P2P Forum

Lending Club Discussion => Investors - LC => Topic started by: Skeptical on September 04, 2017, 11:00:00 PM

Title: Throwing in the Towel
Post by: Skeptical on September 04, 2017, 11:00:00 PM
I started buying notes in April. My position is nominal, and I have made the decision buying notes is not for me. Although I have decades of investing experience, I don't know how to allocate these notes. Very early I had a note default from the start. The borrower never paid one penny from day one. This smells like a case of fraud to me. My returns were pummeled.

Also, these notes function more like a bond because my upside is capped. To be honest, I feel more comfortable buying stocks because if a stock goes down in value, at least it has the possibility of going up. With these notes I am lost. Why torture myself trying to make this work? So I have officially thrown in the towel, and I will concentrate on what I feel comfortable with and what I have been doing successfully. It is important to be honest about one's limitations.

A quote by Aristotle comes to mind: "The aim of the wise is not to secure pleasure, but to avoid pain."

To all of those who continue buying notes, I wish you the best. Buying notes is not for me.
Title: Throwing in the Towel
Post by: rawraw on September 05, 2017, 11:00:00 PM
Sorry to see you go. The behavioral aspect of investing is more important than the numbers. I hope when you talk about buying stocks, you mean broad based indexes.  Good luck!
Title: Throwing in the Towel
Post by: lascott on September 05, 2017, 11:00:00 PM
from: Skeptical on September 05, 2017, 10:10:41 AM
Title: Throwing in the Towel
Post by: TravelingPennies on September 11, 2017, 11:00:00 PM
@rawraw

Since I have thrown in the towel, I have had two notes to go into the first grace period. I don't get it. Out of the notes I own, 12% have gone into grace periods and one never paid a single penny! I chose notes with FICO scores above 723. Half of borrowers have scores above 723 and half below 723. This was my way of putting the odds in my favor. Needless to say, either my assumption was flawed or there is a lot of fraud out there. With the recent release of the LC changes, it looks like I have timed my exit perfectly. I believe the "easy" money has been made.

I have been investing for decades and I currently hold ETFs and individual stocks. I prefer strategies because growth and value go in and out of favor. Last year my penny stock portfolio returned 46%. This year my Dogs of the Dow and Ivy Portfolio are doing nicely. Personally the less I trade, the better my returns. I rebalance my Dogs of the Dow portfolio once a year and my Ivy Portfolio every quarter. With my penny stock portfolio, I practice risk management and my portfolio is up 62% since February 2015.

Investing takes time, discipline, a plan and the practice of risk management. This adds to my confidence. When I invest in the LC notes, I am a fish out of water.
Title: Throwing in the Towel
Post by: TravelingPennies on September 11, 2017, 11:00:00 PM
@lascott

Back in the doldrums of 2002, I began putting money for my grand children in a vanilla S&P 500 Index fund. I have never regretted it. This is my way of building intergenerational wealth for them.
Title: Throwing in the Towel
Post by: TravelingPennies on September 11, 2017, 11:00:00 PM
from: Skeptical on September 12, 2017, 10:59:32 AM
Title: Throwing in the Towel
Post by: Peter on September 11, 2017, 11:00:00 PM
from: lascott on September 12, 2017, 12:42:52 PM
Title: Throwing in the Towel
Post by: TravelingPennies on September 11, 2017, 11:00:00 PM
Aside:
from: nonattender on September 12, 2017, 05:53:43 PM
Title: Throwing in the Towel
Post by: TravelingPennies on September 12, 2017, 11:00:00 PM
from: lascott on September 12, 2017, 09:43:34 PM
Title: Throwing in the Towel
Post by: Data Junkie on September 18, 2017, 11:00:00 PM
I hear you, Skeptical.  Before I learned about backtesting and filtering, I started off with the automated investing.  Even though I went with the most conservative setting, I am just inundated with Lates and Defaults.  Since then I've learned a lot and wrote my own backtesting and analysis codes, but that initial investment I don't think I can overcome.  The only reason I haven't bailed is to see if my method works.

I started with an initial investment of 200 loans.  Of the 16 Defaults in my portfolio, 13 were with automated investing.  Of the 9 Late loans, 7 were with automated investing.  It is very discouraging because my returns are just awful.

It's funny-- folks bemoan early payoffs.  I'm so happy they paid off and didn't default!
Title: Throwing in the Towel
Post by: TravelingPennies on September 18, 2017, 11:00:00 PM
@Data Junkie

What drew me to explore P2P investing was my attempt to diversify my assets. I started slowly and cautiously. Read about this type of investing. Attempted to allocate these notes in a sane manner and from the start everything imploded. The average FICO score is 723, so I assumed anything above that would likely have a chance to mature. Wrong! FICO scores seem to be meaningless.

A lot of the guys on the forum have graphs to try to explain what went wrong, what is happening, etc.. The answer is not to be found in a graph. It is much simpler. Paying a debt to your debtor is a moral obligation as well has a financial obligation. How does one quantify morality on a graph? It's impossible. You are making a bet that the debtor will honor his/her obligation. Many will not. When a person who takes out a loan doesn't make one penny of payment, no one can tell me that this debtor's intention was clear-take the money and run. No moral obligation to pay back, to honor or even to acknowledge that someone put his/her money on the line to help this person. This person boldly took the money and never paid a penny. This is stealing and fraud.

LC can tweak, quantify, run back tests, analyze, reanalyze, etc. It is not going to matter. It comes down to the character of the person making the loan and their willingness to honor the obligation made between lender and borrower.

I'm letting my remaining notes mature. I feel much better after throwing in the towel. I can spend my time and money where I have more confidence and have succeeded in the past.


Title: Throwing in the Towel
Post by: anabio on September 19, 2017, 11:00:00 PM
from: Skeptical on September 19, 2017, 12:59:05 PM
Title: Throwing in the Towel
Post by: TravelingPennies on September 19, 2017, 11:00:00 PM
I, too, had one of those "immediate default" notes and it fueled my misanthropic inclination.  I decided to explore those a little further, and identified many common characteristics, but the aggregate of those characteristics were not revealing (as you might expect).  There is, as Skeptical said, no metric for morality!

I guess another reason I haven't given up completely is that most loans do not default (but a significant number do).  For example, of completed B&C loans, approx 16% defaulted, or about 1 in 6.  This is not my area of expertise by any means, but that seems really high if that includes a significant number of average joes and jills.  My goal is, can I identify with confidence those that will not default?  If I can do that then maybe I can move on to choosing loans with higher interest rates.  Of late, I am gunshy and leaning towards A's from the ones my code is identifying.

This has been another example of my jumping in the pool before learning to swim.  Fortunately it was on the shallow end.  But it has also been a good excuse to indulge my coding hobby, and I've learned a lot about reading credit reports which will help me, I think, with my newest hobby, a rental property.

Thanks. Skeptical, for sharing your opinion and experience.
Title: Throwing in the Towel
Post by: TravelingPennies on September 19, 2017, 11:00:00 PM
@anabio

You are right. Sometimes circumstances are beyond a debtor's control. That is part of the uncertainty and the risk. And I have no problem with that. I would call a person who pays 12 months on loan and then defaults-a normal deviation. Now someone who fails to pay one penny, I would call that an abnormal deviation. There is a big difference between the two and if I purchased a note that defaulted after 12 months, that would make sense to me.

My wife and I have borrowed money in the past. But with the intention of paying it back. We would never borrow more than we could rightfully pay back. Maybe it is a mistake for me to think that everyone who takes out a loan on LC views his/her debt this way. Obviously they do not.

This is a new asset class. P2P lending does not have enough history to determine how these loans will perform under varying economic circumstances. The key is to pick the notes that will not default and avoid those that will default. How? Is there any reasonable way to allocate these notes? I'm not sure. With stocks or bonds, this is much easier. I invest in stocks some investors would not touch. But I have a plan and practice risk management. I don't know how to practice risk management with these notes. Buy only A rated notes? Your return would make this strategy trivial.

Circumstances happen to people beyond their control. I'm not a cold-hearted person. But someone never paying one penny on a loan tells me to be careful, cautious and reconsider if this asset class is for me.
Title: Throwing in the Towel
Post by: kib on October 15, 2017, 11:00:00 PM
I have to admit, I place enormous faith in FICO scores.  Maybe this is naive but I feel that someone with a FICO of 800+ worked for and earned that, and is a lot less likely to game the system and trash that kind of a score unless they're planning suicide or a run to Canada.  It's not necessarily that high scorers are more moral than other people, but they have something significant to lose with gaming shenanigans. So far I haven't been burned on any new loans to the 800 club.  (Have to admit I'm still considering leaving, as these more reliable loans net about 4% after fees and I can do better with an insured muni bond with No Work Whatsoever and the possibility of a better return than the stated rate if I time it well.  oh yeah, and almost no tax liability either.  Jeez ... why on earth am I here?
Title: Throwing in the Towel
Post by: FILTER on October 20, 2017, 11:00:00 PM
Quote"> from: anabio on September 20, 2017, 10:12:01 AM
Title: Throwing in the Towel
Post by: TravelingPennies on October 20, 2017, 11:00:00 PM
Quote"> from: kib on October 16, 2017, 01:54:59 PM
Title: Throwing in the Towel
Post by: SLCPaladin on October 21, 2017, 11:00:00 PM
Quote"> from: kib on October 16, 2017, 01:54:59 PM
Title: Throwing in the Towel
Post by: dbsb3233 on October 23, 2017, 11:00:00 PM
My experiences mirror many mentioned here.  I'm now using S&P500 Index Funds for nearly all of most stock holdings.  I used to try to juggle many funds in many accounts across various sectors trying to beat the market averages, but I usually ended up with about an equal number of hits vs misses.  Ultimately I came to the conclusion that it wasn't worth the effort.  Much simpler just to consolidate all the stock holdings into S&P500 funds with low fees (like Vanguard's). 

That's about 60% of my portfolio.  The other 40% I've poured into LC, Prosper, and Peer Street, with the intent of that being a less volatile hedge to the stock market.  While the hedge strategy itself remains solid, the returns at LC have not.  I started liquidating my non-IRA LC account in January, rolling those proceeds to Peer Street.  But it will take 3 years to complete. 

I still have a big chunk in a LC IRA ($260k) that's doing poorly.  The 3-year timeline to liquidate notes combined with the many-months process to transfer IRA funds makes it really hard to cut and run.  I turn 59 1/2 next May though so I may just start routine withdrawals instead to convert funds to non-IRA where they're easier to move around, for part of it anyway (depending on my tax situation each year).

My Prosper account seems to be holding up with reasonable returns though (~6-7%).  Same with Peer Street. 

LC has turned out to be a major disappointment.  I've still made money overall but the returns have been so poor that I'm well short of what alternate investments would have produced.  Ironically, I liked LC much better than PR initially.  Now it's PR that I'm happy with (relatively) and LC that sucks.