brain constipation

I’ve posted about BOFI here and on BOFI board and other boards. But, I still have so many thoughts/ideas about this situation. The problem is, too many so my idea “evacuation is difficult”.
So, I’ll leave my 10 to 12 posts just stored (I can hear the sighs of relief out there).
You either own BOFI or you don’t. Either way, you have the option to either buy or sell or do nothing on Monday. If you own it, it is convertible to cash. The bid is what it will be worth on Monday. Doesn’t matter what you paid for it. Question is, learning all you can (and there is a ton of information [all imperfect] out there), you can MAKE UP YOUR OWN MIND and buy or sell or do nothing.
Saul sees things as being not quite right and sees better opportunities. Neil has weighed those things he feels and those things he knows and is holding. Both say make up your own mind.
I was surprised to see the $100 price when I woke up this morning. Then I berated myself for not anticipating that possibility considering that this was options expiration day. I didn’t even have a limit order in place (although I did have a limit sell for my “post lawsuit” purchases). I am in the camp of those who see the value of BOFI as “much higher”. I am also in the camp of those who are uncomfortable with Mr. Garrabrants’ handling of the conference call and the apparent weaknesses in BOFI’s managing the routine business activities. I see both sides, residual burden of having legal education/experience, I guess. I see BOFI winning this war but losing a lot of PR battles along the way.
I do not see that anything claimed in the lawsuit that will change the BOFI business in the future. The opportunity to make loans, the macroeconomic situation has not changed. The business model hasn’t changed. BOFI is executing, and can still execute, the business plan. BOFI has warts and they have been exposed but they don’t go to the business opportunity, the business model, the results of the execution of the plan. I’m not big on the glass door, happy employee stuff. That’s just me, but just to say that this isn’t big in my evaluation. Yes, the “command and control” leaves me scratching my head and having at least one HR professional on board would seem to be a no-brainer. But style points don’t weigh much on my scale.
One more point: this in not an issue of who is right and who is wrong… Well, yes it is to a point, but let me preface this with my conclusion that as to tax ID’s, criminals, OCC deception, brother’s money…, I’ve formed the opinion that there is nothing there and I am basing my decision on that opinion and my level of confidence in that opinion. So what is left is, more or less, who is the bigger a** hole. Is Erhart an incompetent, obsessive-compulsive, perfectionist auditor and meddling s**t disturbing, trouble making employee? Is Garrabrants a miserable person to work for? I say this because I am reading into some posts a bit of cheerleading–which might not be the correct word to use. I sense some investor ego at work as in “I think Erhart is a jerk and I’m right about that and I’m adding. I’m on Garrabrants’ side.” There are no Garrabrants or Erhart T-shirts for sale, yet.
I’m probably preaching to the choir here, but it is just something I feel a need to say.
For me, and I obviously may be wrong, I see a lot more upside than downside. Yes, BOFI could go to 80, 60 for awhile though I EXPECT a post-options expiry bounce on Monday. But $100 looks very good to me if I can get it. I see $130 or $140 or more within a year because my judgment is that BOFI’s results in the coming quarters will compel those prices even if BOFI loses more PR battles.
On the other hand, there are also good prices on SWKS, INFN, SKX and AMBA and others. Good investing to all. Do your homework.
It is probably good I can’t evacuate another dozen ideas/concepts/thoughts that this BOFI situation has raised.

KC, long BOFI, SWKS, INFN, SKX, AMBA and “others”


Piling on here …

I see a relatively simple set of possibilities here.

  • One is that BOFI has some very serious problems and the whole thing may collapse like a house of cards. Just because outside investigators blessed things a relatively short while ago doesn’t guarantee that everything is clean, but it’s a pretty good assurance of it. But if things are bad, the share price could collapse quite horribly over the coming weeks/months, time TBD depending on how the digging goes.

  • In another future scenario, the charges are discredited immediately and everything returns to the previous “normal”, except that some investors are left with a bad taste in their mouths and they’re more cautious about this stock … so the long-term hit on the shares is pretty small, but for the next few weeks/months there may be some limited impact on the share price.

  • Finally, I see a third possibility, which I think is the most likely outcome. However, it is really a range of outcomes, and which part of that gray are we land on will determine the value of this investment, and I have no idea where that is. In this case, management is basically cleared of any “legal wrongdoing”. However, the way that they’ve handled this situation, and lingering uncertainties about it all (including management competence and the distinction between “legally” okay and behavior which is totally clean), leave the reputation of BOFI tarnished. Maybe as bad as KFC chicken in China (which has had a multi-year effect, and may never be reversed), maybe a Lumber Liquidators’ type effect, or maybe only a relatively small one.

The trailing and forward P/E ratios are quite nice right now, but those numbers depend as much on the E" as the “P”. And as to forward earnings (and hence the future 1YPEG), right now there is a lot of uncertainty about it, and the market hates uncertainty. If this isn’t resolved quickly, the share price will likely languish regardless of how it all eventually plays out. And in the case of a financial business (in this way, BOFI is quite different from LL and other cases), market uncertainty can potentially have a real effect on the actual business that BOFI engages in.

as always, i am full of carp

… still holding a few call options, thereby limiting my risk somewhat (now with 0.9% of my portfolio at risk, which will all go to zero if the share price isn’t above 100 by April)


I’ve been staying out of this thread because I bailed from BOFI s few months back with some stop loss orders. I was encouraged to buy back in by Saul and others but decided that I didn’t trust Garrabrants with my money due to the Glass Door ratings and the fact that he’s running a 500 person outfit without and HR department. To me that’s not cost savings, it’s just stupid. Anyone who’s worked in a big company knows that HR is there to protect management from their own ignorance and only incidentally provides employee services when necessary. And Garrabrants has well demonstrated he’s in need of protection due to a nasty combination of arrogance and ignorance. He’s already skating on thin ice with respect to employee harassment. This is not trivial.

But it is wholly separate from the current issues.

As for the spreadsheet with the missing ITNs, that can be a document in the “chain of authority”. Spreadsheets are used all the time in finance departments, they are validated and protected from unauthorized update. But the explanation already given, that the ITNs were provided under separate cover is probably true and adequate to protect BOFI from exposure. My confidence in this matter is based on work I did at Big Aerospace with respect to SoX compliance (the law that game out of the Enron debacle). This law got a lot of executive attention because it provided for fines and jail time for the CEO and CFO of firms found in violation. The main implementation of SoX compliance was to maintain absolute control and traceability for all documents in the “chain of authority” that led to financial reporting signed off by the CEO and CFO.

So, I am in a quandary. I am not enamored with BOFI, but I feel pretty confident that they will be exonerated from the current accusations. I base that on the fact that they’ve recently been under pretty intense scrutiny and were cleared to close the H&R Block transaction. I find it hard to believe that OCC missed something substantive and worrisome. Possible, but not too likely.

I rarely use options, but this might just the right time to buy a few calls. Mr. Market seems to favor the downside with about 900 put contracts at $90 - $100 strike versus about 300 calls at $100 - $110 due in Nov. There’s a lot of FUD around BOFI right now, and it may not clear up in a month. But a relatively small gamble on the stock moving up at this point does not seem too crazy.


Hi Brittlerock,

I agree with your assessment here though really, anything can happen.

BOFI happens to be one of my largest positions but only due to my recalcitrance at trimming, which I intended to do but then blah blah blah.

So buying a call even looks good to me at this point (since I can’t really take on more stock) though I would buy it as far out there as I could and still earn a decent annualized premium since this kind of smell may take more than a few months to go away.

Just my <$0.02 worth
Long BOFI and still profitable

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The Bofi thing is coming at a time when I am looking at reducing portfolio risk anyway, so I stepped out of the way of this one and will get into something more slow and steady.

Still holding some of the stocks Saul follows, SWKS, SKX. I might try CASY, and I’ll still be reading along here.

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