The last few months there has been a lot of drama regarding the BOFI short attack. I still remember last summer right before the attack started many people were very positive about BOFI. Some of us myself included had quite substantial positions into the double digit percentages.
What if one of your other holdings has a similar short attack? Would you sell out or hold strong? I am sure a few remember lumber liquidators. What if it was any other popular stock around here maybe SKX, INFN, SWKS, LGIH, SBNY, INBK (another yet smaller internet bank probably less transparent then BOFI)? Many of these stocks I see many posts and lots of interest. What if the next big short attack is one of these? In the case of INBK I don’t think it is likely to be attacked given its small size and such though if it was you might not be able to get out due to lack of volume. Maybe it is SKX and the stock drops 30% in one day. You might not be able to get out fast enough to preserve any gains. Honestly if I thought hard enough I could probably come up with a short story for why it “might” drop for any stock on the market no matter the industry.
This isn’t my first short attack and will not be my last. It is actually a pretty common occurrence sadly in the investing world. There were quite a few recent ones pointed out on the paid BOFI boards recently.
I only ask because this is a real issue which many investors are faced with each year on many different stocks. There is no right or wrong answer I am just curious how others would answer and react. I also just wanted to plant this possibility in the minds of those who might not think it will happen to their stocks.
A year or two ago, I would probably have said something like, “It depends on the overall conviction level in company XYZ.”
Today, given how seemingly easy it is to manipulate stock prices from the outside (activist investors, hedge funds, Seeking Alpha articles, Twitter, etc.), sometimes with no basis in truth or fact, and often based on a rumor or a supposition… I think I have to say, “It depends…”
The rest of that sentence is unclear, and to me it has to be judged based on merits, coupled with the probability that everyone else will believe it or be swayed by it enough to act. In other words, it matters a bit less than it did previously what I think/observe/calculate than it does what the rest of the market will do/think/act upon.
That’s unfortunate, but it’s kind of where I sit, having been burned by a few short attacks along the way. Some I bailed on, fully or partially (and often at a loss), and some I’m still riding out. Which I guess is an overall non-answer to your question, if you get right down to it.
TL;DR: My own “high-conviction” stock is probably going to be worth less (or outright worthless) if I’m the only one left with conviction. And since this is an open market, you can’t put your head in the sand and be “high-conviction” exclusively, every time.
I don’t think you need to worry in this regard about SKX, SWKS or INFN as their strong institutional holdings would strongly resist such an attack. IMO, if LGIH were to have a significantly upward move, it would be a candidate for this type of short attack.
That said, the above-mentioned receive short attacks all the time, IMO,just not the type that BOFI has received. A case in point could be the publication of the Lightreading article that spawned the market malaise with INFN over the ATT-Inphi demonstration.
Thanks for the response. The stocks I put out there were just hypothetical examples. I could have used any tickers for the point I was trying to make. Maybe I didn’t do the best of job presenting it. Writing has never been my area of strength.
I agree with you SKX is not a stock I would worry about a short attack in the near future. Though if I remember my SKX history right they did go through quite a rough time a few years back with some shape up shoes or something like that. Though I will also counter that I have been following BOFI over 5 years and last summer I never in my wildest dreams would have guessed we would have the short attack we had. We would get a short article every so often but the market would just shrug it off moving on with our lives rather quickly.
I don’t follow SWKS or INFN at all so I can’t comment on those. I was just using stocks talked about on these boards to try to make the point any stock is at risk of a short attack no matter how safe it may feel. It is just something that has been running through my mind recently. What if LGIH was hit with a short attack? What would I do? Would I sell out or would I stick with it? If I sold out with what I felt was no factual basis would I do that for every stock that had a similar attack? What if these short sellers start being so successful they attack more often on more stocks? Would I continue to sell out? If I kept selling out based on fear with no fundamental basis what is the point of even investing based on fundamentals in the first place? When times get tough and we forget the fundamentals why do we even bother?
I was just trying to step back from BOFI specifically and look at hypothetically what is the correct response to a short attack. Just as a previous response states I think it truly depends on an individuals life situation and the specifics of the company/attack.