So, here is my question:
You indicated that you started a very small position in BOFI earlier this week, I believe. Then, the news came out about the class action lawsuit, and we’ve all seen what it has done to the stock price of BOFI over the last few days. Have you now closed out the small position you started earlier this week? Or are you planning on waiting and seeing how it all plays out?
Hi Speedy, Of course I sold out. Some people say “Why should we listen to shorts?” Look, there are articles by shorts on almost every stock we own probably every month. Most of them say something like “This company is overvalued because…” or “There is new competition” or “They have too much inventory” or something like that. The author says he’s short the stock. I may look at what he says and usually feel I’ve already taken what he’s saying into consideration. I never sell out of a stock because of one of these articles. The short attack on BOFI is as far from that as a hundred-car pile-up on the Interstate is from a fender-bender in your driveway. The BOFI short attack wasn’t about too much inventory, or competition from another bank, or the stock being overpriced, etc. It was about sleaze!
As Monkey quoted from one of my ancient posts: 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…
And this was before it came out that they had hired their chief internal auditor immediately as he came from a similar position at another bank that was going under in a big scandal, and before it turned out that they opened a fake “branch office” in Nevada, consisting of a girl and a desk, so that they could charge usury rates on certain loans, by allegedly running them through that office. It’s all just skating on the edge of being illegal, maybe not quite going over the edge, just shady. This was not your standard short attack.
When the shorts seemed to have gone away, and the price started back up, and it seemed to have all blown over without any consequences, I decided to try a tiny position again. I bought it on Monday. When the news of additional ex-employees coming forth, and the Houston suit, came out on Wednesday after the close, I thought “What was I thinking?” The premise on which I had bought was broken! Of course I sold out! This was not a little shrug-off short article on Seeking Alpha. Not for me. When the premise on which I bought a stock is completely overturned I sell the position. Period!
Hope that this helps.