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Wouldn't I have lost a few % by selling it when it hit 680? I don't see a lot of notes sell for a premium when they have a big fico dropCheck out the Peercube blog https://www.peercube.com/blogHmm I just looked through my portfolio and found a note for example that had the following fico scores.
Anil has done some research and has shown that 50 point or more FICO drop notes have a 50% chance of defaulting. I don't like those odds, therefore, I sell notes that drop that far. The reporting doesn't clarify why they drop but it would be for any of the normal reasons: missed payments, too much credit used, poor debt to income ratio, etc.. You can have an 800 credit score and it drops to 750...you are gone from my portfolio. Those notes sell well. I assume because it is still a 750 FICO as opposed to something like a 600 dropping to a 550.
750(original) then 700 then 680 then 750
Based on your rule I would have sold it but it jumped back up to 750 and might have missed out
Sure, you would have or you would have sold it for +1 or 2% or broke even on it. The chance is 50% that it fails or that it plays out fine. It is a coin flip. Half of the notes I sell on down FICO will be fine. As I do this I slowly weed out the 'bad' notes. The ones that drop that much are usually in the first few months. I rarely have a note that is older than 10-12 months do anything drastic up or down.
I am not trying to sell you on the strategy I choose to follow; I could care less. I look at it as a pretty reliable way to flush notes out of my portfolio that have a 50% chance to fail. It has worked for me. It isn't perfect but if you find a way to perfectly predict how a note is going to perform I would love to hear about it.
Check out the Peercube blog https://www.peercube.com/blogHmm I just looked through my portfolio and found a note for example that had the following fico scores.
Anil has done some research and has shown that 50 point or more FICO drop notes have a 50% chance of defaulting. I don't like those odds, therefore, I sell notes that drop that far. The reporting doesn't clarify why they drop but it would be for any of the normal reasons: missed payments, too much credit used, poor debt to income ratio, etc.. You can have an 800 credit score and it drops to 750...you are gone from my portfolio. Those notes sell well. I assume because it is still a 750 FICO as opposed to something like a 600 dropping to a 550.
Yeah, yea. Easy to do in one of the most benign credit environments we've seen in a while. Lots of people did the same thing for years in cre and subprime loans. Good luckAny chance you can post your Understanding Your Returns page?
My tracking at this point is just what I usually remember or scribble down on some paper. I only have 500+ notes so I don't have a huge amount of money in this. My discount percentages are what I have learned from trial and error on Folio. Down trending current notes almost never sell for more than +2% and that is rare. Grace period notes of any type never go for more than -10%, in my experience. The amount that sell at -10% is not worth my trying it at that price point to waste the day of grace period it would take to see if it sells so I start at -15%. Bad notes may fall all the way to -30% or more in grace period before they sell but that is a darn sight more than you will get on a bad note that is 16-30 days late. The biggest thing that hurts your returns in this are notes that default. So, every penny you get before that point makes a big difference in your returns.Thanks for the info, I appreciate you sharing. Why do you sell the FICO drop notes? (is this usually the creditor going out and looking for more credit?)
What I have personally noticed is that once a late payer...there is a good chance they will be again and/or an eventual default happens. Others may disagree and they may have the data to back them up. I am sure someone out there is successful with a 'grace period buying strategy'. I don't know what it is and I don't care to figure it out at this point. What I can tell you is that dumping any/all grace period notes has helped my returns. So has selling 50 point or more FICO drop notes. Every month Lending Club posts FICO scores I go through my notes with a fine tooth comb. Incidentally, that's why Prosper's lack of FICO updates every month drives me bananas.
Maybe I have divulged too much!
When mine go grace I threw them up for sale at -15%. Each day I mark them down 5% until they sell or they go even later (in which case I take the markdown to -40%) or they pay and go back to normal. Even if they go back to normal, I mark them for sale at a 'normal' rate and then discount them until they sell.Are you happy with this strategy? Have you tracked to see if it performs well for you
