Let me try ths one more time! I'm worried!

Investment Analysis Clubs Saul’s Investing Discussions
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Let me try this one more time, because I’m worried that some members of this board may still be in Bofi and are closing their eyes to a deluge of potential problems and saying to themselves that “It can’t be true!” because they don’t want it to be true. I don’t want to feel that I saw this coming and didn’t warn people on my board adequately. (Note that other stocks I follow may have catastrophes too, that I DON’T see coming. I do TRY to let you know though, if I see them in advance.)

I’m hearing (especially on the BOFI board):

Okay, so they are giving insiders huge loans at preferential rates… But other companies give insiders lots of stock options.

Okay, so one of their senior vice presidents is a convicted felon… But his felony doesn’t have anything to do with his Bofi duties.

Okay, so BOFI insiders were connected to two banks involved in the biggest scandals and bankruptcies in California… But that could just be coincidence. It doesn’t prove anything.

Okay, so they are helping this shady company evade banking laws by opening loans for them and selling them the loan after 24 hours… But that’s probably not strictly illegal, and it makes good money for the Bofi.

Okay, so one of their ex-internal auditors is suing the company with a huge list of irregularities… But he’s probably just a disgruntled employee, and someone has already dismissed his complaints.

Okay, so they are hiding risky loans in mortgage warehouse loans, a usually safe category of loans (this came out today)… But it’s not proved that Bofi is doing anything strictly illegal.

Okay, so they are involved with this unlicensed Center Street company that specializes in fix and flip homes… But it’s not proved that Bofi is doing anything strictly illegal.

Okay, so…and on, and on, and on…

Now all this may turn out to be immaterial, and the company may do just fine. Two years from now the price may be much higher than it is now. I’m certainly no banking expert. But anyone who pretends to himself or herself that this is “JUST a short attack,” implying that there’s nothing true about it, is just kidding themselves. OF COURSE it’s an orchestrated short attack!!! That’s no secret. But that doesn’t prove it’s false. Some short attacks turn out to be true, very true, and the company that is attacked goes to zero, or close to it.

Just a word of warning: However this turns out, this is no longer the bank we bought into and respected and were proud of. They may skate along on the rim of illegality without ever falling in, but that’s not where I, at least, want to be risking my money. Just sayin’

Saul

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So, to be clear, you sold your position again?

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And:

Okay, so they changed what they actually said in their conference call when they reported it to the SEC… But they said it was “edited”…

Okay, so their CEO was arrogant and obnoxious on the conference call… But lots of successful CEO’s are arrogant and obnoxious.

Okay, so their Glassdoor ratings are terrible… But it’s just fifty ratings.

etc, etc, etc

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So, to be clear, you sold your position again?

To be clear, here’s what I wrote in the description of my portfolio at the end of October :

BOFI was my third biggest last month at 15.7%, and is now gone for reasons that have been extensively discussed.

I’m not writing because I changed my mind. I’m writing because I was worried about my fellow board-mates.

Saul

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This last “news” from SA, even to the (lack of) extent that you can trust the motivations of the writers there, was the last straw for me. I dumped.

Unfortunately, I bought later in the run up, so suffered 23% losses on my 2nd biggest holding. Ouch.

I’m looking for another major holding to replace.

-Bob
Dead BOFI

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So, to be clear, you sold your position again? -Cobra

To be clear, here’s what I wrote in the description of my portfolio at the end of October :

BOFI was my third biggest last month at 15.7%, and is now gone for reasons that have been extensively discussed.

I’m not writing because I changed my mind. I’m writing because I was worried about my fellow board-mates.

Saul

Hi Saul,

To be clear, I honestly believe you are writing to help us all as much as you can, and I am grateful for that (although I haven’t sold yet). I’m not challenging what you’re stating to be combative in any way, but I remember it as Cobra did, that you bought again after your last (end of October) review, which you quote above.

Your review, I think, was posted on 10/31, but then on 11/4, post 13372, you explained that you got back into BOFI with a smallish 4% position.

I now have a 4.1% position.

There were a few follow up posts with other responders for a day or two defending why you were back in and that was the last I remember about your position stance until the last couple days.

Now, I’m not saying you need to, or should, post all your buy/sell actions, I agree with you, you shouldn’t, as people try to copy your enviable returns and it can end up a mess!

What I was doing, though, was showing a little love to Cobra because you slapped him down pretty hard for asking if you were out of your position, when I think it was a valid question (although you were under no obligation whatsoever to answer it).

Mike

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Saul,
I sincerely want to thank you for writing this. i was considering starting a small position. but not after this.
I do believe you care about us all who follow you despite your warnings to not follow you but to do our own due diligence.
thanks again
usha

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Mike,

That’s how I remember it too. Saul got back in with a 4.1% position. I just wanted to know if he sold again…

I am mostly just sitting back watching the show. Buy, sell, buy, maybe another sell?

2001Cobra–in the interest of disclosure, I own 100 shares and sold an April $115 PUT that is deep in the red. I also sold a Jan $100 covered call to help potentially offset some losses from the sold PUT.

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On BOFI

While some members of the board were annoyed with me for “changing your mind back and forth” about BOFI, and “trading” in and out, what I was actually doing wasn’t trading, but trying to decide what to do about a LONG-TERM position in BOFI, that I had already held for three years, in the face of contradictory and ambiguous information, which, unfortunately, wasn’t helped by some of the company’s impulsive actions. (Wow, that was all one sentence). I did change my mind while I was trying to figure it out. Several times! It wasn’t easy. I finally decided over the weekend to go back in with a smaller position than I had had before, which I did on Monday and then Tuesday morning. Imagine my surprise when I saw it up $10 from Tues morning when I looked again Tues afternoon.

I now have a 4.1% position.

But look, that was just luck. I wasn’t trying to “trade”. I wasn’t selling out of a large, long-term position to try to buy it back cheaper! That would be insane! I was scared by developments, then disturbed by the CEO’s emotional and poorly considered remarks in the conference call, then by their changing the transcript of their conference call, and the whole folderol. It’s nice that I got back in a great deal cheaper than I sold, but that wasn’t the point. The point was to protect myself until the storm cleared a bit and I could see what was happening. I would have been happy to buy back at the price I sold, or $5 higher if it came to that. And right now, I’m willing to risk 4%, but not willing to go back to a 10% or 12% position. That may change in the future, as the air clears (or doesn’t).

But this is why you can’t try to mirror what I’m doing. I’m a moving target. Please DO look at the companies that I’m in and investigate them, and if YOU like them, go ahead and invest in them, but because YOU like them, not because I have a position in them.

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So, to be clear, you sold your position again?

There is absolutely nothing wrong with changing your mind when the facts change. Saul is extremely transparent, and we are grateful for that. No one should blindly follow Saul.

How about you expose every one of your positions at the end of the money with a number of buy and sell notices during the month. What are all the stocks you own and their percent of your portfolio. What is your return for the each of the last 5 years?

You seem out to get Saul, to prove he can’t possibly be this good. Since he does not list all his buys and sells as they happen, he might well be a pathological liar and a narcissist. But it seems there is enough transparency there to rule that out. So what is your point really? What lesson do you want us to learn?

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You seem out to get Saul, to prove he can’t possibly be this good. Since he does not list all his buys and sells as they happen, he might well be a pathological liar and a narcissist. But it seems there is enough transparency there to rule that out. So what is your point really? What lesson do you want us to learn?

This would go back to my suggest to Saul that he actually limit his disclosure to just once a month on his holdings (if he wishes to disclose them) without mention of price or date paid or sold. I know he mostly keeps to the monthly update but did offer more details around his buys and sells on BOFI due to the unique situation. But that then causes more questions than he has an obligation to answer.

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If changing your mind on an investment is wrong or unsavory to people, then you better be damn sure you are correct when you make the initial investment and also sure that nothing will change in the future that will invalidate your hypothesis.

Buy and hope is not a strategy.
Tax and commission implications really aren’t that big of a deal compared to the losses that could be incurred when something goes wrong.
The risk has dramatically increased without the prospect of increased reward.
You don’t get bonus points for longer holding periods (price changes over the period being equal of course)
There seem to be many less risky and more transparent opportunities out there.
The thesis has changed from a company growing quickly to a turnaround story assuming all the negative concerns raised have no basis and are already priced in.
How can you evaluate if you are right or wrong there?
Why be involved here until that passes over?

Saul, good on you for behaving like a rational investor here and managing the position and risk the way it fits your portfolio and strategy. e.g. 4% may not be a big position for Saul but may the largest position size for someone else.

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That’s how I remember it too. Saul got back in with a 4.1% position. I just wanted to know if he sold again…

Guys,

After reading Saul’s OP here, I just assumed he’d sold his “smallish 4.2% position.” I wouldn’t stress too much about it since BOFI is a company for many of us, including Saul, to completely wrap our heads around. Is it nice to know for sure if Saul sold? Of course, but I’m only interested in a voyeuristic way at this point.

I continue to hold my “smallish” position based on financial fundamentals, but I recognize there are many risks, which Saul eloquently laid out above.

Pete

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If changing your mind on an investment is wrong or unsavory to people, then you better be damn sure you are correct when you make the initial investment and also sure that nothing will change in the future that will invalidate your hypothesis.

Buy and hope is not a strategy.
Tax and commission implications really aren’t that big of a deal compared to the losses that could be incurred when something goes wrong.
The risk has dramatically increased without the prospect of increased reward.
You don’t get bonus points for longer holding periods (price changes over the period being equal of course)
There seem to be many less risky and more transparent opportunities out there.
The thesis has changed from a company growing quickly to a turnaround story assuming all the negative concerns raised have no basis and are already priced in.
How can you evaluate if you are right or wrong there?
Why be involved here until that passes over?

Beautiful way of stating it Mike. Thanks from everyone on the board.
Saul

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

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. As I said, it was mainly on the Bofi board where I found that all the emphasis was on finding ways to find fault with the language or disclaimers in the article (or the motives of the authors…of course they are short) instead of dealing with the documented facts.

Hey here’s a thought: Does it make any more sense to discount what someone says because he’s short the stock, than to discount what someone else said because he’s long the stock? Do you ever hear anyone say “Don’t pay any attention to the positive things he says about such and such company. He’s already admitted he’s long the stock”?

Saul

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Does it make any more sense to discount what someone says because he’s short the stock, than to discount what someone else said because he’s long the stock?

That’s very a propos and an excellent point! What I (try to) look at is the actual substance of the arguments on both sides of a position - are they rational and factually-based or more like opinion pieces? I think we’ve seen both types on both sides in the past several months, which makes judging BOFI interesting, but more difficult to assess as a business.

Pete

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Does it make any more sense to discount what someone says because he’s short the stock, than to discount what someone else said because he’s long the stock?

Logically not but logic is not the only driving force in humans. The “advantage” shorts have is that they play on fear while the longs play on greed. That’s why the reaction is so different.

Fear triggers fight or flight. You take on the shorts or you sell your position. You first sold your position (flight) and then bought some back (greed). If we could only get rid of our caveman instincts we would be better investors. There are no sabre tooth tigers on Wall St.
(not too many in any case), just bulls, bears, and pigs. :wink:

Denny Schlesinger

For what it’s worth, the reason I don’t invest in banks is because, as Nassim Nicholas Taleb says, the financial industry is bad black swan prone. One just visited BOFI.

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HI,

Life threatening fear can also produce a freeze response…check out the Polyvagal Theory. FWIW

andy

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I am opposed to this but will of course defer to Saul!

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Saul,

I have found that the shorts are good. The ones that survive anyway. The losses from being wrong in a short position can make you retire the country and become a philosopher in a minute. Literally, a minute.

Anyone that says “it is just a short attack” should immediately put on the short list of people to be ignored. It has been my experience that there are a lot of crooks selling shares, especially small caps. (This doesn’t mean there are not large caps run by crooks that are selling shares) When a short seller sees a crook running a company he can, and should sell it short. Any business that is worried about its share price more than its profits is one to be wary of.

Looking, just glancing even, at the BOFI business model it seems that selling shares is THE business plan. An inflated and rising stock price seems to be how the business is actually financed. Whether the short sellers are honest or not. The damage to the business model is done. Moreover, this type of business model tends to be unstable.

(I wish I was good enough to sell short as I believe the shorts keep the crooks selling worthless shares at bay, and I think that is a noble cause.)

Cheers
Qazulight

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