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Lending Club Discussion => Investors - LC => Topic started by: Dennis on August 29, 2013, 10:58:33 PM

Title: Do I have this right?
Post by: Dennis on August 29, 2013, 10:58:33 PM
I know this has been talked about on these boards at length, but do I have it right:

- notes at LC are issued en masse 4 times a day.
- the second (and I mean the absolute second) those notes appear on the platform, large institution/s with endless amounts of cash immediately suck most of them into their LC cache for review, temporarily locking them out to most small investors (the peer investors).
- then, after a relaxed review of those notes, the undesirable ones get tossed back onto the platform again, but often into the clutches of yet another institutional player - and the notes quickly disappear again.
- this process, where notes get pitched back and forth, gets repeated over and over again (in what seems like milliseconds), until they finally get fully funded.
- the small investor (the peer investor) must be quick and/or lucky to get one maybe two notes a session unless he/she is not picky on note quality.
- so the small investor (the true peer investor) who generally has limited amounts of cash, and maybe limited software capability, has very little or no chance of competing with all this.
- the small investor then is at the mercy of the big investor/s for notes, or for leftovers deemed too risky by the big guys to invest in.
- so the small investor (the true "peer" investor) starves while the big guys feast.
- P2P lending then is now mostly institutional lending, and we seem to have come full circle again in the finance community, where the big guys call the shots.  Nice concept, P2P - if it only worked.......

Now I know what I just wrote isn't always true or always happens, but I'm speaking in general terms where those things happen a lot or most of the time.

Did I get it right?

 
Title: Re: Do I have this right?
Post by: brycemason on August 29, 2013, 11:54:44 PM
As things stand today, this is more or less correct. I am less sure about a few points:

* I have no evidence that the large loan fractions which get tossed back are immediately carted by another large investor, but it could be possible that their software is scouring well past the load time.

* There is little evidence that the institutional investors are being intelligent in their selectivity. It would take an analysis comparing the fill time vs. an independent credit model score (such as Rev's IR04 or my PMax) to see if there is any correlation. Fill time is difficult to measure, although some on this board have made some attempts. If LC set their rates absolutely perfectly such that the expected returns across any loan grade were precisely equal, then the speed game would be pointless. You could invest in As and get the same return as investing in Fs. Unfortunately, I think there are legal / structural reasons why they can't use certain factors in their approval process and rate setting.
Title: Re: Do I have this right?
Post by: standby on August 29, 2013, 11:58:57 PM
I was going to say the exact same thing today - we have come full circle.  It can no longer be called peer-to-peer legitimately.  I think the big boys like to refer to it as micro lending.  I suppose that's because they were getting their foot in the door.  I've been here since just April and unfortunately, this looks like what it has become.  Why didn't they just go institutional in the first place I wonder?  Anyway, I don't know the exact details but it looks like you got the gist of it.
Title: Re: Do I have this right?
Post by: mo on August 29, 2013, 11:59:48 PM
- the second (and I mean the absolute second) those notes appear on the platform, large institution/s with endless amounts of cash immediately suck most of them into their LC cache for review, temporarily locking them out to most small investors (the peer investors).

It is actually more likely the technically inclined small investors who are doing this locking out.  Large institutions are probably using the official API which doesn't have the ability to lock a loan by adding it to your cart. 
Title: Re: Do I have this right?
Post by: brycemason on August 30, 2013, 12:09:59 AM
- the second (and I mean the absolute second) those notes appear on the platform, large institution/s with endless amounts of cash immediately suck most of them into their LC cache for review, temporarily locking them out to most small investors (the peer investors).

It is actually more likely the technically inclined small investors who are doing this locking out.  Large institutions are probably using the official API which doesn't have the ability to lock a loan by adding it to your cart.

This is unfortunately false, I believe. Day after day, I watch notes that I pick get funded. I am usually among the very first in the loan, and the "complete listing" page of the site says something like "$50 funded from 1 investor (me)." This page of the site only counts committed ORDERS. You can see what's been committed PLUS carted when you are viewing the loan in your shopping cart. So, when before I place my order, I'll see it "Closing," which means it's fully funded (through the carts). As I refresh the "complete listing" page, usually the very last investor to buy the fraction will make it jump thousands of dollars, or from 30% funded to 100% funded. Unless it's a very rich person, it's probably institutions using the carting-time-option.
Title: Re: Do I have this right?
Post by: AnilG on August 30, 2013, 12:21:24 AM
It is actually more likely the technically inclined small investors who are doing this locking out.  Large institutions are probably using the official API which doesn't have the ability to lock a loan by adding it to your cart.

Fully agree with this statement based on what I am seeing from loan updates on PeerCube. This can only be performed by people using browser or people who automated using browser/screen scraping. More and more it appears to be self-fulfilling prophecy. But in a way it is achieving what LC should be doing, spreading out availability of loans. Even 5 minutes after the scheduled release time, I am seeing enough new loans available.

8/29 8:35PM New loans added to DB = 11
8/29 6:20PM New loans added to DB = 13
8/29 6:05PM New loans added to DB = 58
8/29 3:05PM New loans added to DB = 18
8/29 2:35PM New loans added to DB = 6
8/29 2:20PM New loans added to DB = 17
8/29 2:05PM New loans added to DB = 78
8/29 1:05PM New loans added to DB = 1
8/29 12:05PM New loans added to DB = 1
8/29 10:21AM New loans added to DB = 9
8/29 10:06AM New loans added to DB = 62
8/29 07:51AM New loans added to DB = 1
8/29 06:35AM New loans added to DB = 12
8/29 06:20AM New loans added to DB = 21
8/29 06:05AM New loans added to DB = 61
8/29 05:35AM New loans added to DB = 3
8/29 02:05AM New loans added to DB = 8
8/29 01:50AM New loans added to DB = 1

Title: Re: Do I have this right?
Post by: Dennis on August 30, 2013, 12:29:37 AM
- the second (and I mean the absolute second) those notes appear on the platform, large institution/s with endless amounts of cash immediately suck most of them into their LC cache for review, temporarily locking them out to most small investors (the peer investors).

It is actually more likely the technically inclined small investors who are doing this locking out.  Large institutions are probably using the official API which doesn't have the ability to lock a loan by adding it to your cart.

One reason why I believe it's institutional investors locking these loans is that I've seen $35,000 notes disappear in that millisecond I talked about, but then several minutes later, the same notes reappear with only 20% or so funded.  It's almost unfathomable that enough small investors in tandem could lock out a note of that size so quickly, and then enough of them in tandem (again) reject it quickly from their cache where only 20% of it got funded - hope that makes sense.  I suppose it's possible, but seems unlikely.  It would seem more likely that if a note was rejected from multiple caches, where it eventually was only 20% funded, that it would first reappear on the platform at say, 98% or so, and then spiral steadily downward to that 20% as more and more small investors rejected that note. 
Title: Re: Do I have this right?
Post by: Fred on August 30, 2013, 12:43:32 AM
But in a way it is achieving what LC should be doing, spreading out availability of loans.

+1

I am glad to see this spreading out of loan availability.  Hopefully, this does not lead the bots to 'stay' busy 24-hr.
Title: Re: Do I have this right?
Post by: brycemason on August 30, 2013, 12:51:13 AM
Bots will work overtime if need be.
Title: Re: Do I have this right?
Post by: Dennis on August 30, 2013, 01:21:16 AM
Even 5 minutes after the scheduled release time, I am seeing enough new loans available.

I suppose it depends on how you define "available."  We could argue all day on these boards about what exact qualities make a perfect borrower as far as risk goes, but I don't think it would be hard to get a majority vote on the ones that truly suck, to put it mildly.  Those notes that make it to the 5 minute mark, they usually suck (sorry if that offends).  Not always, but most of the time.  I'm talking about the higher risk notes, D - G.  So to say they are available - technically, yes.  But to someone like me and I presume many others who care about note quality (again, I know we can argue all day about what that exactly is), those are not considered available notes.  No way in H. E. double toothpick I'd put my hard earned blood money into them.  I'm feeling a little raw tonight so sorry if the language is a little colorful.  And the thing is, some of those notes that you just know are going to default, or at least have about a 90% chance of doing so (based on very empirical data, empirical being defined in the philosophical sense - through experience), still get fully funded.  I some times wonder why investors want to lose their money like that, but I used to see it all the time as a stock trader.  There's ALWAYS someone willing to buy if the price is right (even if it's only in their mind).  Or put another way, there's always someone willing to invest if the conditions are right (even if it's only in their mind).       
Title: Re: Do I have this right?
Post by: AnilG on August 30, 2013, 01:50:10 AM
Bots will work overtime if need be.

Bots that filter and rank loans based on certain criteria will be defeated when instead of encountering 60 new loans it encounters 10 new loans every 5 minutes.  ;)

It is not difficult to manage and control bots:

- Open up API for everyone like Prosper did.
- Throttle API bots
- Detect screen scraping and browser manipulation bots and time-lock the accounts being used by such bots

Being in IT infrastructure myself, I just wonder what kind of nightmare LC IT staff is going through because of a four-time-a-day loan release cycle. No amount of horsepower can manage the bot assault (if really happening) at release time. If it is really happening, it wouldn't be much different than being under DDoS attack and LC becoming susceptible to intrusion during release time.

Title: Re: Do I have this right?
Post by: Fred on August 30, 2013, 02:17:18 AM
Detect screen scraping and browser manipulation bots and time-lock the accounts being used by such bots

Anyone can put his browser behind a proxy server and watch the conversations between LC server and the browser.  With enough skills and diligence, anyone can design such program that LC server cannot tell the difference whether it is talking to a browser or to a bot.
Title: Re: Do I have this right?
Post by: core on August 30, 2013, 02:40:41 AM
Anyone can put his browser behind a proxy server and watch the conversations between LC server and the browser.  With enough skills and diligence, anyone can design such program that LC server cannot tell the difference whether it is talking to a browser or to a bot.

Agreed, there's absolutely no way to tell the difference.  If you could, there wouldn't be captchas and comment/forum spam all over the net. You don't need a man in the middle to do so, and with this stuff being HTTPS a proxy would be of limited use and/or more trouble than it's worth.  A freebie browser add-on acting as a crude sniffer is the only tool you'd need.

Any "solution" is going to have to involve the same rules for everybody, humans and bots alike.
Title: Re: Do I have this right?
Post by: Fred on August 30, 2013, 03:55:12 AM
If LC set their rates absolutely perfectly such that the expected returns across any loan grade were precisely equal, then the speed game would be pointless.

As an independent provider of P2P loan risk assessment, you certainly do not want this to happen, do you?  The pointlessness applies not only to speed, but also to advice.  ;)

You could invest in As and get the same return as investing in Fs.

In its literal meaning, this statement would be counterintuitive.  Perhaps you mean that the returns of As and Fs loans are on the security market line (http://en.wikipedia.org/wiki/Security_market_line), rather than around it?
Title: Re: Do I have this right?
Post by: Rob L on August 30, 2013, 04:47:55 AM
Very interesting thread. I don't understand why a large investor would find it advantageous to lock up notes in a cart only to throw many back a short time later. Does this imply a human analyst in the middle? Why would their model / buy time be slower than Bryce's who said he often gets the first note?
Title: Re: Re: Do I have this right?
Post by: rawraw on August 30, 2013, 04:55:23 AM

Quote from: Fred

You could invest in As and get the same return as investing in Fs.

In its literal meaning, this statement would be counterintuitive.  Perhaps you mean that the returns of As and Fs loans are on the security market line (http://en.wikipedia.org/wiki/Security_market_line), rather than around it?
I'm confused by that statement as well
Sent from my SAMSUNG-SGH-I747 using Tapatalk 2

Title: Re: Do I have this right?
Post by: core on August 30, 2013, 05:37:23 AM
Very interesting thread. I don't understand why a large investor would find it advantageous to lock up notes in a cart only to throw many back a short time later. Does this imply a human analyst in the middle? Why would their model / buy time be slower than Bryce's who said he often gets the first note?

When seconds count, it could definitely have an advantage even with no human intervention.  From an automation standpoint, you can lock up hundreds of notes with one request.  Once they're locked, then the bot can fetch the details for each and decide what to keep.   It's not about processing time per se, but minimizing the number of network requests before you've captured the notes.  Eliminating even one hit results in a substantial time savings because of how long it takes LC to respond.  Multiply that by tonnes of notes and you've got a huge time advantage.
Title: Re: Do I have this right?
Post by: viking on August 30, 2013, 05:39:58 AM
Even 5 minutes after the scheduled release time, I am seeing enough new loans available.

8/29 8:35PM New loans added to DB = 11
8/29 6:20PM New loans added to DB = 13
8/29 6:05PM New loans added to DB = 58
8/29 3:05PM New loans added to DB = 18
8/29 2:35PM New loans added to DB = 6
8/29 2:20PM New loans added to DB = 17
8/29 2:05PM New loans added to DB = 78
8/29 1:05PM New loans added to DB = 1
8/29 12:05PM New loans added to DB = 1
8/29 10:21AM New loans added to DB = 9
8/29 10:06AM New loans added to DB = 62
8/29 07:51AM New loans added to DB = 1
8/29 06:35AM New loans added to DB = 12
8/29 06:20AM New loans added to DB = 21
8/29 06:05AM New loans added to DB = 61
8/29 05:35AM New loans added to DB = 3
8/29 02:05AM New loans added to DB = 8
8/29 01:50AM New loans added to DB = 1
With "new", would that include any notes released from a hold in the shopping cart?
Title: Re: Do I have this right?
Post by: Dennis on August 30, 2013, 06:54:44 AM
The interesting thing in all this is that institutions are not only swallowing all the whole loans, but now they seem to be invading and dominating the partial loan platform also.  Of course I can't prove that, but there does seem to be evidence of that.  So as institutions may now be dominating P2P, how on earth does Lending Club market their company for an IPO.  What the company is/was founded on, P2P, seems to be a broken model now.  And how do you market a broken model but still convince future stock holders that what the business was founded on is sound?  I would think the SEC would also have something to say about full disclosure if LC tries to market themselves as a P2P company.  It kind of puts LC in a confused bind, IMHO.
Title: Re: Do I have this right?
Post by: yojoakak on August 30, 2013, 10:17:16 AM
...But in a way it is achieving what LC should be doing, spreading out availability of loans. Even 5 minutes after the scheduled release time, I am seeing enough new loans available.


What a great idea! Kind of a like a Public Service to all us slow humans.
Title: Re: Do I have this right?
Post by: Bilgefisher on August 30, 2013, 12:02:44 PM
One thing is for certain, reading each note prior to purchase is a thing of the past.  Doesn't matter anyway since you can't ask the borrowers questions.  With that in mind, why not use a quick invest type setup where all users get an equal shot at there preselected criteria.  LC can still have their whole loan program, and all the retail investors get an equal opportunity to invest in the remainder loans without competing API's.

I suppose I'm missing a key big picture item, but it seems like fairly simple way to give folks equal shots a loan and the ability to invest without being a clock watching speed clicker.  Just like prosper, I now have money piling up that is not being invested.
Title: Re: Do I have this right?
Post by: Rob L on August 30, 2013, 12:38:11 PM
From an automation standpoint, you can lock up hundreds of notes with one request...
I understand what you are saying perfectly. I'm not personally certain this is correct (i.e. I haven't implemented the method). It's possibly correct, maybe even probably correct but I would need some time and research to know for sure. I have my doubts but it would explain a lot.
Title: Re: Do I have this right?
Post by: AnilG on August 30, 2013, 01:43:52 PM
The listed new loan added data will include all loans that were not present in last update. So it will include both loans that were released from shopping carts as well as released by Lending Club since the last update.

Even 5 minutes after the scheduled release time, I am seeing enough new loans available.

8/29 8:35PM New loans added to DB = 11
8/29 6:20PM New loans added to DB = 13
8/29 6:05PM New loans added to DB = 58
8/29 3:05PM New loans added to DB = 18
8/29 2:35PM New loans added to DB = 6
8/29 2:20PM New loans added to DB = 17
8/29 2:05PM New loans added to DB = 78
8/29 1:05PM New loans added to DB = 1
8/29 12:05PM New loans added to DB = 1
8/29 10:21AM New loans added to DB = 9
8/29 10:06AM New loans added to DB = 62
8/29 07:51AM New loans added to DB = 1
8/29 06:35AM New loans added to DB = 12
8/29 06:20AM New loans added to DB = 21
8/29 06:05AM New loans added to DB = 61
8/29 05:35AM New loans added to DB = 3
8/29 02:05AM New loans added to DB = 8
8/29 01:50AM New loans added to DB = 1
With "new", would that include any notes released from a hold in the shopping cart?
Title: Re: Do I have this right?
Post by: AnilG on August 30, 2013, 02:03:27 PM
Purpose of browser bot will be to make transactions in a Lending Club account. It is very different problem from forum spam. In this case you can separate humans from browser bots by watching the activity within a Lending Club Account. Humans don't log  into their account and make transactions every few minutes for hours. Put a threshold on attempted logins/transactions within a time frame for an account and time-delay the transactions/login for that account if threshold exceeded. Will make most browser bots irrelevant.

Anyone can put his browser behind a proxy server and watch the conversations between LC server and the browser.  With enough skills and diligence, anyone can design such program that LC server cannot tell the difference whether it is talking to a browser or to a bot.

Agreed, there's absolutely no way to tell the difference.  If you could, there wouldn't be captchas and comment/forum spam all over the net. You don't need a man in the middle to do so, and with this stuff being HTTPS a proxy would be of limited use and/or more trouble than it's worth.  A freebie browser add-on acting as a crude sniffer is the only tool you'd need.

Any "solution" is going to have to involve the same rules for everybody, humans and bots alike.
Title: Re: Do I have this right?
Post by: core on August 30, 2013, 02:14:48 PM
Humans don't log  into their account and make transactions every few minutes for hours.

Says who?  You?  I know several people on this forum who seem to spend all morning finding trades.  And who is to decide how much activity is too much?  Anything faster than a human could _possibly_ do, I think it's safe to say it's a bot, but EVERYTHING ELSE is a pure witch hunt.  If you want to put a threshold on hits per hour, fine put the limit in and publish it for everyone to see.  But that's possibly going to snag humans as well and the bots will be running at that exact limit I guarantee.  The second you start trying to accuse people of running bots, and banning them just based on heuristics it's going to turn into an unpleasant mess.

And just as an aside, if you guys are running login code all the time you could use some optimizations.
Title: Re: Do I have this right?
Post by: core on August 30, 2013, 02:43:43 PM
I understand what you are saying perfectly. I'm not personally certain this is correct (i.e. I haven't implemented the method).

I'm not personally certain it's correct, either.  I guess I should have said that in the first place.  I'm ~66.67% certain though.  I am unable to test much because I'm already on thin ice with them.  Even if I'm not correct, let's do some quick math on the two remaining approaches, lock everything vs. examine-lock. 

Keeping the numbers simple, say 10 notes were released and a page hit takes 1 second.  Locking all notes, even one at a time (if I'm wrong), takes 10 seconds.  On the other hand, fetching details before buying will require _double_ the time in the worst case (depending on where your desired notes show up sequentially), and absolute best case it will still be one request behind the lock-everything method.  As long as requests take on LC, this could be up to a couple seconds.  And that's best case, meaning being only 1 hit behind!  Usually it will fall somewhere in the middle.  But blindly locking everything always will win.

It's possibly correct, maybe even probably correct but I would need some time and research to know for sure. I have my doubts but it would explain a lot.

You would also need some blind luck.  If you get it to work then obviously you have one answer.  But if you can't get it to work, that doesn't necessarily prove anything.  It just means you haven't found the proper variable names yet.  On this site, just like any other, there are plenty of "undocumented features".  Fortunately for us there are plenty of examples elsewhere on the site and usually you can guess how they handled things even if the target page doesn't advertise the fact.  Sometimes though a little brute force is the only way and you still may not stumble upon it.
Title: Re: Do I have this right?
Post by: mo on August 30, 2013, 04:49:22 PM
Unless it's a very rich person, it's probably institutions using the carting-time-option.

Because there is no shortage of wealthy people with engineering skills in Silicon Valley.  It just seems like institutions have access to whole loans and wouldn't bother themselves with the whole screen scraping thing which is a questionable way to use the site to begin with.
Title: Re: Do I have this right?
Post by: Rob L on August 30, 2013, 05:14:58 PM
But blindly locking everything always will win.
You would also need some blind luck.
1) I don't see it quite that way. I would agree it would be no worse but I think probably not substantially faster. Too complicated to know without doing it and I don't want any thin ice myself.
2) Always better to be lucky than good.  ;D

I have been reluctant to speculate on "fixes" LC might employ regarding the lack of loan availability for retail investors. Clearly it would be trivial to limit the maximum investment amount permitted via the web site interface to a reasonably small number. On first thought that would certainly complicate the live(s) of those using/abusing the method postulated in this thread. No doubt this has already been suggested.
Title: Re: Do I have this right?
Post by: Dennis on August 30, 2013, 05:52:34 PM

I have been reluctant to speculate on "fixes" LC might employ regarding the lack of loan availability for retail investors. Clearly it would be trivial to limit the maximum investment amount permitted via the web site interface to a reasonably small number. On first thought that would certainly complicate the live(s) of those using/abusing the method postulated in this thread. No doubt this has already been suggested.

The whole loan program was the fix for awhile and I'm sure you remember all the turmoil from retail investors prior to that fix.  Lending Club was very responsive to the problem at the time, it seems that they may be becoming a little less responsive these days - maybe they're too busy spending their IPO money already.  Or possibly there hasn't been enough complaining yet from retail investors.  But it seems like we're right back again (deja vu) with institutions dominating loans.  I don't know that fixing the maximum investment by any one lender would totally solve the problem.  And I wonder if some of these large players might already have multiple accounts that allow them to bypass any limit on individual notes anyway.  It'll be interesting to see if LC has anything to say about this in their August recap (I doubt it).  At some point though I would think that they will have to address the concerns of retail lenders if they want to still be known as a P2P business, no matter how loosely defined that may be.  It would be bad to alienate or anger their once core customer base (us), while trying to make a case for a strong IPO.     
Title: Re: Do I have this right?
Post by: core on August 30, 2013, 06:13:55 PM
1) I don't see it quite that way. I would agree it would be no worse but I think probably not substantially faster.

But you do see that by necessity the examine-before-lock approach always requires one more HTTP request at minimum, right?  And that's only if your chosen note shows up first in your sorted list... fat chance.  "Substantially" is of course a relative term so I cannot argue with that.   

But what started all this is my saying that all notes can be bitten off with one chew, which I still believe.  I will be happy to prove this, but I will need a different test account.  Possibly from someone else on the forum who doesn't mind having their account locked and having to speak with Stephanie.  Please, all of you do not fill my PM inbox all at once jumping at this chance.  ;)

Too complicated to know without doing it and I don't want any thin ice myself.

Any cook will tell you that you can't make an omelet without breaking a few eggs.
(Yeah I know, look what happened to the cook!)

Or possibly there hasn't been enough complaining yet from retail investors.

This is quite probably the reason.  I haven't seen a complaint from a retail investor around here for what, 23 minutes?  :)   The problem is all those complaints get posted in places where it will do little/no good.  Rob L was just talking about how Frenchy was on Bloomberg for a 15 minute interview.  What Rob should have done was taken note of the interviewer's name and posted it here.  Then we could all send emails and voice mails to this reporter saying how s/he just got made a fool of by Laplanche.  I think there would be at least a mediocre chance of a followup.
Title: Re: Do I have this right?
Post by: Dennis on August 30, 2013, 06:56:02 PM

This is quite probably the reason.  I haven't seen a complaint from a retail investor around here for what, 23 minutes?  :)

LOL. Of course you're right about that, maybe I was too busy complaining not to think of that.  I wonder if anyone from LC still reads these posts?  They used to, and sometimes even responded.  I'm guessing that's not allowed anymore now that LC is in the teenager stage of becoming a viable corporation - no more playing around.  When the IPO is launched, that will be like turning 21 and becoming a fully responsible adult.  Our little LC will finally be all grown up. :) :)
Title: Re: Do I have this right?
Post by: core on August 30, 2013, 07:04:00 PM
When the IPO is launched, that will be like turning 21 and becoming a fully responsible adult.  Our little LC will finally be all grown up. :) :)

Yeah well we all know what happens when teenage daughters grow up too fast.
Title: Re: Do I have this right?
Post by: Fred on August 30, 2013, 07:23:06 PM
When the IPO is launched ...

LC will enter into the "public company domain", with the many regulators that it needs to answer to.  The Sarbanes–Oxley alone will cause enough headaches, let alone the analysts' opinions that can cause major swings in the stock price.

The IPO price has to be right, both for the management and equity investors, to make this worthwhile.
Title: Re: Do I have this right?
Post by: brycemason on August 30, 2013, 10:55:54 PM
Interested in your valuation, Fred. In fact, it might be fun to have a LendAcademy Forum LC IPO Valuation / Offering Price Thread.
Title: Re: Do I have this right?
Post by: Dennis on August 31, 2013, 09:55:43 AM
So it's Saturday morning and it's the 9 AM (EST) feeding at LC.  I've been watching a note that I was quick enough to grab, to monitor its progress to full funding.  It's an E4, fits my criteria nearly perfect, and it being early Saturday morning on a holiday weekend, I feel lucky to have gotten this note before the whales devoured it.  I was very quick to nab it, literally seconds after it hit the platform, and sure enough, it had completely disappeared from the platform the second I rechecked for it, after I had made my purchase though.  I then went to my cache of purchased notes and of course saw that it hadn't been fully funded yet even though it's no longer listed on the platform.  When I clicked on that note to see what progress it was making, I noticed that only 9 others besides me were lucky enough to get their hooks into it.  Now this is a $14,600 note, so that seemed like very few investors for that size.  Sure enough, it was only 4.28% funded, yet no longer available on the platform.  I kept checking back on it to see its progress, 2 more had joined the ranks of ownership, now up to 5.14%, about 5 minutes after it disappeared from the public platform.  So as I was jumping around to watch this note, it did resurface again on the platform - ah ha...  it lasted about 1 minute there and I watched as a few more people jumped in, now up to 16.44% by 27 people.  And then poof, the note was gone again.  I checked my cache for that note again, 44 ppl on board, but now 52% funded.  It then sat in my account for another 20 - 25 minutes, stuck at around that 52% mark until it finally fully funded with a total of 48 ppl.  So exactly $7,000 (nearly half) of it sat unfunded from the very beginning until the end.  I doubt there was a small investor grabbing that note, locking $7,000 of it out from the platform, and then finally funding it.  To me it looks like there were 2 whales in this note and 46 small fish. 

I've seen this same thing going on with $35,000 notes also, so its whales (institutions) in my opinion that are locking these notes out from the small investors.  Only lucky (or maybe skilled) handfuls of small fish manage to get a bite of them.  I have other notes in my cache waiting for issuance, large denomination notes, where only 20 ppl or so got their teeth into it.  You have to be really fast these days when competing with these intuitions, especially when they seem to be playing dirty.  So it seems the whales have not only been invading the pond, but they are dominating it and pooping in it.  We need a new pond.   
Title: Re: Do I have this right?
Post by: rlv99 on August 31, 2013, 10:04:08 AM
So it seems the whales have not only been invading the pond, but they are dominating it and pooping in it.  We need a new pond.   

I'm for shooting the whales as we leave!!  >:(
Title: Re: Do I have this right?
Post by: Fred on August 31, 2013, 10:41:43 AM
I checked my cache for that note again, 44 ppl on board, but now 52% funded.  It then sat in my account for another 20 - 25 minutes, stuck at around that 52% mark until it finally fully funded with a total of 48 ppl.

Thanks for sharing!  Quite fascinating series of events.

It also seems that the 4 last investors took their time (25 minutes) before deciding to go ahead with their purchase.  Either their computer is very slow (unlikely); or there is a human making calculations and judgment calls.
Title: Re: Do I have this right?
Post by: Fred on August 31, 2013, 11:29:44 AM
Interested in your valuation, Fred. In fact, it might be fun to have a LendAcademy Forum LC IPO Valuation / Offering Price Thread.

Ha .. ha ..,  I am thrilled to hear this request from you, Bryce. ;)

Just to let everyone know that:

1. Anecdotally speaking, IPO is half art and half science.  It's almost similar to setting a price for a piece of painting.

2. People who does IPO got paid a good deal amount of money (about 5-7% of issued amount) -- http://www.pwc.com/en_us/us/transaction-services/publications/assets/pwc-cost-of-ipo.pdf.  If LC could raise $ 1B through IPO, that would be $ 50M for the syndicate.

3. Personally, LC IPO won't be as big as Facebook IPO (duh?); might not even be as big as LinkedIn's.  This should give you get an idea about my expectation.

4. See if you can recognize some of the recent IPOs:  http://www.nasdaq.com/markets/ipos/activity.aspx?tab=pricings.  What's important in that list is not the Price, but the Offer Amount, and more importantly how much of the company is represented by the Offer Amount.
Title: Re: Re: Do I have this right?
Post by: rawraw on August 31, 2013, 12:38:22 PM
Interested in your valuation, Fred. In fact, it might be fun to have a LendAcademy Forum LC IPO Valuation / Offering Price Thread.

Ha .. ha ..,  I am thrilled to hear this request from you, Bryce. ;)

Just to let everyone know that:

1. Anecdotally speaking, IPO is half art and half science.  It's almost similar to setting a price for a piece of painting.

2. People who does IPO got paid a good deal amount of money (about 5-7% of issued amount) -- http://www.pwc.com/en_us/us/transaction-services/publications/assets/pwc-cost-of-ipo.pdf.  If LC could raise $ 1B through IPO, that would be $ 50M for the syndicate.

3. Personally, LC IPO won't be as big as Facebook IPO (duh?); might not even be as big as LinkedIn's.  This should give you get an idea about my expectation.

4. See if you can recognize some of the recent IPOs:  http://www.nasdaq.com/markets/ipos/activity.aspx?tab=pricings.  What's important in that list is not the Price, but the Offer Amount, and more importantly how much of the company is represented by the Offer Amount.
I'd bet the share price is between 10 and 40! Now the size of the issuance....

Sent from my SAMSUNG-SGH-I747 using Tapatalk 2

Title: Re: Do I have this right?
Post by: Rob L on August 31, 2013, 06:09:11 PM
So it's Saturday morning and it's the 9 AM (EST) feeding at LC...
Guess you gotta spell it out for me. I do not doubt the accuracy of your post in the least, but why would a whale (or pod of them) behave in this manner?
Title: Re: Do I have this right?
Post by: Dennis on August 31, 2013, 06:45:25 PM
So it's Saturday morning and it's the 9 AM (EST) feeding at LC...
Guess you gotta spell it out for me. I do not doubt the accuracy of your post in the least, but why would a whale (or pod of them) behave in this manner?

It's called G.R.E.E.D.  How's it any different for institutions fighting for these limited notes than it is for us.  They have to compete for them in the same way we do, the difference being they seem to have unlimited amounts of cash and maybe superior software that allows them to quickly lock these notes out from everyone else, at least until they take what they want of them.  I'm sure institutions have just as many different investment styles as we do.  But it would take at least 2 large institutions (or 1 with 2 accounts) to temporarily lock a note out from the platform.  I've been watching this for weeks now, and I really don't see how small investors are instantly locking out large denominated loans, and then returning them from their cache in tandem back to the platform again, where maybe 4% of that note gets funded in those first few minutes.  And we all know by now that you can lock your position in a note without committing to it just by adding it to your pre purchase cache.  If you have enough money (institutions) you can lock out a lot of notes in an instant after they hit the platform, blocking others from getting to them, and then comfortably pick and choose amongst them.  Now of course this is all theory, I can't prove any of it and in fact I could be dead wrong about all this.  But the evidence seems to be overwhelming.  And I didn't come up with this on my own, it's been talked about in other places on this board.  I just summarized what others have already posted on this topic.  If I'm wrong though, I'm wrong.......
Title: Re: Do I have this right?
Post by: cfb on August 31, 2013, 09:09:25 PM
This is actually simplifying note buying.  Hit refresh from the drop time until you see the load of notes hit.  Hit the filter, select all, add to order.  Then look at the cart for 3 minutes and whatever doesn't go to 99%+ by then, remove because there's something wrong with it.  Everything else that hits 99%/closing is usually a decent looking note.

Speed to the point of purchase is still a little bit of a problem, but all these nice autobuyers with heavy institutional money developing sophisticated filters really helps with the decision making.
Title: Re: Do I have this right?
Post by: Dennis on August 31, 2013, 10:10:20 PM
Everything else that hits 99%/closing is usually a decent looking note.

I'm going to have to disagree on that.  That might of been true a year or two ago, but no longer.  Hell, I don't think that was true even then.  Everything gets funded now, including all the good, the bad, and the ugly (I think I hear a movie theme song somewhere).  I see some pretty retched notes get quickly funded these days, notes no one in their right mind would of touched a year ago, and I can't fathom why they get filled.  They're just awful looking and it doesn't take rocket science to figure out which ones they are.  But some defaults will happen regardless of how careful you are in note selection, and the more higher risk notes you invest in, the more defaults you're going to get.  That's just the way it is.  But that shouldn't be a problem though unless you're improperly managing risk.  Stick with as many $25 notes as you can bear (diversification), develope a consistent note selection criteria that works (time and experience will teach on that), and be realistic with your expectations.  I'm approaching 50k in notes now and I still only buy $25 notes.  I had my first default at the very end of my first year, and they haven't stopped coming since then.  But I'm still at a combined 15%+ return between 3 P2P accounts after 2 years, and I think that is mostly due to my exhaustive diversification efforts, hand picking ALL my notes (no tools), sticking as closely as possible to a preselected note criteria, and of course a bit of old fashioned luck.  So a little advice - don't assume because a note gets 99% funded it's a good one.  That's actually a very lazy way to select notes and I don't know too many lazy people who do well as investors.  And some will say that there is no such thing as a good note or a bad one - I'd like to see their returns in a year or two......   
Title: Re: Do I have this right?
Post by: cfb on September 01, 2013, 09:44:38 AM
Sorry, but that hasn't been my experience lately.  Most of the notes that fill or mostly fill within a minute or two look pretty good.  Most of the ones that are still <65-70% after a minute or so have at least one wart on them.  I still look at them, but I'm good with the vast majority of ones that go from release to closing in 90 seconds, and the ones that don't I usually don't care for either.

They're D-G notes, over 680 fico, no huge revolving debt (<35k), only credit card/debt consol/home improvement, working for 2+ years, no 'other' home ownership, no major derogs, no public records, make over 5k a month, payment close to 10% of the gross monthly income, 0 or 1 inquiry, credit line > 5 years, dti < 25 (preferably 20), no more than 2 delinquencies, and no 'spouse loans'.

Everything doesn't sell off right away either.  I see ~40-75 notes that are all A or B with some issues or lower grades with lots of issues that are hanging around for a while.  Interestingly, one note that was titled "Dallas Cowboys Rock!!!" filled halfway, then sat there for 2 days as non Cowboy fans were (I guess) turned off by the title, then the title changed and it did fill within the day.  Wasn't a bad loan, but wasn't a great one either.  I doubt the autobuys read and interpret the loan title, so it seems people are still well involved.

In fact (and I think I said this before), an analysis of what DOESN'T sell within 15 minutes is a good example of what not to buy.  Low interest notes, lots of inquiries, high debt, lots of defaults, low fico's, no job length/employer, 10+ years of credit history with a low revolving balance and few lines of credit (spouse loan because the other spouse has crap credit), very low income, and small business loans.
Title: Re: Do I have this right?
Post by: Fred on September 01, 2013, 11:29:24 AM
so it seems people are still well involved.

+1

This seems to apply to institutional investors as well.  The fact that institutionals held their notes in the cart for 25 minutes before committing the orders seemed to indicate that humans were still involved.

In fact (and I think I said this before), an analysis of what DOESN'T sell within 15 minutes is a good example of what not to buy.  Low interest notes, lots of inquiries, high debt, lots of defaults, low fico's, no job length/employer, 10+ years of credit history with a low revolving balance and few lines of credit (spouse loan because the other spouse has crap credit), very low income, and small business loans.

This sounds like a good project to do.  If you have done an in-depth analysis, I'd love to see what quantitative results you found.
Title: Re: Do I have this right?
Post by: Dennis on September 01, 2013, 03:02:41 PM
Sorry, but that hasn't been my experience lately.  Most of the notes that fill or mostly fill within a minute or two look pretty good.  Most of the ones that are still <65-70% after a minute or so have at least one wart on them.  I still look at them, but I'm good with the vast majority of ones that go from release to closing in 90 seconds, and the ones that don't I usually don't care for either.

They're D-G notes, over 680 fico, no huge revolving debt (<35k), only credit card/debt consol/home improvement, working for 2+ years, no 'other' home ownership, no major derogs, no public records, make over 5k a month, payment close to 10% of the gross monthly income, 0 or 1 inquiry, credit line > 5 years, dti < 25 (preferably 20), no more than 2 delinquencies, and no 'spouse loans'.

Everything doesn't sell off right away either.  I see ~40-75 notes that are all A or B with some issues or lower grades with lots of issues that are hanging around for a while.  Interestingly, one note that was titled "Dallas Cowboys Rock!!!" filled halfway, then sat there for 2 days as non Cowboy fans were (I guess) turned off by the title, then the title changed and it did fill within the day.  Wasn't a bad loan, but wasn't a great one either.  I doubt the autobuys read and interpret the loan title, so it seems people are still well involved.

In fact (and I think I said this before), an analysis of what DOESN'T sell within 15 minutes is a good example of what not to buy.  Low interest notes, lots of inquiries, high debt, lots of defaults, low fico's, no job length/employer, 10+ years of credit history with a low revolving balance and few lines of credit (spouse loan because the other spouse has crap credit), very low income, and small business loans.

I would agree to most of what you say.  Your criteria is very good and pretty much mirrors what I've used for the last 2 years.  So good job on that.  But it sounds to me that you're buying based on criteria and that's exactly what I said you should be buying on, not what is getting 99%+ funded quickly.  Like I said, I've seen some pretty retched notes quickly fill and for the life of me can't figure out why since they are so bad looking.  So that 99%+ fill rate wouldn't work for me, but we all have different styles of investing.  Also, some of those 99 percenters will return to the board 5 - 30 minutes later having been rejected by the big guys while they sat in their cache during that time.  So you won't know the true fill rate unless you click open each individual note to see how many investors in that note actually completed their purchase (the actual fill rate could be say 4% while the cache fill rate might show 100% for up to 30 minutes).  Hope you didn't get stuck in any of those as many of those look awful.  As long as 2 years down the road you're still happy with your returns, then there's nothing wrong with your method.  There's more than one way to skin a cat - as the saying goes.  Best of luck my friend.
Title: Re: Do I have this right?
Post by: cfb on September 03, 2013, 01:30:20 PM

This seems to apply to institutional investors as well.  The fact that institutionals held their notes in the cart for 25 minutes before committing the orders seemed to indicate that humans were still involved.

I find some good value in reading the titles and the comments, if any.  Those usually lean on the side of damning.  But if I see a loan with just a small wart on it but the title is all in caps, mis-spelled, and/or says something weird I take that as a sign and pass on it.

Quote
This sounds like a good project to do.  If you have done an in-depth analysis, I'd love to see what quantitative results you found.

Other than reading the past loan data (and I take that like past stock performance, not necessarily an indicator of future performance) I did dig into a few areas that I found little info on or made me curious.  I don't ding people for living in certain states like Florida and California.  Those had a lot of influence from overinflated home prices that popped, and unless that repeats I doubt that the default rate in those states will be much higher than norm.  While cost of living is high, job availability is also high and so are the incomes.  But someone making $3500 a month living in San Francisco would concern me.  I try to think about what economic circumstances may have influenced defaults and late payments, and consider whether those are likely to recur in the next 3-5 years, or if there may be different influences that might turn a source of defaults into regular payers.

I looked into the self employed (employer NA) and did a little research into historic credit card defaults on those, and it turns out that they sometimes pay late, but have a much higher rate of eventually paying.  Cash flow issues.

Most of the rest of my influence in looking at these was derived from the stories of lenders from the distant past.  The wise ones recognized people who were overburdening themselves with debt and tried to avoid being greedy and making their problems worse.  Because the borrowers problems tend to become the lenders problems, eventually.

Other thing that I seem to regularly spot is people who are trying to refi their small business debt as 'major purchase' or 'credit card consolidation' when its really a small business loan.  Sometimes its just something in the title, or its in the comments.  So maybe the institutional/autobuyers like to look at the titles or comments and chuck back a percentage of those since the SBL's default at a high rate.  That would explain why they sit in the cart for a while and some come back.  Probably makes good sense.

Dennis - my filters are pretty detailed, so not much ends up in my basket and what does is the cream.  I was kind of joking about the high speed filling making it easier to pick loans, but I do find that what doesn't fill right away, on further detailed examination, has an issue caught by the eye but not filterable.  Like a credit card loan titled 'buying new equipment for my business'.  But I do find that most of what passes my filters AND sells out right away generally look like very good notes.  Its an extra data point.

LC site was reeeeallly slow this morning.
Title: Re: Do I have this right?
Post by: Rob L on September 14, 2013, 06:59:56 PM
1) I don't see it quite that way. I would agree it would be no worse but I think probably not substantially faster.

But you do see that by necessity the examine-before-lock approach always requires one more HTTP request at minimum, right?  And that's only if your chosen note shows up first in your sorted list... fat chance.  "Substantially" is of course a relative term so I cannot argue with that.   

But what started all this is my saying that all notes can be bitten off with one chew, which I still believe.  I will be happy to prove this, but I will need a different test account.  Possibly from someone else on the forum who doesn't mind having their account locked and having to speak with Stephanie.  Please, all of you do not fill my PM inbox all at once jumping at this chance.  ;)

Mostly (yeah, I know I'm a little slow on the uptake, but I now agree and had some free time to look into the matter). If you already know the loan ID you want to buy you can pop it into your cart with one HTTPS request (not an unlikely presumption for an institutional buyer). However, each and every additional loan you add to the shopping cart requires another HTTPS request (unless the method is well hidden and I have not been able to find it). Once there, one can peruse the cart at their leisure. The API (for a single account and multiple loan purchases) is much faster, but has its own disadvantages.
Title: Re: Do I have this right?
Post by: Rob L on September 19, 2013, 12:10:05 AM
Mostly (yeah, I know I'm a little slow on the uptake, but I now agree and had some free time to look into the matter). If you already know the loan ID you want to buy you can pop it into your cart with one HTTPS request (not an unlikely presumption for an institutional buyer). However, each and every additional loan you add to the shopping cart requires another HTTPS request (unless the method is well hidden and I have not been able to find it). Once there, one can peruse the cart at their leisure. The API (for a single account and multiple loan purchases) is much faster, but has its own disadvantages.
I was so wrong. If you know the loans you want you can put them all into your shopping cart with one HTTPS request. Not hard to do or hidden at all. What was I thinking? :-[
Title: Re: Do I have this right?
Post by: core on September 19, 2013, 07:32:51 AM
I was so wrong. If you know the loans you want you can put them all into your shopping cart with one HTTPS request. Not hard to do or hidden at all. What was I thinking? :-[

That is good news.  Hidden in plain sight eh.  Do we know that the shopping cart exploit still works after the 8/28 updates?  We do know there are changes coming from LC in the very near future so it's possible the ability to lock them all up will go away when LC comes up with their Final Solution.
Title: Re: Do I have this right?
Post by: Joleran on September 19, 2013, 08:47:03 AM
That is good news.  Hidden in plain sight eh.  Do we know that the shopping cart exploit still works after the 8/28 updates?  We do know there are changes coming from LC in the very near future so it's possible the ability to lock them all up will go away when LC comes up with their Final Solution.

Sure, it still works.  I don't see that going away either, it would cripple anyone not using a note selection algorithm even more.
Title: Re: Do I have this right?
Post by: Rob L on September 19, 2013, 09:37:20 AM
One more experiment this morning. I successfully added a $4,200 purchase of a $5,000 loan to my shopping cart (84% of the total loan amount). Did another; $3,000 on a $3,800 loan (79% of the loan). It appears there is no 75% rule enforcement when adding loans to the shopping cart via the web interface (or the max allowed % is > 84%). If you have enough money you can put whatever you want in there. Obviously I didn't buy the things and the 75% rule may be enforced later at purchase time; don't know about that (and don't intend to find out). Purchases using the API may enforce the 75% rule; I don't know.
Title: Re: Do I have this right?
Post by: core on September 19, 2013, 09:54:55 AM
One more experiment this morning. I successfully added a $4,200 purchase of a $5,000 loan to my shopping cart (84% of the total loan amount).

Interesting!  Someone sitting on a lot of uninvested cash due to not being able to put it to work all at once (and it sounds like there are a few of you out there) could certainly cause a bit of trouble if they were so inclined.  Lock them all up and release them exactly 2 hours after the feeding times just to screw with the carefully timed scrapers.