Author Topic: More gaming of the system ver 2.0?  (Read 14925 times)

Rob L

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Re: More gaming of the system ver 2.0?
« Reply #30 on: August 21, 2013, 12:19:57 AM »
Well, it wouldn't be the first time I was wrong and Peter that's certainly a plausible explanation. When people see me wearing my tin foil hat I do get the feeling it damages my credibility a bit.

Maybe I don't understand well enough how the API works. A couple of large investors love the loan and each want play by the rules and get their legal limit of 75%. They both put in a buy order for $4,125 at lightning speed. The first one there gets the $4,125 and the second one gets what's left; $1,375. The LC server does the subtraction and only gives the second guy what it can. End of loan. Okay, I can understand the two large buyer scenario, but we have 4. Maybe one large and three small, but with $1,375 left after the big guy the little guys are still looking at notes about $450 each (not small to me). I have trouble figuring out how this pie was sliced into 4 pieces in 10 seconds by 4 "people" that don't know how much the other is buying. Additionally all four buyer's loan evaluation models had to agree this was one terrific note; something that rlv99 doubted in an earlier post in this thread.

It's easier for me to believe this loan was carved up into 4 pieces and bought by a single entity in a single API transaction. Imagine you are managing money for a few dozen wealthy clients. You have a LLC set up for each client, each with its own EIN, brokerage accounts, etc. You think P2P lending is a dandy investment for some of your clients so you open LC accounts for each of them, get a computer, sprinkle with software and begin purchasing notes. One computer, one API transaction, four notes for four client accounts. Nothing sinister going on here. Everything's on the up and up. Now change things just a bit. Rather than managing money for four individuals, you are a single wealthy individual or corporation with four LLC's (I know people who have had dozens). What if you're a boutique hedge fund with 100+ LLC's. We've gone all the way from everything's on the up and up to what I guess most would say is an end around the 75% rule. Either way no individual investor had a chance to buy any of this fractional loan. Even if I'm wrong about this specific loan, the scenario I described isn't one that's only for us tin foil hat guys. It renders the 75% rule totally ineffective.

In my original post I questioned whether or not this loan, if purchased by a single entity as I posit, breaks the 75% rule. A few days later I put the following on Bryce's "Fairer Solutions to Excess Investor Demand" thread:

The first order of business is to make LC aware that the 75% rule is not working as they initially intended (promised), and find out if they are interested in fixing it

I think we are having this discussion because we believe the 75% (70%?) rule as it was envisioned by LC does not work. LC may disagree, but several ways around this rule for larger investors have been discussed. Many of us believe these methods and perhaps others we haven't imagined are being used today to skirt the rule. My understanding is that LC put this rule in place specifically for the benefit of the small retail investor in the spirit of compromise at the same time they implemented the whole loans program for the benefit of large investors. All we are asking LC to do is to fix the 75% rule to prevent its circumvention and abuse by larger investors. We are not asking for anything new; only something that works as LC intended in the first place.

LC is drinking from a fire hose of investor demand and growing like crazy. There's that IPO thing out there and I agree that if anything is to be done LC must see it as very low risk and not a chance to mess up the good thing they have going. Only if LC is even willing to engage in a discussion concerning the broken 75% rule need we take the next step and propose solutions. I do believe that a few simple changes as suggested in this thread and perhaps others, would go a long way toward restoring the operation of the rule as LC intended in the first place.

cfb

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Re: More gaming of the system ver 2.0?
« Reply #31 on: August 22, 2013, 07:41:34 PM »
There is one positive aspect to all of this.  You can look at the note inventory about half an hour before one of the 'drop times' and see exactly what notes you don't ever want to buy look like, because they're pretty much what everyone else passed on.  You might even be able to develop a nice little filter that excludes notes with those characteristics.

For a while I bought notes that were recent drops that were close to selling out, figuring I might be getting the collective wisdom of many different investment approaches.  But those notes are (so far) not doing much better or worse than average.

Fred

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Re: More gaming of the system ver 2.0?
« Reply #32 on: August 23, 2013, 01:42:43 AM »
There is one positive aspect to all of this.  You can look at the note inventory about half an hour before one of the 'drop times' and see exactly what notes you don't ever want to buy look like, because they're pretty much what everyone else passed on.  You might even be able to develop a nice little filter that excludes notes with those characteristics.

These leftover loans are not visible to FOLIOfn investors, so it is quite possible to make easy money on them.  Buy them on LC, and once issued, immediately sell them at a premium on FOLIOfn.  Might be an easy 5% in a week. 

core

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Re: More gaming of the system ver 2.0?
« Reply #33 on: August 23, 2013, 01:53:48 AM »
Might be an easy 5% in a week.

Yup, might be, and if so, then the better notes that you were trying to get would be even easier to turn a profit on than the leftovers.  Even 1% in a week beats the pants off of the highest note APR.  Therefore I conclude nobody should be holding any notes in their account at all if this is the case.  ;)

Fred

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Re: More gaming of the system ver 2.0?
« Reply #34 on: August 23, 2013, 02:25:16 AM »
Might be an easy 5% in a week.
Yup, might be, and if so, then the better notes that you were trying to get would be even easier to turn a profit on than the leftovers.  Even 1% in a week beats the pants off of the highest note APR.  Therefore I conclude nobody should be holding any notes in their account at all if this is the case.  ;)

The premise for selling these leftover notes immediately on FOLIOfn is to make profit out of knowledge discrepancies. 
 
If you take into account the time for idle cash (which might be another 2 weeks), then this scheme would produce much lower yield.

Some people in this Forum already (programatically) log in a few minutes prior to feeding times anyway, so a bit more coding can monetize this little knowledge-arbitrage opportunity.

core

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Re: More gaming of the system ver 2.0?
« Reply #35 on: August 23, 2013, 02:35:59 AM »
2 weeks of idle cash?  Aren't there leftover notes each and every cycle?  If you checked 5 mins before _and_ right after feeding times, I would think you'd be able to get 100% invested all the time.  Unless you're talking about 2 weeks of LC keeping the loan in review.

Me, I have never been able to sell an issued note for more than 1.07% markup.  But then again I don't hold out at a fixed price for weeks because I don't want to get stuck with it.  Taking into account the 1% fee I'd be barely breaking even best-case.  My mean price is -0.32% so I would lose money each week if I tried this.  Or wind up getting stuck with the notes if I was firm on my asking price.

If one wanted to take a tiny bit of risk it would be wise to hold onto it until one payment has been made because then the price really jumps.  These are A-B notes anyway we're talking about, so I assume the number of 1st month defaults is rather low. 

Fred

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Re: More gaming of the system ver 2.0?
« Reply #36 on: August 23, 2013, 02:54:23 AM »
2 weeks of idle cash?  Aren't there leftover notes each and every cycle?  If you checked 5 mins before _and_ right after feeding times, I would think you'd be able to get 100% invested all the time.  Unless you're talking about 2 weeks of LC keeping the loan in review.

Think about implementing this strategy in a separate account, with X dollars set aside.  The performance of the strategy should include idle cash.

Yes, 2 weeks of time includes the time when the money is not accruing interests, or tied in notes pending sales.  Also includes money tied to "In-Review" notes that later get cancelled.

Me, I have never been able to sell an issued note for more than 1.07% markup.  But then again I don't hold out at a fixed price for weeks because I don't want to get stuck with it.  Taking into account the 1% fee I'd be barely breaking even best-case.  My mean price is -0.32% so I would lose money each week if I tried this.  Or wind up getting stuck with the notes if I was firm on my asking price.

All my FOLIOfn "current notes" sales have been at a mark-up of 3% or more.  Often at 6%.  You might need to relist them a few times though.

If one wanted to take a tiny bit of risk it would be wise to hold onto it until one payment has been made because then the price really jumps.

Then we are talking about months, rather than days.  I am thinking that this is probably the best place to implement high-frequency [days not milliseconds :)] P2P arbitrage.

These are A-B notes anyway ....

I have seen quite a few Cs, and sometimes D & E.  I keep track of these in my log file.

Regardless, given the knowledge discrepancies, FOLIOfn investors might consider these as any other A-B notes, so the premium of having  low default in general A-B notes might help expedite the process.
« Last Edit: August 23, 2013, 03:06:21 AM by Fred »

core

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Re: More gaming of the system ver 2.0?
« Reply #37 on: August 23, 2013, 03:12:44 AM »
All my FOLIOfn "current notes" sales have been at a mark-up of 3% or more.  Often at 6%.  You might need to relist them a few times though.

That's for status="Current" notes though right?  Meaning 1+ payment has been made.  What about the status="Issued" notes, the brand new ones?  You're saying you always get well over 1% on those?

cfb

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Re: More gaming of the system ver 2.0?
« Reply #38 on: August 23, 2013, 09:17:52 AM »

The premise for selling these leftover notes immediately on FOLIOfn is to make profit out of knowledge discrepancies. 

So it sounds like this strategy is dependent on having a ready supply of underinformed investors.  Probably likely to continue at some level, but as more people selling employ that strategy, it'll take longer and longer to dump the less good notes.

I actually set an alarm to check at the 9am(est) dump.  At 6:00 there were 38 notes, none of which even remotely met my criteria.  Refreshing every second, at 6:01 there were around 160 notes and my filter grabbed 29.  I clicked 'all' and added them all to my cart and only got 22, half of which were 'closing'.  About 15 met my eyeball checks (no <3500 income, no huge debt loads, no funny stuff in the comments, etc).  I went back and got about 8 more that apparently got snapped up and thrown back.  4 of those made <2000 (one was 700 a month!).  Then at 6:05 there were 90.

So finally I got some notes!   Thats more than I've been able to write in the last 2 weeks, many of which didn't fill for whatever reason.  I suspect there are a lot more scammy people these days trying to grab some cash.  I'm amazed how many notes get issued, only to have the borrower declare bankruptcy within a month or two.  That should be fraud.

Randawl

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Re: More gaming of the system ver 2.0?
« Reply #39 on: August 23, 2013, 10:50:35 AM »
All my FOLIOfn "current notes" sales have been at a mark-up of 3% or more.  Often at 6%.  You might need to relist them a few times though.

That's for status="Current" notes though right?  Meaning 1+ payment has been made.  What about the status="Issued" notes, the brand new ones?  You're saying you always get well over 1% on those?

I can get 3% on freshly issued notes consistently if they are pristine and generally carry of rate of 20%+.

core

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Re: More gaming of the system ver 2.0?
« Reply #40 on: August 23, 2013, 11:26:37 AM »
I can get 3% on freshly issued notes consistently if they are pristine and generally carry of rate of 20%+.

How can a freshly issued note be anything other than pristine?  :)  I suppose someone could call in with BK info even before the first payment is due and generate some collection notes.  But interesting nonetheless.  Either I'm doing something wrong or you're not getting most of your freshly issued notes sold each time and these are just occasional sales.  Man, I hate holding a note when a payment is about to come due.  First one is even worse.

Randawl

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Re: More gaming of the system ver 2.0?
« Reply #41 on: August 23, 2013, 03:55:51 PM »
I can get 3% on freshly issued notes consistently if they are pristine and generally carry of rate of 20%+.

How can a freshly issued note be anything other than pristine?  :)

Haha, I mean to imply that their attributes and characteristics are highly sought-after and favorable.  Haven't you read any of Sarah's posts!?      ;)
You're right, they are just occasional sales.  I would estimate 5-10% of those kind get sold with that premium.