I’ve been thinking about Saul’s decision to go back into BOFI. Everyone makes their own investment decisions, and I agree that Saul has every right to do whatever he wants for whatever reason. So why am I posting this. I think could be helpful to others who read this. Saul, this post is not at all intended as a criticism of you. I think it’s an excellent example of remembering the importance of trust in management.
Saul has on occasion declared that he now avoids investing in Chinese companies. His stated reason is that he lost a lot of money when many of these companies turned out to be frauds, and if they weren’t outright frauds at least the managers of many of these companies just didn’t much regard for the interests of non-insider shareholders. So now Saul avoids investing in ALL Chinese companies no matter how good the prospects and the financials look. The bottom line is that Saul feels like he can’t trust these companies and their managers. On a side note, many of these Chinese companies were targeted by short sellers. I don’t think there’s a coincidence that short sellers target companies where trust in management is already questionable. This could be company specific or category specific. Sure some innocent companies get targeted too but we, as investors should be aware that the mere smell of dishonesty can cause short to target the company which can affect the share price, if only in the short term.
So how is BOFI any different? I don’t think it’s very different at all. Those who have been following this board and the BOFI related posts over the past nine months know of the long list of questionable actions, words, etc displayed by the company’s CEO. Yes, there were short attacks but the presence of short attacks should never be a justification or reason for buying a stock, even if one believes these short attacks to be unwarranted. Trust of management, in my opinion, should be a prerequisite to investing. Whereas lack of trust should disqualify investment in the company. Everyone can decide how important trust in management is and everyone can decide whether they actually trust BOFI management. I certainly don’t, and I know that Saul didn’t last Fall. I can only speculate that deep down Saul still does not trust BOFI management. I can also speculate that Saul also thought/thinks that BOFI probably wasn’t doing major illegal things and based on that he decided that the opportunity looked too good. He was wise enough to keep his investment small. Personally, I’ve been fascinated by Saul’s love-hate relationship with BOFI. What’s the moral of the story? Well, even when things go wrong, Saul usually makes money. 
This was a joke, but I’m only half kidding. What’s the real moral of the story? I think having trust in management trumps everything else. I know that there are people who will defend BOFI, and that’s perfectly fine because, as I said, everyone makes their own investment decisions based on their own criteria. I would just provide a word of caution and ask people to consider that there are plenty of companies that have great financials, great prospects, and trustworthy (as far as we know) managers.
Chris
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Hi Chris. You’re correct. As I wrote just above:
Monkey was correct. The sleaze factor hadn’t gone away. And there are enough companies around where you can have confidence in management’s integrity to invest in.
Saul
1 Like
" I think having trust in management trumps everything else."
That does sound good but what does that mean?
Up until the allegations came out and one may argue may have come out of control, did we have such concerns?
and how can you gauge that? Most seems to look at the financial results which are still great btw.
Now allegations come out and it sounds like everything we knew or thought we know don’t mean anything anymore. Isn’t that strange?
yes you knew the guy all your life and then one act and he does not hold any esteem in your eye anymore. It is not about forgiving. It’s about how much we knew and how much we can really know.
But what was really revealed? banks make bad loans? That you should have known that there are possibilities for that when you invest in a bank, right? What was revealed?
You have some allegations from some ex-employees and you believe them? What about all the numbers you have been relying on to say that BOFI is a great investment? Those numbers are still there. You don’t believe those numbers? it’s not impossible- nothing is- that it is another Enron but is it probable?
and who would you believe? some ex-employees most probable disgruntled and looking for some pay back, or the financial numbers that have been duly reported?
If there were bad loans, what is the impact on the business moving forward? or is it an all or nothing deal? these allegations will destroy BOFI’s business? is that the case?
and I don’t think it is right to lump all Chinese companies in the same swoop. We are talking about Chinese companies listed on US exchanges and subject to the same rules and regulations as any other businesses are.
Also, you better get ready for Chinese companies because they will become more and more numerous and more and more influential in the world.
In short one needs to look at the bigger picture first.
tj
8 Likes
Now allegations come out and it sounds like everything we knew or thought we know don’t mean anything anymore. Isn’t that strange?
Please read TMF1000’s post on the RB:BOFI board. He paints what are SEC filings, vetted by various government organizations versus the lawsuits.
http://discussion.fool.com/1069/same-o-same-o-32205786.aspx
There is no comparison with “shady Chinese” companies as BOFI is regulated and does business here in the United States.
In short investing in small financial companies is tough as they can be easily manipulated and I would not fault anyone for selling or staying away. Those who inclined to take the risk are hopefully rewarded with great upside.
Sincerely,
Charlie
2 Likes
TJ,
and I don’t think it is right to lump all Chinese companies in the same swoop. We are talking about Chinese companies listed on US exchanges and subject to the same rules and regulations as any other businesses are.
Just because they are listed on the US exchanges means nothing. They are not bound by U.S laws because the SEC has no power over a Chinese company. Even though sometimes they can get documentation it first must go through the Chinese government.
http://www.wsj.com/articles/sec-big-four-accounting-firms-in…
The can has been kicked down the road until the next time comes up.
Andy
tj,
and I don’t think it is right to lump all Chinese companies in the same swoop. We are talking about Chinese companies listed on US exchanges and subject to the same rules and regulations as any other businesses are.
You asked a lot of questions and made a lot of points. There really is no right or wrong here. Saul decided to forsake ALL Chinese companies. This isn’t right or wrong. It is his money and it is his choice to invest it the way he sees fit.
How do you judge whether you trust the company managers? Good question. Each investor is the judge, jury, and executioner. You want to invest in BOFI and you want to trust them, then go ahead. If you don’t trust them, and you still want to roll the dice then it’s your money, your choice, your risk, and you need to live with the result good or not good.
Chris
5 Likes