Author Topic: When to go from $25 loans to $50 loans?  (Read 12291 times)

graceful

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Re: When to go from $25 loans to $50 loans?
« Reply #15 on: January 06, 2013, 12:45:54 PM »
Prosper did a nice analysis showing strong diversification (the reason to make many small instead of fewer large investments) once you reach 400 notes.

http://blog.prosper.com/2011/12/12/power-of-diversification-100-positive-returns-with-100-or-more-prosper-notes/?utm_medium=referral&utm_source=blog&utm_content=blog120601

The caveat is if you have been changing your strategy since you began (like most of us do) you may want to wait longer so that your current strategy is fully diversified.

IMHO The time invested in picking loans is substantial, and unless you never want to have this be a comparable investment for the time invested, you really need to be moving toward larger investments once you are solid in your strategy. However, I am the poster child for not getting overconfident and starting to raise your investment amount and reduce the time spent making selections too soon (my ROI went from 17 to 9 when I got over confident. I'm working out that self-inflicted wound and am coming back, but it will be another year or more before I reach 14 or 15).

There are several posts on the Prosper blog that you might want to review.
Path is Prosper.com / about Us / Blog
This is public and you don't need to be registered with Prosper to visit the blog.

A recent presentation about diversification takes a longer term view and you may want to watch it:
http://blog.prosper.com/2012/06/01/using-prosper-ratings-to-diversify-your-portfolio-for-more-consistent-returns/

graceful

dontvote

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Re: When to go from $25 loans to $50 loans?
« Reply #16 on: January 07, 2013, 08:38:12 PM »
It is telling that I asked the prosper salespeople if they had done any work on this exact question and they weren't able to point me to their own blog. And this was the 25K+ account size salespeople.

In reality this graph you linked to looks at portfolios with 400+ notes which may indicate more sophisticated or better investors or some other 'larger portfolio' bias. The right calculation with existing data would be to take the return distribution of every portfolio you could make with 5-5000 notes.  You will see that there is a point where adding an additional note doesn't appreciably affect your diversification. The classical example is the one of asset classes in your portfolio. You get limited 'diversification benefit' after 16 or so assets classes.

Without spending time on a calculation I will probably get wrong I think that number is around 150-200 notes in your given strategy (criteria set or filter). By definition, notes in a given filter (esp a really restrictive one) will have a higher relative correlation to other notes in that strategy. You can designate another strategy that can form a portfolio of notes that do not overlap your current filter and but have a similar risk return profile to improve your diversification. With 2 return streams like that you would need fewer notes to diversify each one.  So I would think a better investment strategy would be to pick 2-10 strategies (based on your portfolio size and ability to find awesome return groupings) that have the least overlap and invest 100 notes in each one. Remember what we're trying to diversify out - in the 'same strategy' think you're looking for unique risk - that of two guys with the same 'profile' one is a deadbeat. You also should diversify out the chance that you are an idiot and pick stupid loan profiles by curvefitting (with no curve) the data using too many filters.

Tl;dr: If you have one filter, you can be around 150 notes and be diversified, so knock yourself out with the $1000 per note thing. If you have multiple strategies that do not have significant overlap of loans you should chop your investments down across them.

Note: I know I'm countering a graph with an opinion.

Prosper did a nice analysis showing strong diversification (the reason to make many small instead of fewer large investments) once you reach 400 notes.

http://blog.prosper.com/2011/12/12/power-of-diversification-100-positive-returns-with-100-or-more-prosper-notes/?utm_medium=referral&utm_source=blog&utm_content=blog120601

The caveat is if you have been changing your strategy since you began (like most of us do) you may want to wait longer so that your current strategy is fully diversified.

IMHO The time invested in picking loans is substantial, and unless you never want to have this be a comparable investment for the time invested, you really need to be moving toward larger investments once you are solid in your strategy. However, I am the poster child for not getting overconfident and starting to raise your investment amount and reduce the time spent making selections too soon (my ROI went from 17 to 9 when I got over confident. I'm working out that self-inflicted wound and am coming back, but it will be another year or more before I reach 14 or 15).

There are several posts on the Prosper blog that you might want to review.
Path is Prosper.com / about Us / Blog
This is public and you don't need to be registered with Prosper to visit the blog.

A recent presentation about diversification takes a longer term view and you may want to watch it:
http://blog.prosper.com/2012/06/01/using-prosper-ratings-to-diversify-your-portfolio-for-more-consistent-returns/

graceful
dontvote

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rajuabju

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Re: When to go from $25 loans to $50 loans?
« Reply #17 on: January 10, 2013, 10:23:48 AM »
I have about $28k in LC right now. All in $25 notes. Granted, it took about 2years and I've been adding money every single week, but yea.

The only consideration I'd look at to go to a higher $ per note is if I wanted to invest a big chunk of money quickly. But I prefer the slow and steady approach.

SeanMcD

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Re: When to go from $25 loans to $50 loans?
« Reply #18 on: January 10, 2013, 03:37:40 PM »
I'm at about 900 notes with LC, and I just moved from $25 to $50 notes, at least partially.  What I'm doing initially is buying $50 notes for loans that are well above my filter settings, and staying at $25 for notes that just barely qualify.  After I have time to see how $50 notes move on FolioFn, I'll adjust - either go back to $25 notes or move the base up to $50 and start experimenting with $75 notes for better loans.  I'll try to remember and update the thread when that happens, but it will take at least a few months to get any useful info.

rawraw

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Re: When to go from $25 loans to $50 loans?
« Reply #19 on: January 10, 2013, 05:51:20 PM »
I'm at about 900 notes with LC, and I just moved from $25 to $50 notes, at least partially.  What I'm doing initially is buying $50 notes for loans that are well above my filter settings, and staying at $25 for notes that just barely qualify.  After I have time to see how $50 notes move on FolioFn, I'll adjust - either go back to $25 notes or move the base up to $50 and start experimenting with $75 notes for better loans.  I'll try to remember and update the thread when that happens, but it will take at least a few months to get any useful info.
Why don't you just buy 2x $25 notes?

SeanMcD

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Re: When to go from $25 loans to $50 loans?
« Reply #20 on: January 10, 2013, 06:43:13 PM »
I'm at about 900 notes with LC, and I just moved from $25 to $50 notes, at least partially.  What I'm doing initially is buying $50 notes for loans that are well above my filter settings, and staying at $25 for notes that just barely qualify.  After I have time to see how $50 notes move on FolioFn, I'll adjust - either go back to $25 notes or move the base up to $50 and start experimenting with $75 notes for better loans.  I'll try to remember and update the thread when that happens, but it will take at least a few months to get any useful info.
Why don't you just buy 2x $25 notes?

I'm not ruling that out as an option in the future.  Right now my goal is to make sure that the total number of notes doesn't grow so large that I can't keep an eye on them.  It's not a problem now, but I want to do some exploring before I'm at that point. 

I also don't know yet whether it will be any easier to unload 2 (or 3, 4, etc.) $25 notes for a given loan at the same time than it will be to unload a single higher-priced loan, since I'll be competing with myself.  It seems intuitive that a $25 loan will be easier to sell than a $50 loan, but I'd like to see if that guess matches reality.  Last year, when it was taking some time to get my initial deposit invested, I purchased a bunch of $100 notes that I later sold once I didn't have money sitting idle.  Looking back at my notes, I'm a bit surprised at how quickly most of those sold, most of them at markups between 1.5% and 2.5%.  They also tended to sell in small bursts, which makes me wonder whether there are investor groups using FolioFn that actually prefer larger notes to cut down on time spent shopping.  All conjecture, but since FolioFn doesn't make any information available about previous sales, the best I can do is try a few different methods and see which works.

william

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Re: When to go from $25 loans to $50 loans?
« Reply #21 on: January 11, 2013, 05:41:22 AM »
I'm at about 900 notes with LC, and I just moved from $25 to $50 notes, at least partially.  What I'm doing initially is buying $50 notes for loans that are well above my filter settings, and staying at $25 for notes that just barely qualify.  After I have time to see how $50 notes move on FolioFn, I'll adjust - either go back to $25 notes or move the base up to $50 and start experimenting with $75 notes for better loans.  I'll try to remember and update the thread when that happens, but it will take at least a few months to get any useful info.
Why don't you just buy 2x $25 notes?

I'm not ruling that out as an option in the future.  Right now my goal is to make sure that the total number of notes doesn't grow so large that I can't keep an eye on them.  It's not a problem now, but I want to do some exploring before I'm at that point. 

I also don't know yet whether it will be any easier to unload 2 (or 3, 4, etc.) $25 notes for a given loan at the same time than it will be to unload a single higher-priced loan, since I'll be competing with myself.  It seems intuitive that a $25 loan will be easier to sell than a $50 loan, but I'd like to see if that guess matches reality.  Last year, when it was taking some time to get my initial deposit invested, I purchased a bunch of $100 notes that I later sold once I didn't have money sitting idle.  Looking back at my notes, I'm a bit surprised at how quickly most of those sold, most of them at markups between 1.5% and 2.5%.  They also tended to sell in small bursts, which makes me wonder whether there are investor groups using FolioFn that actually prefer larger notes to cut down on time spent shopping.  All conjecture, but since FolioFn doesn't make any information available about previous sales, the best I can do is try a few different methods and see which works.

I've been doing this method for sometime now and the notes sell fairly well (I have nothing to compare it to since I only buy multiple $25 notes from LC). It's not really competing against yourself just as long as they are all priced the same. I have well over 1,000 notes and keeping an eye on them is not so hard.