me, now is the time to be greedy when others are fearful and I have increased my BOFI position.

A more serious allegation could come out tomorrow and BOFI could sink into oblivion. But that is also true of every other investment in my portfolio and is the reason why diversification is important.

I like to focus on the facts and project forward to see what is the worst that can happen. If BOFI loses an unfair dismissal case - so what? Does anyone seriously think that employing someone with an offence that occurred 24 years ago is likely to lead to significant regulatory penalties? Shorts are very good at portraying insignificant issues as major problems.

Once the dust has settled and the next quarter’s earnings are the only evidence on the table there is every chance that BOFI will return to its previous highs and beyond.

Ian

– Hoping that this week’s ‘greedy when others are fearful’ doesn’t turn out to be next week’s ‘falling knife’

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Good pts Ian…
It’s just a matter of whether you prefer ‘high risk, high reward’ or ‘low risk, low reward’.

I think we want to find the low risk, high reward companies. Of course, that is the trick, to be able to identify such…

Fool on,
Chuck
No position in BOFI yet

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This is perfectly rational. The hit piece achieved its mission, get the investor to sell.

Denny, just for the record, I did not sell due to the hit piece(s). I sold because I had a cautionary stop-loss order that I meant to remove, but I hesitated and it executed. I sold the rest of my holdings because I learned what I considered to be disturbing information about the CEO which, interestingly, has not been part of any short seller hit piece of which I am aware. I assume this means that a CEO who treats his employees in a demeaning manner is simply not significant to most investors, but it is to me.

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Denny, just for the record, I did not sell due to the hit piece(s).

Yes, I read that. But how do you know the short bashers didn’t bombard Glassdoor like they bombarded SA and who knows how many other venues? My point is that their objective is to stop people from buying the stock and get them to sell if possible. Since they can NOT afford to make untrue accusations they play on people’s emotions which were not designed to trade in the market but to evade sabre tooth tigers.

Smilodon: https://www.google.com/search?q=sabre+tooth+tigers.&num=…

BTW, you don’t have to outrun the tiger to be safe, you just have to outrun the guy next to you. :wink:

Denny Schlesinger

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Of course I don’t know (as in 100% certainty) that the short sellers didn’t make all the posts on Glass Door. But try to explain why they would go to the trouble of setting up a bunch of false email addresses, then write a bunch of negative posting taking the time and attention to make sure they differed in style and word usage, and then fail to raise it as an issue in a single SA article or anywhere else. While it’s possible, some one or small group may have made up all those postings on Glass Door, it seems really, really unlikely.

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The reason to put money on a company “under a cloud” is that they are cheaper then. Remember Apple stock, a barrage of shorts after Cook took over. The shorts made money, those who continued to hold made money, those who bought at the height of the attack made even more money. Those who bought at higher prices and panicked at the “Cook is no Jobs” “Apple can’t innovate” “Apple is dead” bits lost money.

I held my AAPL because I had confidence in the product. I really can’t say that about BOFI so I compromised by keeping a very small number of shares. Repeated bear articles by the same person makes me suspicious of the whole argument, especially when they are in SA, a notorious haven for market manipulators .

As brittlerock says, there are lots of other stocks.
But most of them are appropriately priced by the market.

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If there is a stock under a cloud look at VRX. Citron had research for the bear case. Ackman of Pershing Square on the bull side. Cooperman recently in too. A drop from the mid 200s down to 70. Last 2 days from $70 to $91. At some point the risk reward becomes compelling even on a sum of the parts liquidation basis. Even Citron said they got out of most of their short position recently. About a 30% return in 2 days!

Rob

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Of course I don’t know (as in 100% certainty) that the short sellers didn’t make all the posts on Glass Door. But try to explain why they would go to the trouble of setting up a bunch of false email addresses, then write a bunch of negative posting taking the time and attention to make sure they differed in style and word usage, and then fail to raise it as an issue in a single SA article or anywhere else.

Aurelius did raise it as an issue on Seeking Alpha:

BOFI’s own Glassdoor boards suggest that BOFI may be running some version of an internal boiler room in an effort to aggressively grow this business. For purposes of brevity, a detailed analysis of BOFI’s Structured Settlement activities will not be included in this article. Instead, a simple example offers insight into BOFI’s activities.

And as I wrote before, it’s fast and easy to create multiple accounts on Glassdoor; only a valid email address is necessary; and who here doesn’t have multiple email addresses today (work, ISP, Google, Yahoo, AOL, etc)?

Link: http://seekingalpha.com/article/3672236-bofi-boiler-rooms-ba…

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Aurelius did raise it as an issue on Seeking Alpha:

Thanks for pointing out the Glassdoor reference by Aurelius.

Denny Schlesinger

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Just so you know, I found loads of licensed “hard money lenders” on that website.

Google “Hard Money Lenders” of California.

Start plugging in their names.

The majority, not all of them, of them are licensed as money lenders. One of them used to have a lending license but it was revoked.

If you still can’t find one (I find that hard to believe), I’ll come back here and lay 5 or 6 on you in a heartbeat to show you their info and websites.

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The majority, not all of them, of them are licensed as money lenders. One of them used to have a lending license but it was revoked.

So it’s perfectly legal not to be licensed? That’s how innuendo is created, saying they are not license when it’s not necessary to be licensed.

Denny (who does not invest in banks) Schlesinger

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