Author Topic: Slow exit strategy  (Read 155 times)

rj2

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Slow exit strategy
« on: May 19, 2020, 01:24:58 PM »
About a year ago I decided to exit LC, and to take two years to do it. The idea was to end up with cash in my account that I could transfer out in one shot without having to sell at a steep discount. My LC account is an IRA so I only wanted to do the transfer once and not repeatedly.

So I stopped buying new notes, and only bought on folio, and specifically, I only bought notes with a maturity date on or before my exit date.

On the first day that meant I only bought notes with 24 months or less left. I had other filters, mainly a high enough credit score and a credit score that had gone up, and a few other things. But the main filter was 24 or fewer remaining payments.

And in the second month, that became 23. Then 22, 21, etc.

Simultaneously I went though and identified every loan with more than 24 payments left and moved them to a new portfolio called "over 24. I put them all up for sale continuously, but not at a discount. At a small premium. With 24 months to sell I figured I didn't need to take a loss, and every month I sold a few, reinvesting the proceeds in notes maturing ahead of my exit date.

Sometimes cash would pile up in my account for a few weeks and then I guess someone would dump a bunch of notes and I'd find enough to buy to stay fully invested. The rate at which I had to reinvest also accelerated as the shorter and shorter duration meant payments became a larger share of my capital.

I realized at some point I would not find enough to buy as the duration became very low and the incoming payments high--I was ok with that, it's an exit strategy. I figured that would happen at maybe 6 to 8 months left, where I'd just lose the ability to reinvest for lack of available inventory fitting my timeline.

I was at the point of buying only notes with 13 or fewer remaining payments when COVID-19 brought a halt to my strategy. There's nothing much available for sale that meets my criteria now and way too much risk. I got burned buying a few "hardship" loans without realizing it and so I'm done with buying now.

I have a handful of notes left over my target date, that I'm now having to discount slightly to sell, and my goal is to sell them over the next year, but that's less than 20 notes out of a portfolio with ordinary hundreds of notes, so I'm almost there.

So now I'm just going to let it run out and accept that I'm not going to be able to reinvest for the final 12 months, but on the flip side, I'm getting more than 1/12th of my investment out of notes into cash every month now just by collecting payments. I'm not reinvesting it, I'll live with that--I see it as rapidly reducing my risk.

Although, I've got 10% or so of my loans in "hardship" status, so I'm expecting to take a bath on that, and likely more will sour.
« Last Edit: May 19, 2020, 01:36:31 PM by rj2 »