Author Topic: How much is too much to invest in LC? and is it worth the effort?  (Read 24931 times)

Fred

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #45 on: September 13, 2013, 08:24:48 PM »
Defaulted loans don't come back, you just lose.

Fortunately, this is not always the case. 

In risk modeling world, we have a special term for this: Loss Give Default (http://en.wikipedia.org/wiki/Loss_given_default), and it varies from 0% to 100%.

If you see the Loan Status Migration Over 9 Months section in https://www.lendingclub.com/info/statistics-performance.action, for Default loans (i.e., loans late 120+ days) LC shows a 86% loss, which also implies a 14% recovery rate.

Even for the charged-off notes (worst type of default), LC Form 10-K shows a section about "Dollars Received on Charged-Off Loans" (see page 40 in http://www.sec.gov/Archives/edgar/data/1409970/000119312513329399/d545900d10q.htm).

So, some defaulted loans do come back.

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #46 on: September 14, 2013, 02:33:01 AM »
I could care less about pe of a stock really. Look at Cisco systems before it went up 10,000% (and there are countless other examples!). Pe is a lagging indicator. The game never was but a low pe stock - that - if and when it happens to be is coincidence; correlation yes but not causative correlation.

Not that there is any one golden metric any how... But I cringe a bit when pe is inferred as the all important metric  :-[
« Last Edit: September 14, 2013, 02:37:44 AM by DutchNurse »

Cries

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #47 on: September 14, 2013, 04:17:54 PM »
Dutchnurse,

I should introduce you to my friend in equity research, covering the tech/semi space.

Countless times have I heard about he loves to value companies based on applying made-up PE multiples to their projected 2016 EPS.

/facepalm

DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #48 on: September 15, 2013, 12:49:56 AM »
I realize its not popular to say PE (note: I'm talking about ttm pe as its normally reported - not forward pe) isn't important... But if a company has enough recent history of earnings growth and I have reason to believe it can continue, pe is really a lagging and thus maybe not the most meaningful value. I'm not saying I never look at it, I'm very likely not going to pay 200 dollars for a dollar of earnings... But there are plenty of companies (and not akways tech) that grow so fast in their first ten years of business that a pe of 50 wouldn't scare me. I never said its meaningless - I just said the first thing you should look at is earnings growth.

If you are never willing to entertain stocks with pe higher than 25 or even 50 you can miss big and that IS back tested fact.

Xerox, syntex, northern pacific railroad (1900), gm (1913-1914), Genentech, RCA, rexal (Tupperware), McDonald's (67-71), google, aol, levitz furniture, Amgen, Houston oil and gas, hansens natural drink (monster energy drinks), cisco( lol!), apple started rocketing in like 03-04 and kept going, and there's dozens of others...

These all had absurd pe values when they were climbing, but as the earnings grew, their pes eventually began to look more reasonable interestingly enough as their earnings growth declined and the prices caught up to rational levels for their earnings. Generally is you have waited for a "reasonable pe" on any of the above stocks - you've missed the vast majority of their explosive growth.

But it is probably true that a higher pe stock is not always the way to the least volatility.

« Last Edit: September 15, 2013, 12:56:49 AM by DutchNurse »

investforfreedom

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #49 on: September 15, 2013, 01:15:38 AM »

These all had absurd pe values when they were climbing, but as the earnings grew, their pes eventually began to look more reasonable interestingly enough as their earnings growth declined and the prices caught up to rational levels for their earnings. Generally is you have waited for a "reasonable pe" on any of the above stocks - you've missed the vast majority of their explosive growth.


You are lucky enough not to have to live through the tech bust starting 2000.  You were, 14 then, I suppose.  But I wasn't so lucky.  So many stock analysts at that time joined in chorus cheering for Wall Street darlings such as Broadcom (BRCM), PMC Sierra (PMCS), Juniper Networks (JNPR).  They were so caught up with the brave new world of the internet revolution that they believed valuations at triple digit p/e multiples (3-4 hundreds and more) were completely justified.  BRCM traded as high as 180, but it has been treading water since then and is trading at only 26.  JNPR shot up to around 250, where is it now?  At its height, PMCS was asking for 264; it is now worth around 6 bucks! 

Experience is the best teacher as far as the market is concerned, not bookish type of knowledge, IMO.

« Last Edit: September 15, 2013, 01:20:13 AM by investforfreedom »

cfb

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #50 on: September 15, 2013, 08:42:04 AM »
PE (along with many other stats used) is a highly manipulated figure, and many of the things done to artificially raise or lower these stats can be harmful to a company long term.   I've come to the sad conclusion that many business leaders don't care much about the long term health of the company, just about the next couple of quarters and how much their next bonus payment is worth.

All you have to do to have your eyes opened is take a look at the long term performance of companies who pay out large dividends vs the ones that 'reinvest the money into the business'.  The ones that hand over the cash do better over the long haul than the ones that spend the money themselves.  Which means that on the whole, company management is a bunch of bumbling idiots who can't effectively spend money.  Bad place to start.

However its a sad truth that the only places an investor can make money these days is the stock market (pumped up with artificially low interest rates, bailed out zombie companies, banking and regulatory fraud and all sorts of shenanigans like Japan has been doing for decades), risky things like lending club, or ridiculously low rate or high risk endeavors.

I wonder at times if our money is being herded out of low risk protected investments into the open where it can be stolen more easily and efficiently.

The big eye opener for me was going to my doctors office about six months after the enron/tyco/worldcom fiasco's and finding all the year old financial/investment rags going on and on about how these stocks were 'super blue chip', 'must owns' and 'the core of every portfolio', along with all the reasoning for those positions.  Truth is, it was all lies, fraud and manipulation.

They've just gotten better at hiding it and the parasites less concerned about killing the host.  "I've got mine" is the new mantra, from the real estate debacle to aluminum hoarding.

At some point interest rates have to rise or we'll become Japan.  Mired in low interest rates and companies that can't perform if they're raised, and an economy so fragile it can't operate in a real market manner.  We dug ourselves into a huge debt hole and we don't seem to have the courage to pay the bills and work our way out of the hole, instead we're just hanging around hoping it'll fix itself and get better in a pain free manner.  Not.  Going.  To.  Happen.

Watch your cash kids...

Abberation

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #51 on: September 15, 2013, 10:19:02 AM »
You hit the nail on the head CFB. Trust me Dutch, I've very well versed in investing, I understand PE ratios and any financial measures you want to bring up, it's my job as an auditor to understand. The problem is, the more you know, the more you understand just how easy it is to manipulate numbers, just how easy it is to get things past auditors. I could write a novel about why the stock market has grown so much between 1960 through today, but suffice to say, things are much more fragile then you'd believe. The only ones verifying these numbers are a bunch of 20-30 somethings, with a couple hands-off partners that only care about covering their asses, up against billion dollar companies with teams of financial wizards, many of whom started out in audit and know the procedures better than anyone. And that's just at the reporting level, add in job loss due to technological advances, increased education leading to higher competition and wages that have been stagnant for 15+ years, and where is all this 8-9% a year growth going to come from? Besides printing more money of course :) . It's all inflation, printed money with no where else to go but the stock market.

AnilG

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #52 on: September 15, 2013, 01:28:24 PM »
IMO, the discussion about stock market should be split into a separate thread. I have been investing in stock market for 20 years and it has been the primary wealth-builder for me. Hopefully, I know something and it wasn't just pure luck for me.
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DutchNurse

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #53 on: September 15, 2013, 05:41:22 PM »
Agreed.

I'm actually learning from everyone here - so I apologize if anything has heated up tempers, so first and foremost, thank for all the responses I love to hear them and that's why I am here and I AM grateful for the opinions of people who very likely know more than me.

All this tells me is that I have alot more to learn :)

Xin

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Re: How much is too much to invest in LC? and is it worth the effort?
« Reply #54 on: September 23, 2013, 09:30:50 AM »
Didn't that Morningstar study in 2010 show that PE10 was a crap variable and the one that mattered most was expense ratio? (funds, not individual stocks, of course)