Follow-Up NY Times Article

Investment Analysis Clubs Saul’s Investing Discussions
#16

Neil: that may just be noise but wanted to ask your opinion about the following from Cramer:

"BofI Holding: “You have to understand the way I work. I leave here, I see the stock down $40, I try to do profiles. I read things, I try to figure it out. And I have to tell you the other day I had no idea. So I would be a fool to tell you it’s a buy or a sell. Because I could not understand a word about why it was down $40 or up $20. That’s no-go for me.”

My idea of Cramer is that he is a pretty good trader. Why do you think he didn’t have his own little theory about what has happened to BOFI stock price these past days?

tj

#17

tj, it’s just my opinion. FWIW, Cramer used to do the same thing when he ran a hedge fund. Here’s an interview with him where he talks about it:

https://m.youtube.com/watch?v=GOS8QgAQO-k

Neil

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#18

Why do you think he didn’t have his own little theory about what has happened to BOFI stock price these past days?

Because he’s not as knowledgeable/clever as he thinks he is?

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#19

“Please come to your own conclusions.”

No thanks Neil. I’ll use yours

Rob, Saul has posted that he liquidated the bulk of his position today, and he’s a much, much better investor than I am, and has a talent for sniffing out trouble to boot.

I wouldn’t recommend that anybody use my conclusions without doing their own analysis and very carefully considering the risks. I could be terribly wrong about what’s going on, and even if I’m right and BOFI eventually goes on to do well, Saul has pointed out many times that it doesn’t matter what the stocks you sold do as long as you’re happy with the performance of the stocks you own.

It’s very easy to get attached to stocks you own, which can make it hard to recognize the investment as a mistake. Saul is very good at spotting and ruthlessly correcting his mistakes, and I personally believe that’s a big part of his outperformance. I’m pretty muleheaded, on the other hand, and would like to see some real evidence of wrongdoing in this case. I’ve been through this before, and have seen how the shorts can throw their weight around, and this looks suspiciously familiar to me (as I posted). But that doesn’t mean it’s a good investment decision: I could be very wrong, and things could go very south from here, and there may be other perfectly good places for your capital. Nobody should stay invested just because I am. Please, do come to you own conclusions.

This is going to be my last post about BOFI for a while.

Neil

9 Likes
#20

That’s just the way it is. That’s why I choose the stocks I wish to own based on the financial metrics, but why I study charts carefully (technical analysis) to determine entry/exit points.

Machine trades don’t do fundamental analysis. They’re focused on the technicals. The distinction is important to know/understand.

Amen. The market reminds me of the old multi-purpose stadiums that used to host a football game one day and a baseball game the next. Except in today’s markets, the two games are being played at the same time, using the same ball.

1 Like
#21

WHOA!!! Mind-blowing Cramer link.

#22

tj, it’s just my opinion. FWIW, Cramer used to do the same thing when he ran a hedge fund. Here’s an interview with him where he talks about it:

https://m.youtube.com/watch?v=GOS8QgAQO-k

Neil

Thanks for posting this link, Neil! I have heard people describe this process and always believed it does happen, but never knew how much that kind of attack could really move the market. He mentions using a measily $5M to $20M just for the purposes of moving the stock price and at the very end says you can get a good 1% to 2% move using this technique. We’ve had daily 20% moves which shows a lack of commitment to BOFI by a much larger portion of the market. This second drop also shows a complete lack of trust for the CEO. I sold 90% of my position when the drop broke 113 because if the market had confidence in BOFI it wouldn’t have broken that support level set early in the morning. I completely agree with your view as the timing of this lawsuit is EXACTLY as stated in that 5 year old Cramer video. He said he must control the market in the last 6 days before the option expiration. I’m still Long on BOFI until it is proven to not have the earnings growth, but want to let the market get it’s fear out before the next earnings announcement. Since CEO already preannounced the great quarter though it may not make a difference to the market. Shows how much TRUST in the CEO matters.

2 Likes
#23

This second drop also shows a complete lack of trust for the CEO. I sold 90% of my position when the drop broke 113 because if the market had confidence in BOF

Not necessarily, at all. As Neil mentioned in an earlier thread, Friday was option expiration and you can get artificial movements as the expiration cliff approaches.

If you do some research into Option Pinning, you can find plenty of articles explaining the phenomenon. It is usually more precise when there is a preponderance of Calls, and in the case of BOFI, the Put open interest was about 10x, with 2xxx at 105 and 1xxx at 100. So a close at 100 and change is entirely consistent with Pinning, as well as with a structured short attack.

Absent any new news, consistent behavior on Monday morning would be a Pop up, probably to north of 105.

For now, I am putting this down to a short attack, aided by a disgruntled former employee. It reminds me a lot more of AFSI than EBIX.

Looking forward to earnings, and quite happy for the volatility to stick around for a few months to generate some options income.

Cham

7 Likes
#24

Of course, it could be options pinning and nothing more than a good ole bear attack, which is what I suspect. But is everyone ruling out the possibility of these stories and investigations having real substance?

Not many bear attacks have insiders or regulatory agencies involved. This one seems to have both, with auditors being fired or chased out of the company. NYT is probably a puppet in this case, but they have a large readership. Coordinating an options pinning at that level is significantly more involved than running a hit piece on Seeking Alpha.

Yesterday’s volume was almost 4x the average. The volume on Thursday was almost 2x Friday’s volume, and the volume Wednesday at 5 million shares is 12x the average. The good news in that volume pattern is the selling pressure seems to be running out of steam.

I’ll have to see how the market reacts Monday morning, this may be setting up for a nice 10% pop next week if you have the stomach for it.

-----
Invest wisely my friends
CMFSoloFool
Ticker Guide: NTGR and OTEX

1 Like
#25

One could look at this as a simple one of odds.

Short attacks are fairly easy to arrange for a pro (or usually several acting in concert) all it takes is some skill, some partners, and news source. The news source can be just stupid, gullible ,or bribed, or writing everything through a thick filter of ideology. let’s face it ,reporters are not know for digging very deep into issues, they have neither the time nor the inclination.

The more prestigious the news source the better. NYT is nearly perfect with great distribution, and read by almost all in the market, especially those influential investment bankers and analysts in New York City. It really doesn’t matter that the media outlet has long since lost objectivity, perception is everything.

Somebody can make a lot of money in a short attack .Which apparently is legal even if it is all a pack of lies. Even price manipulation by big money interests is legal. But then it is not a small investors that are making all those fat donations to politicians.
The golden rule- He who has the gold makes the rules.

What percentage of these short attacks turn out to be true? What percentage turn out to be false? How many are launched after the stock has had a big run up and therefore has lots of stockholders uneasily sitting on big profits. or lots of option holders near expiration?.

I wish I had some firm statistics on this. I don’t. But experience has taught me to be wary of events like this , events that seem very staged. Most are phony, a few are real.

There is no way for an outsider to know the truth at this point.

Banks are one of the most obscure investments around, annual reports tell very little, the real value of their loans is unknown. So I certainly can’t disagree with Saul decision to sell, he is very good at getting out quickly. The odor from this attack will remain behind for quite a while , so even if BOFI turns out to be legit, the “magic” is gone . So the stock price growth will be restrained even if earnings go up.

I am unconcerned if the CEO does not seem to be a nice guy. We all know where nice guys are supposed to finish. But the company may have outgrown him. Some executives are good only in a small company, as it gets bigger they need more process.

http://www.fool.com/investing/general/2015/09/02/why-im-taki…
reasons to avoid BOFI

Chart wise BOFI is back to testing the fat even number 100 support level. Will it hold? My guess is yes. The shorts seldom overstay. But it is not a guess that I would bet much money on.

I am still trying to figure out why I ignored my rule to never invest in banks. Even if all but one of my purchases was below $101.

7 Likes
#26

“This second drop also shows a complete lack of trust for the CEO. I sold 90% of my position when the drop broke 113 because if the market had confidence in BOFI it wouldn’t have broken that support level set early in the morning.”

Isn’t that move just playing in the hands of short sellers? I read Saul also liquidated the bulk of his position. Again isn’t that what the short sellers want?

What new information or observation is causing this (almost) 180deg.c turn in view in such a short time? Didn’t you think that:’ I am satisfied with what the CEO said-albeit I didn’t like so much the way he came out to say it’. If that last bit really is the reason then wouldn’t you have sold on Thursday?
No. You sold on Friday because you see another big move down and you are thinking that the people who sold knows something which you don’t. They do not know something you don’t.

When someone say that someone has intuition about these things. What does that mean? Intuition is pattern recognition.
So what pattern triggered the sell action? Others selling. What else is there? We all have the same information, don’t we?

So we are back to the flock of birds. A few get spooked by some random noise and the entire flock is flying off.

Sure we all can be wrong about these things because we do not really know what the market would do next about this stock in the short term, and we do not know how the business will turn out in the longer term future.

But if we invest in the business we should feel somewhat comfortable about this business moving forward unless we think the CEO is lying about his business and have made up the numbers all along or for a while.

tj

9 Likes
#27

What new information or observation is causing this (almost) 180deg.c turn in view in such a short time? Didn’t you think that:’ I am satisfied with what the CEO said-albeit I didn’t like so much the way he came out to say it’. If that last bit really is the reason then wouldn’t you have sold on Thursday?

Anybody, even Saul, is allowed to change their mind. It could have been the next NYT article with the unnamed source talking about Mr. Ball’s departure that caused Saul to change his mind. However, let’s remember that Saul had a very large portion of his portfolio in BOFI. Even the slightest whisper of a problem can be reason enough to reduce exposure of such a large position.

If you are going to have such a large position, you had better be rock solid confident in that position.

My position in BOFI is relatively small in comparison (4%). I’m holding pat and may increase my position slightly given the current discount.

Take care all.
A.J.

4 Likes
#28

Isn’t that move just playing in the hands of short sellers? I read Saul also liquidated the bulk of his position. Again isn’t that what the short sellers want?

While it is annoying to know that short sellers can manipulate share price, my ‘job’ is to protect my gains; not fight shorts.

Once the dust settles I can reevaluate reestablishing a position in a company from the safety of the sidelines.

3 Likes
#29

" Isn’t that move just playing in the hands of short sellers? I read Saul also liquidated the bulk of his position. Again isn’t that what the short sellers want?"

If we knew for sure that it was just a short attack then you would be right but given the fact that their is uncertainty as to whether or not this is a short attack vs the uncovering of an issue that could seriously unwind the company exiting or reducing a position is not necessarily playing into their hands but rather doing what you feel is right with the info you have at hand. Some of us feel that there is just too many flags to call this a pure unwarranted short attack.

Unfortunately even if this has no merit the stock will probably not immediately shoot back to $140 and then resume its skyward march to $200, what is more likely is a lot of back and forth with up and down days and so even if it is all fictitious BS it is possible that those exiting will have a chance to rebuild even if it is at slightly higher prices than the current price.

I would rather repurchase at $130 then wake up and find it is $20 because the little twerp was actually a correct little twerp.

To each their own according to their level of comfort.

3 Likes
#30

“Please come to your own conclusions.”

No thanks Neil. I’ll use yours

Rob, Saul has posted that he liquidated the bulk of his position today, and he’s a much, much better investor than I am, and has a talent for sniffing out trouble to boot.

I wouldn’t recommend that anybody use my conclusions without doing their own analysis and very carefully considering the risks.

Hi again Neil. I was just making a ‘cute’ comment. Actually BOFI is only 2% of my portfolio after making another purchase last night at $100. I still believe in the company and tend to provide the benefit to the company rather than the lawyer. So, I was actually really had my own conclusions. I really appreciate your posts Neil. Rob.

#31

From the linked article: "I can see that CEO Greg Garrabrants owns roughly 197,000 shares of BofI – this equates to roughly 1.36% of the company. Those holdings are worth about $22 million today, and the percentage ownership is roughly in line with what other bank CEOs own. In general, the company’s board has done a good job of aligning Garrabrants with shareholders’ interests.

And yet, this still gives me pause. Looking at my own personal holdings, Amazon, Baidu, Alphabet, IPG Photonics, and Facebook, combined account for a whopping 48% of my real-life portfolio. In all five of these companies, I can take heart in the fact that a founder/CEO runs the company and owns well more than 10% of all shares outstanding. They have serious “skin in the game.”

I am not sure I understand what he is saying.

The CEO has 1.36% ownership in BOFI. Why would the author compare this % with his portfolio composition?
Sure he wished Garrabrants had more in BOFI but who says that this $22mil is not 5 or 10 or 20 or 40 or >50% of his personal portfolios?

The other thing I don’t quite get is this ‘not liking what the way the CEO has answered the allegations against his Company’.

Wasn’t his message: no BOFI did not fake the numbers? Could he have told us the same thing but with a straight face and we would have liked his response better? why? Do we feel we can read him if he is lying?

It’s like ‘his mother died and he didn’t even cry’ type of comments. Different people express grief differently.

tj

5 Likes
#32 
Morningstar shows the CEO has equal number of options as well, making his personal holding worth ~$42M
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#33

tj,

"The other thing I don’t quite get is this ‘not liking what the way the CEO has answered the allegations against his Company’.

Wasn’t his message: no BOFI did not fake the numbers? Could he have told us the same thing but with a straight face and we would have liked his response better? why? Do we feel we can read him if he is lying?"

Question: Did you actually listen to the conference call? Just asking.

I think there was only one person on the boards here questioning whether CEO was lying. The rest of the comments were, essentially, about his saying what he needn’t have or shouldn’t have said. Was there any issue about faking numbers, that is false accounting? It was about reporting TIN’s to OCC, deposit concentration, $3 or $4 million in a brother’s account, threats, dealing with criminals, etc., etc., just about everything but accounting accuracy–as I remember. I think he handled that part just fine (the claim of threats were not commented upon, which was one good thing).

No, I think the concerns were about his saying things that he needn’t have said which gave ammunition to be used in the second NYT article. Better if he had just stayed with providing the facts to counter the claims Where were his advisors, or was he unable to control his responses?

But again, there seem to be three battles going on, one in court, one in the PR arena, and one in the options pit. We will see on Monday whether Friday’s drop was fought in PR arena or the options pit.

KC

3 Likes
#34

What new information or observation is causing this (almost) 180deg.c turn in view in such a short time?

Thanks for the reply TJ. First, we don’t know for sure this is a meritless lawsuit and should be ignored. I moved alot of my portfolio into BOFI on Wednesday because I saw this as a rare opportunity on a great performing stock. When it popped up on Thursday after the CEO call, this was a confirming signal. The “new observation” for me on Friday that caused me to pull back out, was when it created a support level at 113.1 and went up to 115.5, then fell back down and broke below that support level. I then felt the market is not confident and is not rebounding like I suspected and acted on that belief. I would rather miss some upside than lose everything on a stock that is moving 20% in a single day. I don’t normally go in and out of stocks on a day to day basis, but then I don’t normally invest in stocks that are this volatile. I also remembered reading a post about how the options interest was down to the 70 price level and thought the shorts just might make that happen.

The high volatility is a new factor that for me lowers my conviction.

#35

Isn’t that move just playing in the hands of short sellers? I read Saul also liquidated the bulk of his position. Again isn’t that what the short sellers want?

That is of course irrelevant. Buying and selling is about your personal profit and loss, not a moral statement.

In regards to stock prices approaching certain option strikes, there used to be an entire web site dedicated to that. It would show you histograms of open interest at each strike. The theory was that the big boys did manipulate the price to the highest open interest to either maximize their gains or minimize their losses. Don’t know if it still exists, I could not recall the name.

So a lot of people believe manipulation goes on, but it seems like they would often be on opposite sides of the trade.