Author Topic: How much is too much to invest in LC? and is it worth the effort?  (Read 25921 times)

DanB

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #30 on: September 13, 2013, 12:42:05 PM »
Remember that LC notes are UNSECURED debt- there is no underlying collateral to fall back on, unlike mortgage securities.

They are even "doubly" unsecured, so to speak.  Not only does the borrower have to pay, but Lending Club also has to have the money and be willing to give it to you.  You don't have any claim to any payments that the borrower makes to Lending Club... these notes aren't even secured by the loans.

If the worst happens, the copier paper and Chinese take-out will be paid for before we will see a cent.  All of those important expenses you incur on the eve before announcing a bankruptcy.

If you're going to throw 1/3rd of your cash in p2p lending, at least do it in 10+ different companies.   But oops, I guess that's not possible as there's only 2 available to non accredited investors in the U.S. and one of them has a foot in the grave already.   :-\

Keep talking like this & you'll never be invited to go on a cruise around the SF Bay!  :)

core

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #31 on: September 13, 2013, 12:57:50 PM »
Keep talking like this & you'll never be invited to go on a cruise around the SF Bay!  :)

Oh, I'm sure I'll get to see that yacht of his.  I just might be wearing concrete overshoes for the trip though. ;)

yaoyao

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #32 on: September 13, 2013, 01:41:22 PM »
I spend 350 a month on whole life insurance between me and the wife

You do know that cash value life insurance is a complete ripoff, right?  Originally conceived as a gimmick to prevent folks from canceling the policy when the budget got tight.  I was just surprised to see this coming from such an active investor type.  A certain someone (I won't mention his name) calls whole life "the payday lender of the middle class".  I thought it was a cute comparison.

I also own whole life insurance and borrow money from it as well.  If the policy is designed correctly, it is a very powerful tool.  Why do you think banks and big companies own huge amount of life insurance? 

A very good website http://theinsuranceproblog.com/ that talks about various aspects of life insurance.  Just keep your eyes and mind open.

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #33 on: September 13, 2013, 01:43:49 PM »
Yeah I guess you guys are right... I still see it as diversification even though it is one company to an extent... Millions of people are "diversified" with one company, whether it's American Funds of Fidelity or Chuck. It's still the same 'company' but offers diversification, so I guess the 'it's still one company' argument to me seems a bit kinda meh...

Life insurance I like because when I'm 45 (I've had it since 18 and I never have to get retested for health etc and I spend the extra 2 bucks a month so I can buy more whole insurance as I please every three years at the same premium as if I was 18) I can take a loan against the cash value of the policy thats tax free. Cash value is about 60% of what I've put in (plus dividends), and I never have to pay the 'loan' back, and my kids will still end up with six figures, but your right I do fully realize I could put that capital to better work, it's just a safety net I dont have to worry about - my cash value can never DROP from what it is stated at a years end. Really, northwestern mutual is mostly bonds. But your still correct - I could put that capital to better use.

I guess I had a vastly different '10%' than other peoples '10%' idea. My balking at 10% was an idea that 10% of investments seemed a bit low. Now that we're talking net worth, thats a vastly different number -  inclusive of home(s), employment retirement plans etc, yachts  :P

I'm finding this to be really a pretty fruitful conversation. Being new around here its interesting hearing where people rate this in terms of risk/return and portfolio weight.

I'll be 'reconfiguring' my ideas as the months pass here.
« Last Edit: September 13, 2013, 01:48:56 PM by DutchNurse »

Abberation

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #34 on: September 13, 2013, 01:46:06 PM »
Lets say you were a 27 year old kid in public accounting making ~$60k a year and hating life. You're sucking it up and living with your parents so you can put almost 100% of your earnings into investments in the hope that you can retire, or at least move into a field that pays less but that you enjoy, by your 35th birthday. Lets say you had like $100k in LC, and only like $10k in a dividend growth ETF like VIG. What would you do from this point on?

As an auditor, I've worked on some PE and Hedge Funds, so I know how rigged the Wall Street game is. I put so many of my eggs in LC because I believe the 2008 crisis weeded out the bulk of "bad workers" who would get laid off and would default if another crisis were to hit. I see first hand how many companies are working with skeleton staff, and can't afford to lay off many more people.  I know how important diversification is to reduce idiosyncratic risks, but I'm incredibly jaded by the movements of the stock market and the phantom recovery which I'm pretty certain will collapse at some point in the next few years (perhaps due to Muni defaults). I figured that LC would get hit less badly than the markets in general, and who knows when they will recover, if at all.

Does this make sense? Should I suck it up and start funneling my money into stocks? I'm curious what some of the more experienced investors here would do if they were in my shoes.

rlv99

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #35 on: September 13, 2013, 01:59:57 PM »
What would you do from this point on?

Wow, abberation!  I think I might find a rich woman to marry and forget about the markets.  You may be too jaded to invest in anything and sleep at night.
« Last Edit: September 13, 2013, 02:01:37 PM by rlv99 »

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #36 on: September 13, 2013, 02:01:36 PM »
Inexperienced with LC but...Maybe inexperienced in terms of life in general - but I have a decade of stock market and if this is you...

...I'm in a similar situation to you (if this is you) and I think its easy to think the same way - fearful about where to put the money.

First I like the stock market a whole lot more than LC...

I like how your at least in a lower cost ETF than a mutual fund (which are all CRAP. The best ones simply match the SnP - and if your lucky they charge you 2% to do so). But just play the market by yourself, learn what CANSLIM is, stick to a strategy you'll end up much better off. Heck, one of the best back tested strategies is to every year buy the top 10 dividend payers in the dow, and repeat, cycling stocks as their yields change. Dogs of the Dow. Easy peasy.

IF you can STRICTLY stick to your strategy (takes guts) in the market and weather storms historically the S and P has almost everything beaten on a long enough time scale and thats what I look at. I'm young, and time is on the side. If there is another crash I'll just buy on the way down systematically and ride it back up. I'm not retiring for quite some time. It's hard to get cynical about dull companies like crown cork and seal or neenah paper.


Of course I also know a guy who retired, took his entire (almost 400k IRA) and bought bonds in a local nuke plant during construction at 14% that was tax free because these particular bonds were municipal contributions to the plant construction. Guy never looked back. Makes life simpler...But I could also win the lotto.

Read books by Peter Lynch, 'how to make money in stocks' by bill o'neil, intelligent investor by ben graham, all the books by James O'Shaughnessy (what works on wall street!)...I can't think of too many more at the moment, but I'm self taught and seem to do very well with information from those.
Eagerly awaiting to hear more from my elders here.
« Last Edit: September 13, 2013, 02:08:44 PM by DutchNurse »

Abberation

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #37 on: September 13, 2013, 02:11:28 PM »
What would you do from this point on?

Wow, abberation!  I think I might find a rich woman to marry and forget about the markets.  You may be too jaded to invest in anything and sleep at night.

Haha, the more you learn about the workings of the markets, the more you realize things are held together with a lick and a promise. It's hard to eat sausage when your job is making sausage, or at least auditing the sausage makers. Maybe I am too jaded and untrusting of the markets, I just can't see how 8-9% yearly S&P index growth will keep happening when revenues are flat and all the EPS growth is coming from cost-cutting. Consumers just don't have the money to spend. I guess this is why I tend to stick to a dividend growth strategy, at the very least I know I have the yearly dividend coming in, and that it will grow every year.

 
   

rlv99

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #38 on: September 13, 2013, 02:36:17 PM »
......I just can't see how 8-9% yearly S&P index growth will keep happening when revenues are flat and all the EPS growth is coming from cost-cutting.

If you truly believe this then your "dividend growth strategy" is flawed as well.  Take AT&T, as an example.  It's touted as a top-dividend payer yet, if you look closely, you find a large underfunded pension account, part of which they are actually directly "funding" from cash flow.

When I was your age, back in 1957, I had the same concerns!  Can't remember what the Dow was back in '57, but it was a whole lot less than it is now!

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #39 on: September 13, 2013, 02:47:46 PM »
What would you do from this point on?

Wow, abberation!  I think I might find a rich woman to marry and forget about the markets.  You may be too jaded to invest in anything and sleep at night.

Haha, the more you learn about the workings of the markets, the more you realize things are held together with a lick and a promise. It's hard to eat sausage when your job is making sausage, or at least auditing the sausage makers. Maybe I am too jaded and untrusting of the markets, I just can't see how 8-9% yearly S&P index growth will keep happening when revenues are flat and all the EPS growth is coming from cost-cutting. Consumers just don't have the money to spend. I guess this is why I tend to stick to a dividend growth strategy, at the very least I know I have the yearly dividend coming in, and that it will grow every year.

 
 

I completely agree with earnings propped up by cutting. But earnings are still what matter. I see what your saying, but think of it this way:

Cost cutting --> boosting earnings now --> they have more available capital to allocate toward future growth operations, paying down debt, hell even investments or new equipment/retooling. All of that can mean a bigger, more solid bottom line going forward funded more on cash than credit - and thats what counts. Future expectations. Honestly? The economy is evolving, companies need to too. Laying off a workforce to reorient operations ala best buy was NECESSARY. In the future, best buy can pop back with their new strategy. True, it will never be the best buy hell hole I remember from 10 years old christmas shopping with lines moving slower than the DMV, but whats important is that, as a reconfigured corporation without big box? It could potentially experience new growth.

Any way you look at it, when a companies earnings go up big time, its a win. Even if it is from cost cutting and layoffs - IF that company is successfully evolving in life after the cuts. But this also depends on the sector you audited. Retail? Sure this cost cutting bullcrap happens all the time... But Union Pacific (which I've been long for like 4 years now) is always going to be Union Pacific  and thats not going to change much. They have monstrous engines, cars, lines and there aren't even a boatload of cutbacks available to this type of company.

It's true, lay offs and pension renegotiations are a great way to boost a quarter. If it looks like that company has a good plan with which its going to direct the saved capital? It's seen as a good thing. If its a company turtling up into it's shell before it's finally snuffed out, it's a bad thing. Thats what fundamental analysis is all about.

One thing you can be sure about: that cost cutting earnings propping is happening. Companies are making windfall profits. If they can't use that money for future growth though and change themselves like the economy demands? It's still a dead company.
« Last Edit: September 13, 2013, 02:55:47 PM by DutchNurse »

Rob L

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #40 on: September 13, 2013, 04:08:54 PM »
Read books by Peter Lynch, 'how to make money in stocks' by bill o'neil, intelligent investor by ben graham, all the books by James O'Shaughnessy (what works on wall street!)...I can't think of too many more at the moment, but I'm self taught and seem to do very well with information from those.
Eagerly awaiting to hear more from my elders here.
Very good books; read them all and many more. There's also these classics; "A Random Walk..." Malkiel, "Extraordinary Popular Delusions..." by Mackay and more. My personal favorite and my nomination for the best is an unknown known title "The Speculators Edge" by Pacelli. A great read! I'd be interested to hear from anyone else who may have had the pleasure of discovering it. It's probably still available on Amazon.

Rob L

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #41 on: September 13, 2013, 04:18:05 PM »
I just can't see how 8-9% yearly S&P index growth will keep happening when revenues are flat and all the EPS growth is coming from cost-cutting.
Not to mention company stock buy backs boosting their EPS (or so I've heard). I don't follow stocks closely though.

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #42 on: September 13, 2013, 04:35:11 PM »
That could happen if there is a large buyback and the stock pays a nice dividend - the company will save money that it would have previously distributed to shareholders. It CERTAINLY boosts shareholder equity though - thats sometimes actually a main component of these old boring but reliable stocks are winners.

I'll check my library for spectators edge... ;D
« Last Edit: September 13, 2013, 04:38:33 PM by DutchNurse »

Rob L

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #43 on: September 13, 2013, 06:49:21 PM »
The games they play... Acquire a company with low PE. Their earnings become your earnings at a your higher multiple. That was very popular back in the day. Think that trick stopped working a couple of decades ago; but then again I don't keep up with this stuff any more. Maybe its made a comeback.
« Last Edit: September 13, 2013, 08:53:28 PM by Rob L »

Cries

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #44 on: September 13, 2013, 07:39:25 PM »
Now the trick is the opposite. 

You have a low multiple >>> buy lots of companies with higher multiples using lots of debt >>> ???  >>> you have a higher multiple.

Look at VRX, lol