Author Topic: No best loans on LC platform - are you serious?  (Read 13697 times)

PeerSocialLending

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No best loans on LC platform - are you serious?
« on: May 12, 2014, 01:26:10 PM »
I found this Forbes article pretty fascinating and would love to hear some thoughts from others.  It basically talks about how all loans are created equal and that there is no evidence that any investor can consistently generate better than average returns. Obviously, this doesn't include the folio folk.  :)

http://www.forbes.com/sites/stevenbertoni/2014/05/12/no-hedge-funds-arent-hijacking-peer-to-peer-loans-says-lending-club-ceo/
-Ryan
p2p lending blogger @ www.peersociallending.com

SBryantMS

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Re: No best loans on LC platform - are you serious?
« Reply #1 on: May 12, 2014, 02:12:01 PM »
I disagree on one major point -- not 45 risk buckets -- but seven risk buckets for me (A - G).

I do believe that there are better loans (lower default potential) in each risk bucket.  I use P2P-Picks to identify those loans.

I also believe that statistically that there are better loans (do not payoff early) in each risk bucket.  I don't have a tool for that loan type. 

With P2P-Picks, I am riding about 1.5% higher on the wave when I look at LC's graph that compares me to similar lenders.
     

daniel2023

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Re: No best loans on LC platform - are you serious?
« Reply #2 on: May 12, 2014, 02:15:06 PM »
I found this Forbes article pretty fascinating and would love to hear some thoughts from others.  It basically talks about how all loans are created equal and that there is no evidence that any investor can consistently generate better than average returns. Obviously, this doesn't include the folio folk.  :)

http://www.forbes.com/sites/stevenbertoni/2014/05/12/no-hedge-funds-arent-hijacking-peer-to-peer-loans-says-lending-club-ceo/

Theoretically, Laplanche could be right.  But is LC trying to price all loans to the same average rate post-default?  I think not, so you go for higher return with higher risk.   But we know that their returns based on risk as you move into lower grades is not linear, though.  So in reality, not all loans are created equal, because LC cannot perfectly assess the risk of default and they will never find the perfect algorithm for very long (neither will the investor).

Zach

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Re: No best loans on LC platform - are you serious?
« Reply #3 on: May 12, 2014, 05:29:50 PM »
That's a great article. Thanks for sharing!

Lovinglifestyle

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Re: No best loans on LC platform - are you serious?
« Reply #4 on: May 12, 2014, 06:15:17 PM »
"There is no evidence that any investor has generated better than average returns on the platform consistently."  (from the article)

Are Folio users excluded from all that "evidence"?  Are their Folio gains and losses excluded and considered to average out, since their return statistics can't be calculated?

rawraw

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Re: No best loans on LC platform - are you serious?
« Reply #5 on: May 12, 2014, 07:23:13 PM »
I think his point is that that rank order risk predictably.  Not quite the same thing as inferring that this means there are no better or worse loans -- perhaps he got confused lol

Fred

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Re: No best loans on LC platform - are you serious?
« Reply #6 on: May 12, 2014, 08:50:02 PM »
"There is no evidence that any investor has generated better than average returns on the platform consistently."  (from the article)

The chart below is a snapshot for most matured portfolios from https://www.lendingclub.com/info/statistics-performance.action:


I'd say those dots in the red region above the Median line (6.8%) are close enough evidence for investors who have generated better than average returns on the platform consistently.
« Last Edit: May 12, 2014, 08:55:58 PM by Fred »

Lovinglifestyle

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Re: No best loans on LC platform - are you serious?
« Reply #7 on: May 12, 2014, 09:48:58 PM »
I have often rejected loans that are approved and verified.  It makes me grit my teeth, but my view of risk doesn't match theirs.  Ditto for the Build A Portfolio choices.  If their statistics were more transparent there might be some evidence to the contrary. It's pretty convenient to just say there isn't any.

PeerSocialLending

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Re: No best loans on LC platform - are you serious?
« Reply #8 on: May 12, 2014, 09:59:04 PM »
"There is no evidence that any investor has generated better than average returns on the platform consistently."  (from the article)

Are Folio users excluded from all that "evidence"?  Are their Folio gains and losses excluded and considered to average out, since their return statistics can't be calculated?

I'd imagine he was just referring to people who buy new newly listed notes. As Core, NJG etc. can tell us - I think they are earning fairly consistent higher returns than those of us who buy new loans and just dabble in FolioFN like myself.

I've often thought that I'd be pretty happy with median returns, but why not try to maximize your returns? Tools would not exist if all that mattered was loan grade.

I'd also agree that data from people like Bryce from p2p-picks shows models are able to beat the average.
-Ryan
p2p lending blogger @ www.peersociallending.com

Rob L

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Re: No best loans on LC platform - are you serious?
« Reply #9 on: May 12, 2014, 10:00:04 PM »
I'd say those dots in the red region above the Median line (6.8%) are close enough evidence for investors who have generated better than average returns on the platform consistently.
Yes, but by luck or by skill? How does one know?

PS: There was a pretty long thread on this topic not so long ago in case anyone missed it:
http://www.lendacademy.com/forum/index.php?topic=1953.0
« Last Edit: May 13, 2014, 08:27:17 AM by Rob L »

Booleans

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Re: No best loans on LC platform - are you serious?
« Reply #10 on: May 14, 2014, 09:20:09 AM »
"There is no evidence that any investor has generated better than average returns on the platform consistently."  (from the article)

The chart below is a snapshot for most matured portfolios from https://www.lendingclub.com/info/statistics-performance.action:


I'd say those dots in the red region above the Median line (6.8%) are close enough evidence for investors who have generated better than average returns on the platform consistently.

With any statistical distribution though you're going to have people who "beat the index" but owe their performance entirely to luck. How do we tell who has a good note-picking strategy and who just got lucky? Well, someone with more knowledge then me will have to answer that.

Fred

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Re: No best loans on LC platform - are you serious?
« Reply #11 on: May 14, 2014, 10:22:50 AM »
My comment was specifically to counter-argue the "There is no evidence ..." statement in the article.

BruiserB

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Re: No best loans on LC platform - are you serious?
« Reply #12 on: May 14, 2014, 09:41:10 PM »
There might not be a best grade of loan.  I can see where LC attempts to have their underwriting criteria and interest rates balanced to provide an even return to investors for any given grade.  However if someone else could do better predictive analysis and even weed out 25% of the loans that will probably default or find a way to predict the ones that won't, then the lower grades offer more potential for higher overall return.

This seems to be what Bryce is doing with P2P picks and what Emmanuel is doing with the "Expected Return" feature of LendingRobot.  Even Peter's relatively simple filters seem to weed out some of the higher risk loans.  It remains to be seen how they perform over the full term of the loans, but I do believe their algorithms can lead to improved performance vs simply investing in random loans.

lascott

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Re: No best loans on LC platform - are you serious?
« Reply #13 on: May 14, 2014, 10:26:43 PM »
There might not be a best grade of loan.  I can see where LC attempts to have their underwriting criteria and interest rates balanced to provide an even return to investors for any given grade.

LendingRobot has a graph on this:
https://lendingrobot.com/data
Return by Sub-grade
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

Fred93

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Re: No best loans on LC platform - are you serious?
« Reply #14 on: May 14, 2014, 11:01:23 PM »
There might not be a best grade of loan.  I can see where LC attempts to have their underwriting criteria and interest rates balanced to provide an even return to investors for any given grade.

LendingRobot has a graph on this:
https://lendingrobot.com/data
Return by Sub-grade


By choosing to examine the set of "mature", ie completed loans, he is choosing a set which mostly ran during the financial crisis.  That bias may not be appropriate at present, depending on your world outlook.