More on Bofi

More on Bofi

I know that I said I had no plans to buy or sell any BOFI, but I also said no one should be surprised if I changed my mind.

Well earnings came around. The trajectory was obvious. Earnings and book value are just going up. Non-paying loans are trivial. Nothing has happened on all the shorts’ claims. In the conference call the CEO was quite convincing in his discussion of the lawsuits and short attacks. I decided this was it.

Yesterday and today I bought at:
16.59
16.64
16.73
16.76
16.91
16.98
17.06
17.07

I bought only at a higher price than the previous purchase. Why? If the price was going down I thought it might be sinking back. I wanted to make sure BOFI had finally shaken off the power of the shorts. I wasn’t looking for “better value points,” I was looking for worse “value” points (higher and higher prices). I wanted to make sure it was still moving up to new highs. I figured that the price was so low anyway, that buying 20 or 30 cents higher wasn’t going to make any difference in the long run. Then Aurelius published a weak short article yesterday to try to stem the rise. Nothing happened. Then he published another desperate one this morning. The rise paused for a half hour or so at about $16.90, and it took off again. It closed at $17.50. No guarantee as to what happens tomorrow, but I think the shorts can’t push it down any more and will start (have started?) to buy back.

Saul

22 Likes

One of the most important lessons I’ve internalized over my career is this – you don’t HAVE to make a yes/no decision on every stock. There are quite literally thousands of tickers from which to choose. Saying, “this one is too hard, I can’t quantify the risk/reward”, is in itself a decision. And often a prudent one. I honestly don’t get the obsession with this stock on this board.

This board has covered the various ‘warts’ on BOFI extensively, so I won’t list them here. What I will say is this: 1) that is a LARGE number of warts, and 2) I cannot think, over my 18 years in this business, of a single instance in which a company has been so vocal and aggressive towards short-sellers where the eventual outcome was a pleasant one for investors.

With regards to #1, I refer again to the first paragraph. There are any number of good investments out there, right now, that do not carry the sort of baggage that can potentially lead to an irrecoverable loss. Can anyone here say they have an advantage over the market in weighing these issues? I would wager the answer is no. I don’t care if book value is going up, and I don’t care if the short-term price action is encouraging. As investors, we are voting with our money to entrust the operators of the business with our capital. Do you trust these owners? Too much smoke – even if there is not raging fire, we can’t know that until it is too late. How many eyebrow-raising coincidences are too many?

On point #2, I acknowledge that many short sellers are obnoxious. But another thing I have learned is that many of the most brilliant investors I’ve met are aggressive short sellers. There are numerous stocks that for a variety of reasons are frequently shorted. There are also numerous stocks that are heavily shorted with good reason. In the case of BOFI, as I said before I cannot think of a single instance in which a company was so vocal, litigious, and aggressive against short sellers where the company ended up being successful in the long term. Do you want to entrust your capital to a management team that is wasting time getting angry over free research articles? I can’t picture Jamie Dimon getting lathered up in a conference call because a hedge fund published a bearish article about his company. Wouldn’t you rather invest in a company that is focused on running their business?

11 Likes

Bobloblaw,

I think you are missing the picture. It is risk/reward. Those of us who are long are thinking, “How on earth can this company be valued this way?”

While no one knows the outcome, longs believe this is tipped quite well in our favor. I’m willing to lose every red cent I have in BOFI. But I believe the chances of that are very slim.

As to your investing career, I would only point out that information has never been disseminated more quickly than today. 21 years ago, short sellers didn’t have near the audience of today.

Take care,
A.J.

4 Likes

Wouldn’t you rather invest in a company that is focused on running their business?

Look at their results and tell me they aren’t focused on their business.

What impressed me the most about yesterday’s conference call was the depth and breadth of their actual business. They went into extreme detail in regards to their loan book and it impressed me.

What also impressed me was the extra R&D they are spending for improving the technology of the company like the website and mobile applications.

A light blub went on in my head to see how the company was able to and will be able to continue to deliver growth. Their recent acquisitions with the leasing program and the H&R block deal gives me extra confidence in this.

Of course none of this matters if the company is doing something really illegal which as time has passed I am thinking this is less probable. Like Saul I was impressed by the prepared remarks in regards to the “ongoing litigation” and the lack of effect the two “short” seeking alpha articles had on the price.

Still nevertheless the company is a small bank which delivers incredible results consistently so there is still a level of risk, but at this valuation the reward/risk ratio is quite favorable.

Sincerely,
Charlie
Long BOFI

1 Like

What exactly does this illustrate and/or teach your acolytes?

What you call modified buy and hold looks a lot like momentum investing.

8 Likes

Thanks for the reply AJ - I’m always happy to hear the other side! With respect to your points:

<It is risk/reward. Those of us who are long are thinking, “How on earth can this company be valued this way?”>

I think we would both agree that the current share price is saying that a significant number of market participants are discounting BOFI earnings due to the high-risk nature of their strategy. I agree that it is a risk/reward evaluation, and my point was that the risk cannot be quantified on this company right now. It may be a great investment despite that risk, but my point was that the risk of BOFI is not like the risk of SWKS having a bad quarter or AMZN having a bad quarter. The downside case for BOFI is much more permanent, and sudden, and anybody buying the stock needs to be comfortable with that IMO.

You are also right that information travels much faster today. But my comment on companies attacking short sellers is just as true for old stories (Enron execs famously screaming and cursing at tough questions) as it is for new stories (just last week a Canadian company CEO (CXRX) was red-faced and yelling about his lawsuit against short sellers, and that story isn’t panning out so well as we speak). Perhaps I should have said it was less about short sellers in particular, but more about companies that react to critical analysis by getting angry instead of going about their business…

2 Likes

Bob,

Quite simply perhaps I’ll focus on your last statement.
I think they are going about their business fantastically!

Unless it is all a farse, which I highly doubt, their business is great. I don’t think that can be argued.

Thanks for the input and this is just an opinion.

AJ

Carver, Post 20718

No need for bitter, personal insults. Would you talk that way if you were face to face.

If you feel that injured by modified buy and hold discussions then maybe it would be better to lick your wounds and remain silent until you feel better.

Frank,

8 Likes

Saul,

I think you nailed it with this one, after reading the transcript of the earnings call I bought back in to BOFI myself.

Quick question:
what % portfolio allocation are you giving BOFI?

Regards
Justin

Hi Justin, It’s now about 5%, which is probably more than is wise.

I currently have 16 positions. 100% divided by 16 is 6.25%. So 6.25% is roughly an “average size” position for me, so my BOFI is a bit below an average position.

Saul

2 Likes

could you list your positions and per cent Saul?

You can find it in the monthly thread here:

http://discussion.fool.com/my-portfolio-at-the-end-of-july-32339…

2 Likes

But good, successful banking is supposed to be boring, not risky! And run by a real banker. Check out TMF articles on banking, and why Wells Fargo is a much better investment than Citi, which has a history and culture of risk-taking and crashes for over a century.

What I would like to find for a bank investment is a moderate sized, well-run, undervalued bank. Around the time of the S&L crisis, I made some money on a well-run S&L that was not doing the crazy things that led to the crisis.

You are also right that information travels much faster today. But my comment on companies attacking short sellers is just as true for old stories (Enron execs famously screaming and cursing at tough questions) as it is for new stories (just last week a Canadian company CEO (CXRX) was red-faced and yelling about his lawsuit against short sellers, and that story isn’t panning out so well as we speak). Perhaps I should have said it was less about short sellers in particular, but more about companies that react to critical analysis by getting angry instead of going about their business…

bobloblaw,

I assume you listened to the last earnings call or for that matter the last several earnings calls. I think it is quite a stretch to compare how BOFI CEO is reacting to the Enron execs yelling and cursing at tough questions. It sounded to me like they were the complete opposite. They are very calm stating facts and have good responses to everything thrown at them. BOFI is not yelling or cursing at anyone. They don’t even have an angry tone in their voice. If anything they to me at least sound very calm and controlled. Their retaliation against short sellers is them doing nothing more then defending themselves in the manner allowed within our legal system. Would you try to deny them that right? I don’t see anything wrong with that. I have yet to hear any yelling or cursing from BOFI execs what so ever. They don’t seem at all desperate as if they are hiding anything. If anything it seems they have been even more open and willing to share regarding the details of their business. I think it is a tough comparison to compare BOFI to Enron.

Best,
Soth

10 Likes

If anyone else is following Bofi I’d like to mention that in my post of 8/10 I was absolutely clear about what I was doing and why:

I acknowledged that I had previously said that I had no plans to buy or sell any BOFI, but pointed out that I had also said that no one should be surprised if I changed my mind.

Well earnings came around. The trajectory was obvious. Earnings and book value are just going up. Non-paying loans are trivial. Nothing has happened on all the shorts’ claims. In the conference call the CEO was quite convincing in his discussion of the lawsuits and short attacks. The stock opened up a dollar or so from $15.54, to which it had sunk. I decided this was it!

I enumerated the prices I had bought at the day before, (basically about every 5 to 8 cents from $16.59 to $17.07).

I also pointed out that I bought only at a higher price than the previous purchase because I wanted to make sure BOFI had finally shaken off the power of the shorts. I wasn’t looking for better value points. I was looking for worse “value” points (higher and higher prices). I wanted to make sure it was still moving up to new highs. I figured that the price was so low anyway, that buying 20 or 30 cents higher wasn’t going to make any difference in the long run. Then Aurelius published a weak short article the day after earnings to try to stem the rise. Nothing happened. Then he published another desperate one on the morning of my post. The rise paused for a half hour or so at about $16.90, and it took off again. It closed at $17.50. I made clear that there was no guarantee as to what would happen in the future, but said that I thought that the shorts can’t push it down any more, and will start (or have started?) to buy back and close their shorts.

Right now, today, it’s up another 5% today to $20.73, up another $3.23 or 18.5% from the close that day, up 25% from my first purchase and up 21% from my last, and up 33% from that bottom at $15.54 the day before earnings. I still give no guarantees as to the future weeks, but my thought is that an actual short squeeze is possible, although certainly not probably, and that a continuation of the price rise to a price more in tune with the financial results is likely (but certainly not guaranteed; who knows?)

Saul

13 Likes

Hi Saul,

I think your rational of testing this stock as you described, to see if the shorts have been neutralized was smart. So now we can let this company execute their business model. Last earnings were good. Let us see what the future holds.

I currently have about 6% position.

Thanks,
Frank

1 Like

But I also am aware that the lawsuit stuff could still come back and bite us.

1 Like

gettinsumcoffeee: I think your rational of testing this stock as you described, to see if the shorts have been neutralized was smart.

I’m not entirely sure what “neutralized” means but short interest in BOFI has not changed substantially in the past 10 months (unless something happened within the past few weeks). Most recent short interest:


Settlement Date	       Short Interest	    Avg Daily Share Volume	Days To Cover
   7/29/2016	         24,529,686	          1,076,474	           22.787068

Should a short squeeze occur, it could be a doozy.

Past year short interest in BOFI: http://www.nasdaq.com/symbol/bofi/short-interest#ixzz4IBpcWu…

3 Likes

I’m not entirely sure what “neutralized” means but short interest in BOFI has not changed substantially in the past 10 months (unless something happened within the past few weeks). Most recent short interest (7/29/2016):

Let’s see what the short interest is on 8/15/2016. BOFI reported earnings on 8/2/2016 so the latest data point does not include the run up after earnings to this point.

Sincerely,
Charlie

2 Likes