On Bofi

Investment Analysis Clubs Saul’s Investing Discussions
1

This is a repost of my post on the BOFI board. KC asked:

Did you listen to the conference call on the H&R Block approval? CEO spent significant minutes at the beginning of the call to comment on the NYT and bear blog. If you did hear it, did it give you more confidence?

I responded:

Hi KC, I listened to it and it gave me way, way, WAY, more confidence. I had previously reduced my position by a third with all this turmoil, but I bought back as much as I could afford yesterday after listening to the call. He was VERY convincing.
Saul

10 Likes
2

Gave me confidence, too. The question I asked was directed to Whitney who had 30 years banking experience related to the NYT issues. She was not impressed by the bull responses. I was wondering whether the OCC review on the H&R Block deal would have uncovered any compliance issues. Response was, not necessarily, understaffed, maybe too junior or inexperienced, etc., etc. So after I listened to the conference call I was asking her if she had more confidence now.
I had been more reactive than Saul, I had dumped 100%. I bought 1/3 back early in the week. After listening to the CC I was soooo anxious for the market to open. I bought all the shares back, and then added a bit more to put all the $'s back at the lower share price.
Now my problem is that the market is putting AMBA and SWKS on additional price discount and BOFI just passed AMBA on my conviction list and SWKS is right behind.
Cash is low but I raised some by selling some low beta stocks.

Patience, KC, patience

KC

3 Likes
3

Yes KC, I raised cash and bought some more back today. It wasn’t as low as the $108.60 I got yesterday, but averaged about $112.50. As I write, to my amazement, it’s up about $5.50 to $114.50, so I wasn’t the only one who was convinced.
Best, and don’t go too overboard,
Saul

1 Like
4

I fell asleep at the wheel . . .

With the Glass Door commentary about emails from BOFI’s CEO followed up with the Friendly Bear BS, my confidence was a bit shaken. I didn’t immediately sell. I recognized the bear attack for what it was, but there was some disturbing information - I mean it disturbed me because I don’t really know much about the banking business.

So I placed 10% trailing stop loss orders on my BOFI holdings.

I rarely use stop loss orders. They are great at generating tax events. In any case after reading Celan Bryant’s “Bullish View On BOFI” on SA my confidence in the company was pretty well restored (although I still think the CEO’s emails are way out of line). I was going to cancel those GTC stop-loss orders, but guess what? Yeah, I didn’t move quickly enough, they were triggered and I’m out of BOFI.

Suddenly my cash position was way bigger than usual (usual being under .5%). At first I thought I’d just sit on the cash. I plan to close my mortgage this year and I’ll need cash. Raising cash that I intend to permanently pull out of my portfolio is always difficult. I thought the decision’s been made.

But then with AMBA down due to an obvious over-reaction about their guidance I decided that sitting on cash when this bargain sits on the table was a dumb idea, so I increased my AMBA holdings by about 50% only to witness it take another 10+% dive (holding true to my exercise of incredibly bad timing).

I still have a pretty large cash position. This time I will just sit on it until I I’m ready to pay off my mortgage around year end.

3 Likes
5

Yeah, I didn’t move quickly enough, they were triggered and I’m out of BOFI.

brittlerock, setting aside any opinion on BOFI or AMBA or the prudence of holding cash: just because you sold out of BOFI (inadvertently to boot) doesn’t mean you can’t buy it back, even at a higher price if that’s the cost of the mistake. The frictional costs don’t matter, as frustrating as they can be: what matters is making your portfolio look the way you want it to look.

If selling BOFI was a mistake (really, setting up the stop order), then it sounds like you’re possibly letting this mistake do even further damage now by passively going along with it instead of fixing it. That is the real danger of mistakes, IMHO, and why I mentioned in an earlier post that shifting capital can be so risky if we aren’t willing to set aside all the human biases and fix mistakes when they become apparent. Saul is very good at fixing his mistakes, and I definitely think that’s a critical element of his long-term success.

Again, I’m not saying you should buy back BOFI or reinvest that cash: only you know what you believe your optimal portfolio looks like right now given your personal situation. But we’re very, very good at justifying our current positions to ourselves, even when they’re the result of an admitted mistake and not what we otherwise would have explicitly chosen.

Neil

26 Likes
6

So would you use stop orders again?

I was bit once by Netfix when I first got here (never bought NFLX back), but I learned from that.

However, I think that setting lowball limit orders for buying may be interesting…

Overall though if you want the stock buy it because playing games with it can be frustrating, especially if you end up niggling over 1% of your purchase price, missing out and then wasting time going over it again when you could just get the job done with a little more cash the first time. :slight_smile:

Karen
–>not using stop loss orders, ever. It’s too easy to get taken out on Mr. Market’s wild rides.

7

brittlerock, setting aside any opinion on BOFI or AMBA or the prudence of holding cash: just because you sold out of BOFI (inadvertently to boot) doesn’t mean you can’t buy it back, even at a higher price if that’s the cost of the mistake. The frictional costs don’t matter, as frustrating as they can be: what matters is making your portfolio look the way you want it to look. If selling BOFI was a mistake (really, setting up the stop order), then it sounds like you’re possibly letting this mistake do even further damage now by passively going along with it instead of fixing it.

Hi Brittlerock, for what it’s worth, I agree 100% with Neil on this. You don’t even have to think of it as a mistake (altho I think stop loss orders are mistakes). The issue is that you did what you thought was the best decision at the time (I sold some Bofi too). Now there is new information (the conference call from the H&R Block Acquisition) which makes it quite clear that we were intentionally misled in our original conclusions by the shorts, and that I at least should get back into a fuller position in Bofi. I bought back yesterday and today. I happened to buy a couple of dollars below where I sold, but that was just incidental. If my buy-back price had been a couple of dollars above where I sold I wouldn’t have cared, probably would hardly have noticed. That’s life. That’s the price at which the stock I want to be in is selling now. A couple of dollars on a stock over $100 is not much of a big deal anyway, compared to being where I want to be.
Best,

Saul

26 Likes
8

So would you use stop orders again?

I was bit once by Netfix when I first got here (never bought NFLX back), but I learned from that.

Hi Karen,

The answer for me is yes, but only under one circumstance. If I own a market darling stock that has become way over valued and I have decided to sell, I think it is a good idea to set a stop loss and see what the market gives you. Just depending on how irrationally exuberant everything is at the time, that may make a significant difference in your sell price.

Just don’t set that stop too tight. Maybe -15%.

JMHO

Jeb
Long BOFI
See all my holdings here: http://my.fool.com/profile/TMFJebbo/info.aspx

1 Like
9

Saul,

Now there is new information (the conference call from the H&R Block Acquisition) which makes it quite clear that we were intentionally misled in our original conclusions by the shorts

This is so common that I almost chuckle now at short attacks. I mostly read them for hard data that contradicts my investment thesis, but mostly they weave a tale of rumor, hints, and suspicions designed to create a lingering odor of doubt. This is especially true of articles by the likes of “Gotham Research” and “Citron Research” on Seeking Anxiety. I still maintain that “Gotham Research” is a couple of twenty-somethings with a taste for Batman movies living in their mom’s basement.

So, lacking any hard facts, and as long as I am comfortable in my own investment thesis and my time-frame is long enough, I will ride out the short attack (and maybe buy more on the inevitable dip).

Tiptree, Fool One guide and investing acolyte

5 Likes
10

A couple of my observations on short attacks. If they publish on Seeking Alpha, I almost always exercise bias in favor of the company. This has occurred on BOFI, STON, AFSI, and others. The likes of Gotham and others of that ilk are also usually suspect as to timing and content, citing issues that I usually find manufactured and suspect.

In fact, I’m trying to recall short attacks on Seeking Alpha regarding companies in the MF universe that I follow that were anything more than fear mongering…at least in the past five or so years.

I don’t wish to become complacent, and I suppose that sometime some of these may actually be based on facts. I know of other short “specialists” that are far more articulate and believable than the likes that SA allows.

I don’t think my glasses are rose-colored, but I’m also interested in the experience of others in this area.

Gary
(enjoying his long BOFI and the 115 Oct Put he wrote on 8/31)

2 Likes
11

I don’t have much to add. But, if it helps, I thought this was a good article on BOFI by TMF’s Joe Tenebruso:

At nearly 3.4 times book value, I can understand why short-sellers are making the claim that the Internet-banking pioneer’s shares are relatively expensive, with dominant global banks like Wells Fargo and JPMorgan Chase currently trading at price-to-book ratios of 1.6 and 1.1, respectively. But while these banking titans have massive scale advantages relative to the far smaller BofI, they have nowhere near its level of growth. During the last five years, JPMorgan and Wells Fargo have grown their earnings at an annualized rate of about 7% and 14%, respectively. During that same period, BofI has delivered annualized EPS growth of more than 28%.

BofI is also significantly more profitable; its return on assets is 1.62% compared to 0.91% for JPMorgan, and 1.41% for Wells Fargo. And BofI’s return on equity is also substantially higher, at 18.29% versus JPMorgan’s 9.70% and Wells Fargo’s 12.58%. What’s more, BofI’s best-in-class profitability should continue to improve as the bank scales its operations.

And BofI has a long growth runway still ahead. The company has a tiny (by bank standards) $1.7 billion dollar market cap in a trillion-dollar industry in which multiple banks’ capitalizations exceed $70 billion…

You can read the whole thing here: http://www.fool.com/investing/general/2015/09/04/2-stocks-wa…

  • Matt
3 Likes
12

I still maintain that “Gotham Research” is a couple of twenty-somethings with a taste for Batman movies living in their mom’s basement.

They may have started in their mom’s basement, but I doubt they still live there. Several of their (presumed) trades have been extremely profitable.

Fletch

1 Like
13

Wow! Thank you all for the response to my post. I wasn’t so much looking for a reply but many folks responded. I kind of feel obligated to respond to the replies.

First off, would I use stop loss orders again? Let me use an analogy. I work with wood a lot, ranging from framing carpentry to guitar and violin building and repair. I own a table saw, 12" and 15" band saws, a reciprocating saw, a circular saw, a jig saw, a miter saw, a scroll saw, a rotary tool with a saw attachment, two chain saws and an assortment of hand saws. Each of these tools has a purpose. I use some of them a lot more frequently than others. I look at order types the same way. They’re tools. As I noted, I rarely use stop loss orders but of course I’d use it again if I thought the circumstances were appropriate.

Now for the question about buying back BOFI in that I sort of sold it inadvertently. I am completely satisfied that there’s nothing to the bear case. But, there’s still Mr. Garrabrants’ emails. This really gives me pause. I’m very troubled by a CEO who sends emails to an all employee distribution list on religious and political topics time stamped in the middle of the night. It strikes me as so bizarre and inappropriate I can’t quite reconcile this with him being in the position of running a company I’ve invested in.

It has nothing to do with his particular beliefs or political affiliation. I could care less if Mr. Garrabrants believes the universe was created from the excrement of a giant turtle (I think there’s a First People who hold to a view something like this). And I truly don’t care if he supports someone who would turn the presidency into a reality TV show if elected. That’s his belief, opinion and right. But to foist it (whatever it may be) upon a captive audience of subordinates is, IMO, really weird, inappropriate and immature.

This is the kind of behavior you might expect from a 9th grade boy, or a guy who has no understanding or respect for personal boundaries, or a narcissist, or an alcoholic. It’s just way, way far out of line for a CEO of $1.75B company. I’m really not too sure I want to put my faith and trust in this guy.

BOFI has been a good investment. I sold at a considerable profit. Then I quickly put some of the money back to work with AMBA, a high confidence investment for me even though the stock has given up over 20% in four consecutive days of loss.

And as I think I mentioned earlier, I’m committed to cashing out my mortgage this year. This is not an investment decision, it’s a life decision that will give my wife and I considerable peace of mind. So I’ll need a pretty large chunk of cash this year. It’s important that I do it this year because I have a special tax advantage from a large charitable gift from my mother’s estate. I was able to average it out over 5 years, this is the last year of my special tax status. Nevertheless, I do have some cash in an Roth IRA account that I won’t draw from. I’m just not sure I want to put it back into BOFI. I’m undecided about what to do.

14 Likes
14

Not at all sure that this is the case here but great CEO are often a little on the weird side. At least they seem so to ordinary people.

.See Steve Jobs among many others.

To do differently you have to think differently.

Hopefully they can compartmentalize their views. The best ones can be very demanding, have their own view of what they want done, and are intolerant of anybody slowing down that goal. Often they are not very nice people.

While it sounds like he wouldn’t get very far in a corporate structure like Wells Fargo, these idiosyncrasies may be less important at a small company trying to do things differently.

OTOH, maybe he really is out of control.

2 Likes
15

. But, there’s still Mr. Garrabrants’ emails. This really gives me pause. I’m very troubled by a CEO who sends emails to an all employee distribution list on religious and political topics time stamped in the middle of the night. It strikes me as so bizarre and inappropriate I can’t quite reconcile this with him being in the position of running a company I’ve invested in.

Does anyone else wonder if this is even true? Could just be someone in or outside the company with an axe to grind. It is just so over the top for me.

8 Likes
16

. But, there’s still Mr. Garrabrants’ emails. This really gives me pause. I’m very troubled by a CEO who sends emails to an all employee distribution list on religious and political topics time stamped in the middle of the night. It strikes me as so bizarre and inappropriate I can’t quite reconcile this with him being in the position of running a company I’ve invested in.

Does anyone else wonder if this is even true? Could just be someone in or outside the company with an axe to grind. It is just so over the top for me.

I’ve had the same question. One poster on Glassdoor doesn’t prove anything. (I’m not even sure how Glassdoor can be sure that people who post are really from the company. It could have been posted by a short-seller, for all I know.

Saul

11 Likes
17

I’m struggling with why anyone would care what time of day the CEO sent the emails. It seems about as important as which font they used. It makes me question the judgment of the original author a little bit.

4 Likes
18

I’m struggling with why anyone would care what time of day the CEO sent the emails.

If management is sending you emails all hours of the day, asking you to do things, it sets up an environment where employees feel like they’re working 24 hours a day. That’s not a pleasant work environment.

-Mark
… says someone who works for just such a company

3 Likes
19

If management is sending you emails all hours of the day, asking you to do things, it sets up an environment where employees feel like they’re working 24 hours a day. That’s not a pleasant work environment.

That sounds like a rough situation. I know some people might not have this luxury though there is one rule I have for myself. When I am working for someone else I put in my time. When I come home work emails do not get checked until I am back at my desk the next morning. The time at home is time for me and life is too short to let someone steal that away in order to make them richer. That might not fit in all situations but not everyone is a good fit for every situation. Some people prefer that environment and if that is so I wish them the best.

3 Likes
20

brittlerock wrote:

But, there’s still Mr. Garrabrants’ emails. This really gives me pause. I’m very troubled by a CEO who sends emails to an all employee distribution list on religious and political topics time stamped in the middle of the night. It strikes me as so bizarre and inappropriate

Where was it ever stated that the emails were of religious and political topics? From what I recall, the Glassdoor complained mention inappropriate emails coming at all hours of the day and a poster assumed that inappropriate meant they were religious and political.

Maybe they are but I don’t recall it was ever stated what the emails were about.