Author Topic: Let's talk a little strategy  (Read 7603 times)

BlueVestment

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Let's talk a little strategy
« on: March 20, 2014, 09:17:35 PM »
With all the variety of questions I get about how BlueVestment works or people asking advice, I've actually never had someone ask me about this and I've always wondered why.

Given:
$25/note investment
$25 available cash
One filter
Two loans matching the filter


Which loan get's invested in first? Why?

The answer is the highest interest rate of the two loans gets invested in first. This is because I believe (perhaps falsely, that's up for debate) that when you pick a filter, you are saying "everything that matches this filter is okay by me." With all things (loans in this case) being equal, why wouldn't you want the loan with the greatest potential return?

Anyway, that's my thoughts on the matter. Are they yours as well? Do things need to change?

Nathan
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rawraw

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Re: Let's talk a little strategy
« Reply #1 on: March 20, 2014, 09:37:19 PM »
I've always wondered that!  How does it decide between multiple filters?

BlueVestment

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Re: Let's talk a little strategy
« Reply #2 on: March 20, 2014, 09:38:18 PM »
I've always wondered that!  How does it decide between multiple filters?

Each filter has a priority. You can drag and drop the filters to change their priority.

BruiserB

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Re: Let's talk a little strategy
« Reply #3 on: March 20, 2014, 09:40:51 PM »
Good question......I'm not sure if I'd want that or not?  I think that maybe I'd want a random note from the available loans.  For instance if you look at Peter's filters, many specify D-G loans and he gives the predicted return based on NSR back testing.  If you were to back test just the G or even the F&G notes, would you get as high or higher of a predicted return?  With the higher interest rates comes the higher risk of default, so it wouldn't surprise me if always favoring the highest rate available would lead to worse results.....but I don't know that for sure.

You might want to ask Bryce your question.....I bet that he would have some insight.  I think he said something to the effect of trying to put further filters on his P2P Picks wouldn't necessarily result in better overall returns.  I took that to mean that if I tried to use his profit maximizer filter and then only took the EF&G loans that that wouldn't give any better performance than just taking the whole cross section of his picks.
« Last Edit: March 20, 2014, 09:42:24 PM by BruiserB »

Fred

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Re: Let's talk a little strategy
« Reply #4 on: March 21, 2014, 03:19:21 AM »
Which loan get's invested in first? Why?

The answer is the highest interest rate of the two loans gets invested in first. This is because I believe (perhaps falsely, that's up for debate) that when you pick a filter, you are saying "everything that matches this filter is okay by me." With all things (loans in this case) being equal, why wouldn't you want the loan with the greatest potential return?

Highest interest rates do not imply greatest potential returns.  The relationship is not linear -- see green bars below.



The best strategy is to maximize the returns, and let your 'strategy' choose the right interest rates (i.e., not necessarily the highest).

rawraw

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Re: Let's talk a little strategy
« Reply #5 on: March 21, 2014, 05:45:53 AM »

You might want to ask Bryce your question.....I bet that he would have some insight.  I think he said something to the effect of trying to put further filters on his P2P Picks wouldn't necessarily result in better overall returns.  I took that to mean that if I tried to use his profit maximizer filter and then only took the EF&G loans that that wouldn't give any better performance than just taking the whole cross section of his picks.
That is incorrect.  I asked him a quantitative question about this and he posted a graph clearly demonstrating filtering his picks can increase returns.  He means filtering based on attributes -- but filtering on interest rates and/or grade can change the results.  For example, I have a portfolio of loss minimizer notes with interest rates over 14.5%. 

rawraw

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Re: Let's talk a little strategy
« Reply #6 on: March 21, 2014, 05:47:02 AM »
I've always wondered that!  How does it decide between multiple filters?

Each filter has a priority. You can drag and drop the filters to change their priority.
But what about P2P filters and BlueVestment filters?  They aren't on the same page to drag/drop and organize.

ggnoob1337

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Re: Let's talk a little strategy
« Reply #7 on: March 21, 2014, 11:31:44 AM »
I've always wondered this but just never asked before. One of my filters invests in loans C4-G4. As you can see from my attachment, the returns per grade don't go in order from highest interest rate to lowest. In order from highest to lowest returns, my order is G > E > C > F > D. I've thought about setting multiple filters and arranging them in that order, but I'd almost rather just have a good mix of all loans to be diversified.

BlueVestment

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Re: Let's talk a little strategy
« Reply #8 on: March 21, 2014, 11:48:35 AM »
It's starting to sound like people want a mix of loans (chosen at random). It makes sense in a way if you think about how it would affect your account over time.

Account balance $10,000

1) Invest all available cash until everything is invested
2) As loans get repaid, more cash becomes available, but in small numbers ($25 every X days or so)
3) If we only have $25 to invest at a time, you'd always invest in the higher interest rate loan (with all other things being equal).

So over time, your investments begin to migrate to the more risky/higher interest rate side of the spectrum. By randomizing the loan purchased when faced with multiple options, it should maintain proper diversity. I guess I never thought of it that way.

Nathan
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BlueVestment

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Re: Let's talk a little strategy
« Reply #9 on: March 21, 2014, 11:50:16 AM »
I've always wondered that!  How does it decide between multiple filters?

Each filter has a priority. You can drag and drop the filters to change their priority.
But what about P2P filters and BlueVestment filters?  They aren't on the same page to drag/drop and organize.

You can chose to run P2P Filters before or after the BV filters. Can't intermix =/

ggnoob1337

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Re: Let's talk a little strategy
« Reply #10 on: March 21, 2014, 12:17:08 PM »
It's starting to sound like people want a mix of loans (chosen at random). It makes sense in a way if you think about how it would affect your account over time.

Account balance $10,000

1) Invest all available cash until everything is invested
2) As loans get repaid, more cash becomes available, but in small numbers ($25 every X days or so)
3) If we only have $25 to invest at a time, you'd always invest in the higher interest rate loan (with all other things being equal).

So over time, your investments begin to migrate to the more risky/higher interest rate side of the spectrum. By randomizing the loan purchased when faced with multiple options, it should maintain proper diversity. I guess I never thought of it that way.

Nathan
BlueVestment

Any way that could be made an option in the filter? Either randomly pick a note that matches or go with the highest interest rate?

Something really cool would be if we could choose the percentage of each grade we are invested in and it chooses notes from our filters based on that percentage to maintain our diversified portfolio. But that also sounds extremely complicated!

cnmor54

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Re: Let's talk a little strategy
« Reply #11 on: March 21, 2014, 12:43:52 PM »
I have six filters and I turn them off and on depending on what notes I am lacking. I trade a lot so occasionally some whale will come along and take all of a certain type of note so I will try to replenish those.

Of course I have to be very careful to turn the filters back on just before feeding times otherwise I get all the leftovers from the last couple of feedings.

Still, it beats the hell out of punching a clock to make a living  8)

BlueVestment

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Re: Let's talk a little strategy
« Reply #12 on: March 21, 2014, 02:44:18 PM »
I have six filters and I turn them off and on depending on what notes I am lacking. I trade a lot so occasionally some whale will come along and take all of a certain type of note so I will try to replenish those.

Of course I have to be very careful to turn the filters back on just before feeding times otherwise I get all the leftovers from the last couple of feedings.

Still, it beats the hell out of punching a clock to make a living  8)

This strategy pertains to a comment I made a few days ago about asset allocation. It would be an interesting model to treat loan filters as asset allocation strategies where you could make sure that you had 17% Risk category A, 43% Risk category B, and 30% Risk category C. It would be hard to make sure none of your loan filters overlapped though.

BlueVestment

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Re: Let's talk a little strategy
« Reply #13 on: March 21, 2014, 02:45:34 PM »
It's starting to sound like people want a mix of loans (chosen at random). It makes sense in a way if you think about how it would affect your account over time.

Account balance $10,000

1) Invest all available cash until everything is invested
2) As loans get repaid, more cash becomes available, but in small numbers ($25 every X days or so)
3) If we only have $25 to invest at a time, you'd always invest in the higher interest rate loan (with all other things being equal).

So over time, your investments begin to migrate to the more risky/higher interest rate side of the spectrum. By randomizing the loan purchased when faced with multiple options, it should maintain proper diversity. I guess I never thought of it that way.

Nathan
BlueVestment

Any way that could be made an option in the filter? Either randomly pick a note that matches or go with the highest interest rate?

Something really cool would be if we could choose the percentage of each grade we are invested in and it chooses notes from our filters based on that percentage to maintain our diversified portfolio. But that also sounds extremely complicated!

Making an option to do it would be simple enough. I'll look into it.

cnmor54

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Re: Let's talk a little strategy
« Reply #14 on: March 21, 2014, 04:04:22 PM »
This strategy pertains to a comment I made a few days ago about asset allocation. It would be an interesting model to treat loan filters as asset allocation strategies where you could make sure that you had 17% Risk category A, 43% Risk category B, and 30% Risk category C. It would be hard to make sure none of your loan filters overlapped though.

Nathan, it was your comment that led to me verify my asset allocation (as opposed to just a feeling) and apply more filters. I think in terms of numbers (interest rates) rather than ABCDEFG notes. With the ability to set interest rates on P2P Picks filters (thank you so much for that!), making sure my loan filters don't overlap is easy. My one BlueVestment filter is just for one particular type of loan but I put it last so it only gets used when the P2P filters come up empty.  When I get a deposit into my account, I let all my filters run wild.

Carol