Author Topic: Lending Club Results - NEGATIVE RETURNS  (Read 8866 times)

RussG

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Lending Club Results - NEGATIVE RETURNS
« on: June 09, 2017, 03:27:18 PM »
I have had my Lending Club account since 2011. I have it set to reinvest automatically. Nearly 80% of my nearly 6000 loans are in C & D grade loans although this has changed from time to time (see attachment). The account has been fully invested. My returns for 2017 YTD, Jan.-May inclusive is ($303.99). Yep, that's a loss of just about $400. There were no deposits or withdrawals made during the period and the account has been fully invested. Last year's returns were in the area of 4%. I have turned off automatic reinvesting and will close out of Lending Club altogether via Folio or just waiting until everything settles out on its own accord.

LC provided good returns early on but now I think it may would definitely be better to put my money under the mattress.
« Last Edit: June 09, 2017, 03:30:24 PM by RussG »

storm

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #1 on: June 09, 2017, 04:40:07 PM »
Yep, Lending Club doesn't care about their platform investors any more.  It's all about the shareholders now.

Fred93

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #2 on: June 09, 2017, 05:25:26 PM »
You decided which grade notes (and whatever other criteria) to invest in.  Grade D and worse loans from 2015 and 2016 have performed badly.  Your portfolio surely contains a large amount of those now.

I suggest you might consider moving your criteria back to A&B loans.

RussG

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #3 on: June 09, 2017, 08:56:35 PM »
You decided which grade notes (and whatever other criteria) to invest in.  Grade D and worse loans from 2015 and 2016 have performed badly.  Your portfolio surely contains a large amount of those now.

I suggest you might consider moving your criteria back to A&B loans.

I'm sure you are right, but my attitude is that regardless of the grades I invest in I should make money--there should be no possible scenario under which an investor should lose money when he is diversified across thousands (or just dozens) of loans. If he does then it's a bad investment, IMHO. My advice to people going forward will be to steer clear of Lending Club.

AnilG

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #4 on: June 10, 2017, 02:49:36 AM »
I hope this was your emotional rant as it lacks any rational and objectivity. You are freaked out about ~$300 (~0.2%) loss in last ~6 months on a 6,000 loans (potentially 6,000 x $25 = $150,000) portfolio. It may be better for your health if you give up managing your own investment portfolio. You may want to focus on things that you are good at that give you the ability to put $150K in a largely unproven investment.

there should be no possible scenario under which an investor should lose money

I would like to know any investment that guarantees no loss. There is none including investing in loans from Lending Club. Even US Treasury notes that are considered almost risk free has non-zero risk of losing money.

diversified across thousands (or just dozens) of loans

Just because you are diversified across thousands of loans means nothing. Only risk you reduce by such diversification is the portfolio volatility, i.e. reducing the impact of single loan on overall portfolio. But you can't expect such portfolios of 6.000 loans to have exact same average performance of 500,000+ loans of C&D grades. It is a distribution, some portfolio may land on the left of the grade average and some on the right. My rule of thumb is that for every loan that defaults, you need 5-20 other loans to pay off fully on schedule to break even.

You don't diversify away credit risk by spreading across thousands of loans in same credit grade. You actually concentrated your credit risk by just lending mostly to one or two credit grades, supposedly borrowers with similar risk profile who are likely to behave similarly.

My advice to people going forward will be to steer clear of Lending Club.

And, I hope most people ignore your advise. Peer-to-peer consumer lending is the only direct way for retail investors to get exposure to consumer lending. It enables investors to diversify their portfolio with this asset class that supposedly has lower correlation with some other asset classes typically in an investor's portfolio.


I'm sure you are right, but my attitude is that regardless of the grades I invest in I should make money--there should be no possible scenario under which an investor should lose money when he is diversified across thousands (or just dozens) of loans. If he does then it's a bad investment, IMHO. My advice to people going forward will be to steer clear of Lending Club.
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rawraw

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #5 on: June 10, 2017, 06:20:00 AM »
Good reply Anil.  Since I work in investments, I have a hard time relating to "retail" investors and posts like these.  I used to think brokers were leeches skimming off the top and adding no value, but this forum has really opened my eyes to their utility.   They seem to play the role of therapist and baby sitter, just often with some perverse economic incentives

Rob L

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #6 on: June 10, 2017, 10:25:08 AM »
As another investor on the way out the door I support much of what RussG had to say.

I also agree with Anil and rawraw but think they are missing an important point. Yes, there are business cycles, recessions and many other natural economic factors that may well lead to losses. OF COURSE I accept them as part of the risk I take when investing in all asset classes. However, IMO LC made a business decision to lower lending standards while simultaneously decreasing interest rates and that played a major if role in the current poor performance of riskier loans. LC possibly thought the returns on risky loans were higher than need be to attract lenders (we all remember the much discussed "shortage" of these a few years ago). So LC lowered borrower standards and interest rates to increase originations and make more money for themselves. As I said in another thread, LC threw me under the bus. Simply put, I was making too much money and they wanted some of it for themselves. Meanwhile the performance of higher risk borrowers deteriorated, we high risk lenders were left with no buffer in our returns, and they crashed. LC probably didn't anticipate that one, but then again that became a problem for me and not for them.

So, if you are saying I should have anticipated LC throwing me, the high risk investor, under the bus then I suppose it's all my fault. It wasn't like I didn't think about it. My conclusion was simply that there will always be borrowers but lenders can and will go away forever. It was in LC's best interests to avoid losing lenders by cannibalizing their returns to increase originations (profits). On that count I was wrong. Can't imagine why anyone would now invest in the risky end of the loan pool. Now I've made my business decision too. I'm just hoping I get out before the next recession makes things much much worse. Every day I get a little more cash back and am a little closer to being out the door.

Rob L

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #7 on: June 10, 2017, 10:38:13 AM »
Good reply Anil.  Since I work in investments, I have a hard time relating to "retail" investors and posts like these.  I used to think brokers were leeches skimming off the top and adding no value, but this forum has really opened my eyes to their utility.   They seem to play the role of therapist and baby sitter, just often with some perverse economic incentives

On a personal note my uncle is a semi-retired stock broker. I came to the conclusion long ago that he did actually provide a valuable service to his clients in the ways you described. Also he encouraged more risk taking (stock exposure) than I think the average person would incur themselves and over the long run benefited his clients enormously. Even with zero or negative alpha (I don't know his number at all) most customers probably did far better than they would have on their own. Once he told me that most of his customers didn't want to know any details, they just wanted a monthly check. Think he had some pretty stressful times given that level of responsibility.

MktExec

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #8 on: June 10, 2017, 11:46:21 AM »
Invest in me. You'll get a much better return.

In business 13 years (established January 2004)
Built business to about $450,000 with about $150,000 profit out of my extra bedroom
Took a hit when the economy crashed
Fought through it but it never really came all the way back
Early last year went paycheck-to-paycheck
Was diagnosed with cancer which set me back more
Been ramping back up but my sales cycle is long 6 months plus
Total 2017 deposits are $1,000 last month and $12,000 in February
Deposit before that was September 2016 for $27,000
Credit score dropped 150 points from high 600s to low 500s after I became ill
Have huge deals closing late June ($336,000 over 6 months) and September (federal agency) in addition to other deals Im working
Clients are mostly Fortune 500 companies
Nationally recognized and viewed as a pioneer and leading authority in my field
Need anything up to $25,000 to bridge the gap so I can get bills paid and redesign website and collateral to close more sales
Need a peer-to-peer lender due to low deposit volume and amounts
Need a lender who can believe in me and my product and understands my skill-set and how driven I am
Just need a little help. Good people with the ability to earn and repay have tough breaks and face adversity, too.

dr.everett

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #9 on: June 10, 2017, 01:51:55 PM »
As another investor on the way out the door I support much of what RussG had to say.

I also agree with Anil and rawraw but think they are missing an important point. Yes, there are business cycles, recessions and many other natural economic factors that may well lead to losses. OF COURSE I accept them as part of the risk I take when investing in all asset classes. However, IMO LC made a business decision to lower lending standards while simultaneously decreasing interest rates and that played a major if role in the current poor performance of riskier loans. LC possibly thought the returns on risky loans were higher than need be to attract lenders (we all remember the much discussed "shortage" of these a few years ago). So LC lowered borrower standards and interest rates to increase originations and make more money for themselves. As I said in another thread, LC threw me under the bus. Simply put, I was making too much money and they wanted some of it for themselves. Meanwhile the performance of higher risk borrowers deteriorated, we high risk lenders were left with no buffer in our returns, and they crashed. LC probably didn't anticipate that one, but then again that became a problem for me and not for them.

So, if you are saying I should have anticipated LC throwing me, the high risk investor, under the bus then I suppose it's all my fault. It wasn't like I didn't think about it. My conclusion was simply that there will always be borrowers but lenders can and will go away forever. It was in LC's best interests to avoid losing lenders by cannibalizing their returns to increase originations (profits). On that count I was wrong. Can't imagine why anyone would now invest in the risky end of the loan pool. Now I've made my business decision too. I'm just hoping I get out before the next recession makes things much much worse. Every day I get a little more cash back and am a little closer to being out the door.

RobL's statement sums my feelings up quite nicely- having also been in LC for the last 5 years- and having the first 3 years being really good, I now am leaving. My taxable account is being liquidated, I expect that to take 1-2 weeks for all of the sellable notes to sell without taking additional losses. I've figured out my strategy for my LC IRA. In the next month or so once my Taxable account is close to done I'll liquidate and transfer the IRA account. I know both accounts will be around in smaller forms while unsold/default notes age off, but at least I'll be back earning money rather than watching it evaporate.

My only question is if LC will notice or care? You would think when $250K of money starts leaving bells would go off somewhere. While I'm sure I'm not a largest or larger account, when I started liquidating a stock account of $100K several years back, I got multiple phone calls.

For those interested in where I'm going- it's to Fundrise. While not nearly as liquid as LC is, there's way less hassle, a very consistent and good level of return, and I've been happy with the small amount of money that's been there for the last year. Time to up the ante.

I do want to take the opportunity to thank everyone that spoke knowledgeably to me during my time on this board. Your experience and willingness to share has been invaluable to me and greatly appreciated. I'll still keep an eye on things here but will probably be on less as I wind things down.

AnilG

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #10 on: June 10, 2017, 08:35:04 PM »
What is the "appropriate" return for the risky loans or in general for p2p consumer lending? Returns go along with the level of risk you take. Higher the risk you take more return on average, but with greater volatility, you should be expecting.

I considered p2p lending to be somewhat similar to investing in High Yield/Junk Corporate Bond (HYG/JNK) and expected risks and rewards to be somewhat similar too. Based on interest rates set for different tranches of recent securitization deals of p2p lending loans and SEC yields of HYG/JNK, I believe retail investors on P2P consumer lending platforms are still doing better. How did the return expectations got out of whack?

As I cautioned people who were going gung-ho on unrealistic performance of P2P lending few years ago about overexposing themselves, now I am feeling the opinion may have shifted too negative. Are there reasons to totally exit from p2p lending versus reducing the exposure and lowering the expectations?

As another investor on the way out the door I support much of what RussG had to say.

I also agree with Anil and rawraw but think they are missing an important point. Yes, there are business cycles, recessions and many other natural economic factors that may well lead to losses. OF COURSE I accept them as part of the risk I take when investing in all asset classes. However, IMO LC made a business decision to lower lending standards while simultaneously decreasing interest rates and that played a major if role in the current poor performance of riskier loans. LC possibly thought the returns on risky loans were higher than need be to attract lenders (we all remember the much discussed "shortage" of these a few years ago). So LC lowered borrower standards and interest rates to increase originations and make more money for themselves. As I said in another thread, LC threw me under the bus. Simply put, I was making too much money and they wanted some of it for themselves. Meanwhile the performance of higher risk borrowers deteriorated, we high risk lenders were left with no buffer in our returns, and they crashed. LC probably didn't anticipate that one, but then again that became a problem for me and not for them.

So, if you are saying I should have anticipated LC throwing me, the high risk investor, under the bus then I suppose it's all my fault. It wasn't like I didn't think about it. My conclusion was simply that there will always be borrowers but lenders can and will go away forever. It was in LC's best interests to avoid losing lenders by cannibalizing their returns to increase originations (profits). On that count I was wrong. Can't imagine why anyone would now invest in the risky end of the loan pool. Now I've made my business decision too. I'm just hoping I get out before the next recession makes things much much worse. Every day I get a little more cash back and am a little closer to being out the door.

I find your move to Fundrise from Lending Club not much more rational than RussG's. Why in heaven's sake you will jump from the frying pan into the fire? I am pretty sure in few years you will have similar complaints as you have now with Lending Club. What is it with the investor behavior of attraction to shiny new things and chasing performance?


RobL's statement sums my feelings up quite nicely- having also been in LC for the last 5 years- and having the first 3 years being really good, I now am leaving. My taxable account is being liquidated, I expect that to take 1-2 weeks for all of the sellable notes to sell without taking additional losses. I've figured out my strategy for my LC IRA. In the next month or so once my Taxable account is close to done I'll liquidate and transfer the IRA account. I know both accounts will be around in smaller forms while unsold/default notes age off, but at least I'll be back earning money rather than watching it evaporate.

My only question is if LC will notice or care? You would think when $250K of money starts leaving bells would go off somewhere. While I'm sure I'm not a largest or larger account, when I started liquidating a stock account of $100K several years back, I got multiple phone calls.

For those interested in where I'm going- it's to Fundrise. While not nearly as liquid as LC is, there's way less hassle, a very consistent and good level of return, and I've been happy with the small amount of money that's been there for the last year. Time to up the ante.

I do want to take the opportunity to thank everyone that spoke knowledgeably to me during my time on this board. Your experience and willingness to share has been invaluable to me and greatly appreciated. I'll still keep an eye on things here but will probably be on less as I wind things down.
« Last Edit: June 10, 2017, 08:46:07 PM by AnilG »
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dr.everett

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #11 on: June 10, 2017, 10:59:19 PM »

I find your move to Fundrise from Lending Club not much more rational than RussG's. Why in heaven's sake you will jump from the frying pan into the fire? I am pretty sure in few years you will have similar complaints as you have now with Lending Club. What is it with the investor behavior of attraction to shiny new things and chasing performance?


RobL's statement sums my feelings up quite nicely- having also been in LC for the last 5 years- and having the first 3 years being really good, I now am leaving. My taxable account is being liquidated, I expect that to take 1-2 weeks for all of the sellable notes to sell without taking additional losses. I've figured out my strategy for my LC IRA. In the next month or so once my Taxable account is close to done I'll liquidate and transfer the IRA account. I know both accounts will be around in smaller forms while unsold/default notes age off, but at least I'll be back earning money rather than watching it evaporate.

My only question is if LC will notice or care? You would think when $250K of money starts leaving bells would go off somewhere. While I'm sure I'm not a largest or larger account, when I started liquidating a stock account of $100K several years back, I got multiple phone calls.

For those interested in where I'm going- it's to Fundrise. While not nearly as liquid as LC is, there's way less hassle, a very consistent and good level of return, and I've been happy with the small amount of money that's been there for the last year. Time to up the ante.

I do want to take the opportunity to thank everyone that spoke knowledgeably to me during my time on this board. Your experience and willingness to share has been invaluable to me and greatly appreciated. I'll still keep an eye on things here but will probably be on less as I wind things down.

At the risk of sounding like a fanboy of Fundrise, I like it for the following reasons:

1. It's real estate backed, so if for some reason things go sideways, there are land, buildings, etc. as collateral.
2. The returns average between 8-8.5% so far, compared to 1-1.5% after all chargeoffs, losses, etc. with Lending Club for this year.

I will agree that last year when I initially invested in Fundrise that it was the new "shiny" thing you referenced. (And thank you for a hearty laugh with that reference, it made my evening  ;D )

As for chasing returns, I've seen $60K in profits go poof at the rate of $2-3K a month in chargeoffs for the last 2 years with Lending Club. I did everything I could to try to figure out/fix my portfolio and selection process. Nothing made a difference. So I made a business decision as well to move my funds to an investment that I believe will do better based on my observations over the last year.

RussG

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #12 on: June 10, 2017, 11:06:29 PM »
I hope this was your emotional rant as it lacks any rational and objectivity. You are freaked out about ~$300 (~0.2%) loss in last ~6 months on a 6,000 loans (potentially 6,000 x $25 = $150,000) portfolio. It may be better for your health if you give up managing your own investment portfolio. You may want to focus on things that you are good at that give you the ability to put $150K in a largely unproven investment.

Since you brought up the subjects of rationality and objectivity I hardly think what I wrote could be rationally or objectively qualified as an "emotional rant" or an indication that I am "freaked out". Those are just silly characterizations. As to your advise that I give up managing my own investment portfolio, in fact you have no idea who does or does not manage my investments or what my returns might be. Oh, and I don't recall asking for your advice, nor based on your approach do I think I would ever take it. I will also leave advice as to matters of my health to my medical team, but thanks for yours just the same.

Previously I wrote: there should be no possible scenario under which an investor should lose money

I would like to know any investment that guarantees no loss. There is none including investing in loans from Lending Club. Even US Treasury notes that are considered almost risk free has non-zero risk of losing money.

You are right of course, there is no risk free investment, and the bold-faced quote (above) of what I had previously written taken as a fragment of out of the larger context of what I meant I think you may be missing the big picture of what I was saying in favor of nitpicking my choice of words. I'll take responsibility for that. My intent was to write about diminishing returns over time until they finally started to become negative. I have, over the years, watched my returns in Lending Club get smaller, and smaller, and smaller, from the 8-10% range to 2-4% and now negative. That's the intended takeaway and enough for me to bail on Lending Club. Never before have I seen a 5 month period where my returns were negative and it would be a stretch, I think, to blame that performance on the allocation of loan grades within my book. Now it may be true that carefully watching all the trends in P2P and more actively managing my loans would result in a better return. I don't doubt that, but I don't have the time or inclination for that level of involvement and in the past it wasn't necessary.

My point in all this is that making money in Lending Club has become more and more difficult and less and less likely. You are free to disagree, but my experience has been what it has been regardless of what you or others may believe about P2P. I have been making less and less and less as time goes by. There can be no arguing with that. It's time to bail.

Could I have done things better or smarter? Sure, we can all say that about pretty much anything we do, but for me LC is not the place to be. I believe, rightly or wrongly, that I can do better elsewhere and that will be my suggestion to others with the possible exception of those that want to be very actively engaged. Bad advice? Maybe, but since you brought up Treasuries even the return on those would be better than the negative return I've had in Lending Club recently. For someone with my level of knowledge or lack thereof, and time to devote to investing activities, Lending Club does not represent a good place to put one's money, IMHO. That is the takeaway I want people to come away with.

Rob L

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #13 on: June 10, 2017, 11:32:42 PM »
My only question is if LC will notice or care? You would think when $250K of money starts leaving bells would go off somewhere. While I'm sure I'm not a largest or larger account, when I started liquidating a stock account of $100K several years back, I got multiple phone calls.

I think the question answers itself. I only had an account value of $164k when I began pulling the plug. Never a peep from LC in any form. I don't want it to sound like I care though; just the fact of the matter.

Meanwhile I don't know where the money I've withdrawn will land. I bought MSFT, WDC, NVDA and SPY with money from withdrawn from LC (and other cash on hand). It was just before the election so I quite luckily made 1.5x more in 3 months than in 3 very good years with LC. Could just as easily have been a 1.5 x loss I suppose. Right place right time I guess. Those positions were closed out 3 weeks ago so now I have cash that needs a home. A reasonably non-volatile 6% was all I ever asked of LC. Still IMO they threw me under the bus and I am no longer a valued customer. Okay, I get it and will get over it.

dr.everett

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Re: Lending Club Results - NEGATIVE RETURNS
« Reply #14 on: June 11, 2017, 12:01:51 AM »
You're probably right- I think I would be shocked if they did notice- let alone care. Last time I communicated with them when they reached out it wasn't productive. Oh well. On to other things.