Author Topic: Next Recession ... Keep Buying/Hold/Sell?  (Read 7838 times)

GS

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Next Recession ... Keep Buying/Hold/Sell?
« on: May 01, 2013, 02:38:33 PM »
I'm curious if anyone has a plan, or other thoughts, on how to handle the next time the economy takes a tumble?  Will you hold your notes?  Sell only your high interest (risky) notes?  Sell them all?  Keep buying, same a usual?

I invest mostly in A & B notes, so I'm thinking of keeping them all.  I think it's important to have a plan. 

 

yaoyao

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #1 on: May 01, 2013, 04:21:48 PM »
I would sell the trouble notes, slow down buying new notes and hold the performing notes.

rawraw

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #2 on: May 01, 2013, 04:24:14 PM »
This is the reason I take on less portfolio risk (as judged by credit grade/FICO) than most here.  I want exposure to the yields, but use the higher credit cards to reduce volatility.  We don't know yet, and I'm not a betting man, but I'd still wager that A/B loans will fare much better and have less correlation with an economic downturn than D/E/F loans.

I would consider off loading some DEF notes based on DTI Levels and FICO trends. But I wouldn't touch my others.

Zach

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #3 on: May 01, 2013, 05:19:43 PM »
This is the reason I take on less portfolio risk (as judged by credit grade/FICO) than most here.  I want exposure to the yields, but use the higher credit cards to reduce volatility.  We don't know yet, and I'm not a betting man, but I'd still wager that A/B loans will fare much better and have less correlation with an economic downturn than D/E/F loans.

I would consider off loading some DEF notes based on DTI Levels and FICO trends. But I wouldn't touch my others.

What's your portfolio composition by credit grade with LC? Your IRR from IR would indicate to me that you must be in some higher risk notes - doubtful those returns could be acheived with A/B/C notes.

Fred

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #4 on: May 01, 2013, 06:03:41 PM »
I'd buy Short Bond ETF on high-yield bonds to hedge my P2P holding.  :)

rawraw

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #5 on: May 01, 2013, 06:52:24 PM »
This is the reason I take on less portfolio risk (as judged by credit grade/FICO) than most here.  I want exposure to the yields, but use the higher credit cards to reduce volatility.  We don't know yet, and I'm not a betting man, but I'd still wager that A/B loans will fare much better and have less correlation with an economic downturn than D/E/F loans.

I would consider off loading some DEF notes based on DTI Levels and FICO trends. But I wouldn't touch my others.

What's your portfolio composition by credit grade with LC? Your IRR from IR would indicate to me that you must be in some higher risk notes - doubtful those returns could be acheived with A/B/C notes.
I honestly don't know why it puts my IRR so high.  I put in all my bank transactions, thinking the lack of them early on was making it too high.  But it didn't move it much -- I pay closer attention to NSR's ROI

My current composition is skewed based on trying Bryce's P2P-Picks (although I average it down by using his safe picker as well).  This was my composition roughly before all that:



The above is from January 2013.  I'm currently at this, although the notes haven't started paying yet:





[attachment deleted by admin]
« Last Edit: May 01, 2013, 06:57:21 PM by rawraw »

edward

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #6 on: May 01, 2013, 08:01:52 PM »
rawraw,
how exactly do you insert that image into here?

Zach

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #7 on: May 01, 2013, 09:36:09 PM »
rawraw,
how exactly do you insert that image into here?

In order to insert a picture on this forum as opposed to just attaching it, you have to have the photo accessible via a direct link. For that photo he used photobucket - but you can use a variety of photo sharing services out there.

AnilG

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #8 on: May 03, 2013, 01:49:29 AM »
Look at the data from 2008 for Lending Club/Prosper and for Consumer Lending to get the idea what may happen next time.

What I learnt from 2008 is that when everyone is running away, stay put and then start buying. When economy tumbles, everybody will try to sell, there will not be enough buyers, inventory and discounts on secondary market will be pretty high. As Feds most probably will reduce the interest rates very low, the interest rates on new notes will be lower.

When economy tumbles, I plan to reduce the amount I invest typically, stop buying new notes, start buying high quality notes at deep discounts from secondary market.

I'm curious if anyone has a plan, or other thoughts, on how to handle the next time the economy takes a tumble?  Will you hold your notes?  Sell only your high interest (risky) notes?  Sell them all?  Keep buying, same a usual?

I invest mostly in A & B notes, so I'm thinking of keeping them all.  I think it's important to have a plan. 

 
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edward

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #9 on: May 03, 2013, 08:30:42 PM »
From Forbes (March, 2012):

http://www.forbes.com/sites/marcprosser/2012/03/28/debt-that-pays-a-25-interest-rate-become-the-credit-card-company/

In an interview with the CEO of Lending Club, Renaud Laplanche, I asked what would happen to charge-offs and returns if the US economy went deeper into a recession. According to his models, he thinks the two highest grades of loans (the lowest yielding loans) would be relatively unaffected. The charge-off rate on the highest quality loans would rise from 1.00% to 1.3%, producing an annual return in the 6-8% range. On the other hand, he could see charge-offs on the two lowest grades increasing greatly. After accounting for the increase in charge offs,  the rate of return could be around 3 or 4%. If unemployment heads back over 9%, according to Mr. Laplanche’s projections, the higher rated and lower yielding loans would still provide an excellent return.  The lower rated but higher yielding loans would still produce a positive return, but returns would fall substantially from their current levels. Throughout my interview with Mr. Laplanche, he consistently directed the conversation to the less risky loans / lower yielding loans. He wanted me to recognize that Lending Club was for serious investors rather than those attracted to double digit yields.

rawraw

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #10 on: May 04, 2013, 01:42:41 PM »
Yea, my point exactly.  A 9 percent 'stable' return is much better than a 12 percent 'violatile' return.

berniemadeoff

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #11 on: May 04, 2013, 02:47:10 PM »
I'm fairly bullish that a gradual recovery will take place in the US, so my opinions are clearly biased. That said, I don't think we will likely see a recession of the magnitude we just had in 2008-09.  It's kinda like having a 100 year flood every 10 years, the probabilities are small.  Anyways, I invest in P2P because I believe US consumers is on the mend.  That is my thesis for investing in this space, and if I didn't believe that I wouldn't be here. 

Given the short history of the P2P, figuring out the sharpe ratio or something on P2P loans will probably produce a meaningless result, so I wouldn't get too hung up on volatility and other such esoterica.  Like any asset with default risk, macro will have in impact, so as investors we need to have some kind of a forecast that we use to decide whether we choose less or more risky credits. 






Fred

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #12 on: May 06, 2013, 01:01:28 PM »
Yea, my point exactly.  A 9 percent 'stable' return is much better than a 12 percent 'violatile' return.

Long live Sharpe ratios!

rawraw

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #13 on: May 08, 2013, 06:18:20 AM »
Quote
Given the short history of the P2P, figuring out the sharpe ratio or something on P2P loans will probably produce a meaningless result, so I wouldn't get too hung up on volatility and other such esoterica.
Volatility is definitely something that should be considered.  A sharpe ratio isn't a volatility measure.  It measures excess return per increased volatility.  Volatility is a like inflation -- it's a "hidden cost" that can substantially reduce your long term performance, due to the compounding effects of the volatility.



What I find interesting is the ranges all have similar lower bounds as of that chart date (except G).  But that isn't guaranteed during times of stress (and conversely, times of roaring times).
« Last Edit: May 08, 2013, 06:21:32 AM by rawraw »

Fred

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Re: Next Recession ... Keep Buying/Hold/Sell?
« Reply #14 on: May 08, 2013, 08:09:13 AM »
Quote
Given the short history of the P2P, figuring out the sharpe ratio or something on P2P loans will probably produce a meaningless result, so I wouldn't get too hung up on volatility and other such esoterica.
Volatility is definitely something that should be considered.  A sharpe ratio isn't a volatility measure.  It measures excess return per increased volatility.  Volatility is a like inflation -- it's a "hidden cost" that can substantially reduce your long term performance, due to the compounding effects of the volatility.

What I find interesting is the ranges all have similar lower bounds as of that chart date (except G).  But that isn't guaranteed during times of stress (and conversely, times of roaring times).

Sharpe ratios combine both return and volatility.  It's essentially the probability of making a non-zero profit, almost like (1 - VaR).

It's just a statistic, just like mean and variance.  If you are comfortable with mean & variance when the population size is small (say, 100 data points), then you should be as comfortable with Sharp ratios.