Author Topic: Is this normal or does my luck just suck  (Read 2630 times)

elumbra

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Is this normal or does my luck just suck
« on: September 25, 2016, 02:42:59 PM »
I started investing in Lending Club just over a year ago.  I started with $2500 to get that 1% of principle per note.  I invested all of that money within ~1 month and have only added another ~$500 since then.  I have also purchased and sold notes on folio as well which will have affected my NAR.  My primary notes adjusted NAR has been hovering at around 2% for the last couple of months.  I have recently hit 10 month average age of notes which to my knowledge is when notes start charging off in force.  So is my current NAR a result of buying all my notes at once?  Should I expect it to come back up as my portfolio ages, or do I just have crappy luck?

Fred93

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Re: Is this normal or does my luck just suck
« Reply #1 on: September 25, 2016, 04:30:04 PM »
There are several issues that are parts of the answer to your questions. 

1) You don't say how you chose to invest.  How did you filter?

2) Loans that issued late last year are turning out to be of somewhat lower quality on the average than those that came before (and hopefully after).  Mostly the risker grades were affected, ie DEFG.  LC has written about this, and has tightened underwriting in the risky grades and raised interest rates to fix.  You are unfortunately concentrated in those worse-than-average vintages.  I am too, because I added a significant amount of money to my account mid last year.  I started my LC IRA account mid last year, and it has an ANAR of 6.x%, which is substantially lower than my regular account.  I'm blaming that on the concentration in these weak vintages from last year.

3. Luck ... with 100 loans, you are reasonably diversified, but you could still have plus or minus 2 or 3 percent just due to luck.  This variation will be wider if you concentrate in the riskier (higher average default rate) end of the spectrum, and less if you concentrate in the low risk end.

4. "When loans start charging off in force".   Not exactly.  There isn't some magic time when loans start charging off "in force".  Defaults are not however uniform over the life of the loan.  The default rate has a bump in it.  The default rate is larger somewhere around the 12 month point, and lower before and after.   Another thing that confuses some new investors is that the default rate is ZERO for the first few months of a loan, for the simple mechanical reason that a loan has to be 4 months late before it charges off, and that can't happen until 5 months have passed.  So new investors see no defaults for the first few months, and often think they're doin' really great.   You're past that point, however your portfolio now has a concentration of loans at about the age where the peak occurs, so I would expect your porfolio performance to get better from here, just because in the future your loan age won't be concentrated where the bump in the curve is.

I expect your ANAR will improve over time due to moving out of your concentration in weak vintages, loan aging, and your luck improving.

elumbra

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Re: Is this normal or does my luck just suck
« Reply #2 on: September 25, 2016, 05:56:27 PM »
Thanks for the detailed response.  I invested primarily in the riskier grades too which would explain the exceptionally low ANAR.  I will keep with it and see how things progress.

Rob L

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Re: Is this normal or does my luck just suck
« Reply #3 on: September 25, 2016, 06:41:12 PM »
I'll agree with pretty much everything Fred93 said and add one more caveat. There are no altruistic benefactors on Folio that are happy to give you their money. You should have no more expectation of improving your returns by trading notes there as you might by day trading the stock market (okay, maybe it's not that bad but then again maybe it is). If you want to liquidate your portfolio or reduce your exposure then Folio provides the means but it does come at a price. One should expect nothing less.

elumbra

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Re: Is this normal or does my luck just suck
« Reply #4 on: September 25, 2016, 07:18:41 PM »
Yeah that's the conclusion I came to a little too late.  Selling notes on folio simply means that you get stuck with the worse of the notes that your trying to sell.  I only buy on folio now and have had success so far with the parameters that I use.

rawraw

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Re: Is this normal or does my luck just suck
« Reply #5 on: September 25, 2016, 08:26:00 PM »
Yeah that's the conclusion I came to a little too late.  Selling notes on folio simply means that you get stuck with the worse of the notes that your trying to sell.  I only buy on folio now and have had success so far with the parameters that I use.
I disagree.  I think there are ways to benefit from using Folio, so don't write it off too quickly.

Fred

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Re: Is this normal or does my luck just suck
« Reply #6 on: September 25, 2016, 10:35:02 PM »
I only buy on folio now and have had success so far with the parameters that I use.

If you can keep this Folio buying strategy up, your NAR should improve soon enough.  Good luck!

Rob L

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Re: Is this normal or does my luck just suck
« Reply #7 on: September 26, 2016, 11:15:44 AM »
I disagree.  I think there are ways to benefit from using Folio, so don't write it off too quickly.

If you can keep this Folio buying strategy up, your NAR should improve soon enough.  Good luck!

Really? Why?

As an axiom let me suggest there are Folio buyers that are both gifted analytically and have invested very substantial time and effort to be able to asses the most desirable risk / reward valued notes offered on the Folio platform. You may even know a few. Lets call them the "smart money". The only way I'll have the opportunity to buy a note the "smart money" thinks is a good value is if they are out of money or I'm lucky enough to stumble across it before they do. My guess is that they have plenty of money and I'm not that lucky.

Maybe I'm too pessimistic and there is still some low hanging fruit on the Folio tree.
I'll admit I haven't looked into it so I don't really know.  I'll defer to you on that one. :)
« Last Edit: September 26, 2016, 11:18:17 AM by Rob L »

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Re: Is this normal or does my luck just suck
« Reply #8 on: September 26, 2016, 02:01:24 PM »
Yeah that's the conclusion I came to a little too late.  Selling notes on folio simply means that you get stuck with the worse of the notes that your trying to sell.  I only buy on folio now and have had success so far with the parameters that I use.

I wouldn't say all of the notes on Folio are due to failing notes.  It is just as likely the seller is simply liquidating some or all of his holdings to raise some cash.

Rob L

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Re: Is this normal or does my luck just suck
« Reply #9 on: September 26, 2016, 06:41:50 PM »
I wouldn't say all of the notes on Folio are due to failing notes.  It is just as likely the seller is simply liquidating some or all of his holdings to raise some cash.

Yea, this is the one subset of Folio trading where I have a bit of experience. I recently sold about half my LC portfolio and worked very hard to minimize the fee that I knew I'd pay those providing the liquidity. I understood there were costs to be expected for the privilege of liquidating and I was willing to pay up for the privilege. I worked very (very)  hard to minimize that toll. The buyers were taking on risk I no longer wanted and I fully expected to pay them to accept it at what I thought was a reasonable premium. I was the seller, I set the price, and I would still be holding the notes if I felt the liquidity premium from the buyers was unreasonable.

elumbra

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Re: Is this normal or does my luck just suck
« Reply #10 on: September 26, 2016, 11:13:47 PM »
I was not very clear in what I stated.  I still buy notes from the primary market.  What I meant was that I only buy on Folio as opposed to buy and sell.  I mainly stick to older notes with less than 12 months left.  I look for a good track record of on-time payments and a steady FICO score (no big drops in the last 12 months).  I have also noticed that Folio can not accurately compute the YTM of notes that are below a certain value.  Folio will state .01 YTM when my math says something very different.  While there are not enough of these notes to really make me much money it is something that helps balance out my account.  Also LC, for me, is play money.  It accounts for ~2% of my assets and it is one of the few account that I can actively manage without being over detrimental to my returns.  Granted my trading ANAR is ~10% which is significantly better than the current state of my Primary ANAR.

Rob L

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Re: Is this normal or does my luck just suck
« Reply #11 on: September 27, 2016, 09:36:05 AM »
I was not very clear in what I stated.  I still buy notes from the primary market.  What I meant was that I only buy on Folio as opposed to buy and sell.  I mainly stick to older notes with less than 12 months left.  I look for a good track record of on-time payments and a steady FICO score (no big drops in the last 12 months).  I have also noticed that Folio can not accurately compute the YTM of notes that are below a certain value.  Folio will state .01 YTM when my math says something very different.  While there are not enough of these notes to really make me much money it is something that helps balance out my account.  Also LC, for me, is play money.  It accounts for ~2% of my assets and it is one of the few account that I can actively manage without being over detrimental to my returns.  Granted my trading ANAR is ~10% which is significantly better than the current state of my Primary ANAR.

You may a part of the smart money crowd with your buying strategy, or working your way in that direction. Sounds like a good strategy to me, but that should be of little comfort as I obviously have no way of knowing. You are certainly right about the Folio YTM problem. That's been mentioned on this forum many times and nobody has been able to calculate YTM in agreement with Folio (myself included - and I really tried). Anyway, the best of luck in your trading and enjoy it!