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Author Topic: I thought the LC IPO was a good thing...boy was I wrong

a
  • Posts: 46
I thought the LC IPO was a good thing...boy was I wrong
OP: September 10, 2016, 11:00:00 PM
I watched LC for over a year before I started investing because I wanted to wait until the IPO. The reason for the IPO wish was because I thought that LC would be less likely to go bankrupt/out of business if it was public. I still think that was a correct concept.

I now believe the IPO was not as good as I thought. I will provide a chart later that shows the detail but I have encountered "way more" defaults than LC estimated I would have when I first invested with them. The info below shows this.

Loan        LC's charge      My charge off
Grade      off rate             rate
        As of:mar 2014        Sept 11 2016
A             1.63%               6.31%
B             3.57%               7.23%
C             5.22%             13.99%

To be honest I no longer remember where I got that LC expected rate 3 years ago but I got it from somewhere on LC's web site and wrote it down for future use.

That begs the question: Why is my charge off rate so much higher than what LC estimated when I first started investing?

I guess some of you will say I had a "crappy" filter and invested in all the wrong notes. But that is not the case. For 84% of my note purchases I used LC's automated investing tool and went conservative: 40% A, 40% B, 20% C. No other filter except 36 month term. I did this because I assumed LC's expected charge off rate was based upon the "totality" of their loans in each rate category. So I assumed that is what I would get. If you use filters correctly you should get lower charge offs, but then there would be fewer loans available so money would sit idle for a long time.I was happy with the average so I did not filter. I only invested my "play money" and was content to invest and watch before investing my "non play money". I never got into the non play money pot because I turned bearish on LC as I started seeing how it really played out.

In March, April, May 2014 I invested $30,000. After that point I just re-invested the proceeds. When I started re-investing I used filters and mainly invested in C loans with some A/B. My filter was simple:

Only loans under $10,000, 3 years job, 1 or less inquiry, $24,000+ income, 3 year term, no California (I know...and I LIVE in CA).

I think the reason for my higher defaults is because when LC went public they HAD to show they would be profitable for their shareholders. That meant they HAD to increase their loan originations. I think LC loosened their loan rules in order to increase the number of loans and did not adjust their estimated default rates (until recently, supposedly...unfortunately for me). That is now playing out, causing a higher than estimated default rate.

I would REALLY be interested if someone who invested a couple years before the IPO and continued investing after the IPO would produce a chart like mine below. It would be interesting to see how the default rates compared pre IPO and after IPO.
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s
  • Posts: 78
I thought the LC IPO was a good thing...boy was I wrong
#1: September 10, 2016, 11:00:00 PM
Past performance is not necessarily indicative of future results.
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r
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  • Posts: 568
I thought the LC IPO was a good thing...boy was I wrong
#4: September 10, 2016, 11:00:00 PM
6% on A?  Are you sure the math is correct?  Looks way too high.
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T
  • Posts: 6588
I thought the LC IPO was a good thing...boy was I wrong
#9: September 11, 2016, 11:00:00 PM
Those numbers look much more what I'd expect. The reason we use annual numbers is because interest rates are an annual number as well. And monthly amortization makes not all defaults equal in terms of loss

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S
  • Posts: 91
I thought the LC IPO was a good thing...boy was I wrong
#10: September 11, 2016, 11:00:00 PM
Quote
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R
  • Posts: 484
I thought the LC IPO was a good thing...boy was I wrong
#12: September 11, 2016, 11:00:00 PM
Yeah, I'll second that up vote.
The 40,000 generations of humans that preceded us left us with a lot of emotional baggage that is a real hazard to our long term financial health.
We are often our own worst enemies as empirical studies have shown time and time again. Why is so simple so hard?
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