Author Topic: What point for you is the point of steeply diminishing marginal returns to time?  (Read 8966 times)

Xin

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I use LC passively (set filters and invest) and I hardly spend any time at all on it anymore. I just withdraw money every month. Many of you lenders with higher ANARs seem to invest far more time in LC management. Me, I've never even looked at Folio. After doing the bare minimum of due diligence several years ago, and tweaking my filters every year as NSR and IR became available, I've stopped pretty  much everything. My 8% ANAR is fine.

Where do you guys draw the line?

runnovato

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I have been very passive for a while as well.  While there are better filters to be applied, I don't believe we really know what's right going forward.  My assumption is that LC and Prosper are hard at work optimizing risk/APR equation.  I tested many suggested filters and they just weren't that great.  I am extremely skeptical of any claims that fully aged portfolio can return above 10%.

10%, or 8%, risk adjusted returns are awesome, but you are right, spending ton of time on it is just not something worth doing unless you have a couple million on the line. 

I have gone back to rather active approach.  But this is only because it benefits my day job.  If I was, say an architect, I'd try to scrape enough for PRIME account and put it on autopilot.  I would certainly stay invested in the platform as it is still highly attractive from yield and diversification stand point. 

Bohb Daishi

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I am extremely skeptical of any claims that fully aged portfolio can return above 10%.

That's why it's not a good idea to simply leave late notes alone instead of selling them on Folio. Selling at a discount certainly isn't ideal, but it's much better than waiting for the note to default.
There are three ways to make a living in this business: be first, be smarter, or cheat.

runnovato

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I am extremely skeptical of any claims that fully aged portfolio can return above 10%.

That's why it's not a good idea to simply leave late notes alone instead of selling them on Folio. Selling at a discount certainly isn't ideal, but it's much better than waiting for the note to default.

Can you sell for discount less than the probability of default?  LC posts default probabilities all over the place.  Even if there is this potential arbitrage, how many hours of research do you have to invest to improve your return by 1-2%?  Again, for $10 million portfolio it may be worth it, but for most retail investors, I doubt it.  Even professional investors would not be able to definitively predict future probabilities.  Do appreciate it if you can prove me wrong. 

Joleran

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Can you sell for discount less than the probability of default?  LC posts default probabilities all over the place.  Even if there is this potential arbitrage, how many hours of research do you have to invest to improve your return by 1-2%?  Again, for $10 million portfolio it may be worth it, but for most retail investors, I doubt it.  Even professional investors would not be able to definitively predict future probabilities.  Do appreciate it if you can prove me wrong.

Sure you can sell for a discount less than the probability of default.  I frequently sell grace period notes I didn't actually mean to sell for less than a 5% discount just because their overall looks made them seem like a negligible default risk to some buyer.  For me personally, my trading activity has boosted my overall returns by 3.5% at a minimum - that's my actual profits on trading and doesn't count the big boost from trading notes that did go and default.

Inflationhawk

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New here. I would agree that selling late notes on folio makes sense and at least you can potentially get something out of a potential default.  This is why after signing up and starting the Ira rollover funding process I now concerned about investing because I just learned that IRA accounts cannot use folio to sell.  Apparently, this is a relatively new disclosure on Lending Club that wasn't stated previously.

avid investor

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I've been getting consistently around 10.75% for years.  The API has helped as I have found that investing automatically at each of the 4 drop times, setting my filters to have (on average) just enough notes available to keep me fully-invested, I can select the notes that fit my filters in descending order by interest rate.  My portfolio is averaging over 17% interest rate.

The trick is to set the filters tightly enough that you can cherry pick the best notes while loosely enough to keep your money invested.  You also have to hit the window at each drop time precisely as the good ones go fast.

edward

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http://www.lendingmemo.com/peer-to-peer-lending-return/

Here is a good article by Simon Cunningham of Lending Memo interviewing several well known P2P experts and their viewpoints about the long term expected returns from P2P. Commenters in the article who are well known on this forum include our own Peter Renton, Bryce Mason of P2P Picks, Anil Gupta of Peer Cube.

Xin, thank you for starting this thread--the concept of how much time each investor is willing to devote for an expected rate of return is an important issue we all need to explore. And I thank all the other contributors for a great discussion of the variations seen among investors.
« Last Edit: November 27, 2013, 07:19:08 PM by edward »

rlv99

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In my opinion, contrary to the article posted by edward, above,  interest rates on  personal unsecured loans cannot decrease due to the high risk that accompanys them.   Additionally,we are currently in a rising interest rate economy which will continue to put an upward pressure on the LC rates. 

My personal LC account, started in April, 2013, now has 2000 notes, totalling $50,000.  My NAR is 16.5% and my XIRR is 11.5%.  I find these levels acceptable relative to the time required to tend to the account.  If I manage to make every release ( which is not possible for me), LC requires about 2 hours ( not counting time spent on this Forum) each day, 7 days each week.

My biggest concern right now is will I be able to sustain account growth.  If not, then I will have to turn my interest to other  investment oportunities.  It is becoming increasingly difficult to acquire C-G loans on the LC platform.  I have recently increased my fractional purchase amount from $25. to $50. which should help in the short term.  However, with the number of "Fully Paid" increasing, the notes that are not issued, and the interest accumulated, that becomes alot of money to reinvest without significantly increasing your account.  For retail investors with $100,000+ accounts it must be a major problem.  Until the retail investor is on a level playing field with the institutional investor,  I don't see this changing.


 

 

SeattleSun

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In my opinion, contrary to the article posted by edward, above,  interest rates on  personal unsecured loans cannot decrease due to the high risk that accompanys them.   Additionally,we are currently in a rising interest rate economy which will continue to put an upward pressure on the LC rates. 

My personal LC account, started in April, 2013, now has 2000 notes, totalling $50,000.  My NAR is 16.5% and my XIRR is 11.5%.  I find these levels acceptable relative to the time required to tend to the account.  If I manage to make every release ( which is not possible for me), LC requires about 2 hours ( not counting time spent on this Forum) each day, 7 days each week.

My biggest concern right now is will I be able to sustain account growth.  If not, then I will have to turn my interest to other  investment oportunities.  It is becoming increasingly difficult to acquire C-G loans on the LC platform.  I have recently increased my fractional purchase amount from $25. to $50. which should help in the short term.  However, with the number of "Fully Paid" increasing, the notes that are not issued, and the interest accumulated, that becomes alot of money to reinvest without significantly increasing your account.  For retail investors with $100,000+ accounts it must be a major problem.  Until the retail investor is on a level playing field with the institutional investor,  I don't see this changing.

Riv99,

You have been a very busy beaver!  2000 $25 notes in 9 months all manual I assume?

My initial planning was to put in $100,000 and since 500 notes appeared to be the magic number for adequate diversification I doubled it to 1000 notes and therefore selected $100 as my note size.

This all seemed to be a "resonable effort" since I am retired and time is not a limiting factor i.e. everyday is a Saturday!

But isn't the answer to how much effort is enought just to increase your note size to hold your definations of "reasonable effort" constant?

For example if I was to increase to a $1,000,000 account size I would just increase my note size to $1,000 vs its current $100 or to $500,000 with a note size of $500 thus holding the number of notes constant at 1,000 and the effort to administer these notes constant at xx hours per week.

« Last Edit: December 10, 2013, 09:20:45 PM by SeattleSun »

DanB

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In my opinion, contrary to the article posted by edward, above,  interest rates on  personal unsecured loans cannot decrease due to the high risk that accompanys them.   Additionally, we are currently in a rising interest rate economy which will continue to put an upward pressure on the LC rates.

My personal LC account, started in April, 2013, now has 2000 notes, totalling $50,000.  My NAR is 16.5% and my XIRR is 11.5%.  I find these levels acceptable relative to the time required to tend to the account.  If I manage to make every release ( which is not possible for me), LC requires about 2 hours ( not counting time spent on this Forum) each day, 7 days each week.

My biggest concern right now is will I be able to sustain account growth.  If not, then I will have to turn my interest to other  investment oportunities.  It is becoming increasingly difficult to acquire C-G loans on the LC platform.[/b]  I have recently increased my fractional purchase amount from $25. to $50. which should help in the short term.  However, with the number of "Fully Paid" increasing, the notes that are not issued, and the interest accumulated, that becomes alot of money to reinvest without significantly increasing your account.  For retail investors with $100,000+ accounts it must be a major problem. Until the retail investor is on a level playing field with the institutional investor,  I don't see this changing.



Rlv99..........Am I understanding your post correctly in that you spend approximately 30 minutes during each "feeding period" in order to keep one $50k account fully invested? How much time are you spending reviewing each note?
So if you attend 2 feeding periods per day, that is 7 hours per week spent tending an account that (if everything goes as planned) is going to earn less than $6k a year. Even if you limit yourself to 1 feeding period per day, that is still a not insignificant 14+ hours per month for one account. I am truly stunned that you spend this much time & doubly stunned that you think it is remotely worth your time to do so. Or are you counting the time in terms of how much time it took you to initially invest your lump sum.................& that your upkeep time will be much much less.

I've been doing this since late 2009 & I've never spent more than 10 minutes per day managing each of the several accounts I look after...............each containing thousands of notes & returning substantially north of 11.5%. And I've never used any auto invest or 3rd party tool to do it. What am I missing here? Other than you enjoy the time spent doing it?
« Last Edit: December 10, 2013, 11:39:27 PM by DanB »

rlv99

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Other than you enjoy the time spent doing it?

I must admit, Dan, there is an element of enjoyment to it that I have never experienced with the stock market. 

Yes, 30 minutes is about right!  I have 3 active filters that I use manually. If I am lucky, I might get 10 loans to look at during each release.  Approx 15 minutes used in that process.  Additionally, I usually have about 5% of my portfolio on Folio.  With the recent changes, notes have to be added regularly as they come out of "processing".  Another 10 minutes used!  Then there is account maintenance to factor in including the weekly wire transfers.

My initial planning was to put in $100,000 and since 500 notes appeared to be the magic number for adequate diversification I doubled it to 1000 notes and therefore selected $100 as my note size.


I am retired also.  However, your pre-planning was superior to mine.  I had never been into fixed income investments previously other than "junk" and tax-free bonds 10-20 years ago.  P2P investing seemed to me to be a better way to have control over your capital, but I went into LC without any "initial" plan. My first investment of $2500. was invested in 11 loans!  It was more of an experiment!  Then I read about diversity and the wisdom of $25. investments to guarantee diversity thereby reducing the down-side risk.  I only recently, unfortunately, increased to $50.  However, in support of my preponderance number of $25. notes, my loss to date is a very acceptable $40.  My filters deserve more of the credit rather than the note denomination.   

Bohb Daishi

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For example if I was to increase to a $1,000,000 account size I would just increase my note size to $1,000 vs its current $100 or to $500,000 with a note size of $500 thus holding the number of notes constant at 1,000 and the effort to administer these notes constant at xx hours per week.

For this very reason, I think that the note denomination will become a less important factor in terms of markup/discount on the Folio. Every day, LC gains more popularity with investors, who have ever-increasing amounts of cash that they want to invest. As a result, I could see people with larger portfolios wanting to filter out notes that are below $50-100, just because it'll take too long to look through all of them before purchasing.

This means that, for the "little guy" on Folio, there will probably be better deals for $25 notes in the future. Likewise, it will reduce the liquidity risk for larger investors, since they know they can get rid of their high-denomination notes at a better price.
There are three ways to make a living in this business: be first, be smarter, or cheat.

nonentity

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For this very reason, I think that the note denomination will become a less important factor in terms of markup/discount on the Folio. Every day, LC gains more popularity with investors, who have ever-increasing amounts of cash that they want to invest. As a result, I could see people with larger portfolios wanting to filter out notes that are below $50-100, just because it'll take too long to look through all of them before purchasing.

This means that, for the "little guy" on Folio, there will probably be better deals for $25 notes in the future. Likewise, it will reduce the liquidity risk for larger investors, since they know they can get rid of their high-denomination notes at a better price.

All my note fractions are now $1000 and I do no trading on folio. I would think the demand for $1000+ notes is so small it is useless to try to trade them. I just checked folio and there are only 7 $1000+ notes going for a discount. 


For example if I was to increase to a $1,000,000 account size I would just increase my note size to $1,000 vs its current $100 or to $500,000 with a note size of $500 thus holding the number of notes constant at 1,000 and the effort to administer these notes constant at xx hours per week.

What do you think your loan fraction would be if your account were $3,000,000? or $5,000,000? It takes me 20 minutes a day to fund about $20,000-$40,000 at $1,000 per note. I think up to 5 million, $1000 per notes is good. 5000 notes is diversified enough. I currently have a silly number of notes (15900) because I started buying only $75 - $200 notes and had no idea how much I wound increase the account size.

Fred

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In April 2013, there was a Poll in this Forum about "Time Spent on LC Investing":

http://www.lendacademy.com/forum/index.php?topic=955.0

There were 34 votes last time, and only 11% spent more than 10-hr per week.