Author Topic: Was 2012 a particularly bad year for Prosper notes?  (Read 6682 times)

CharlieBrown8

  • Newbie
  • *
  • Posts: 1
    • View Profile
    • Email
Was 2012 a particularly bad year for Prosper notes?
« on: August 19, 2014, 01:50:30 PM »
I started investing in Prosper in early 2012 with 75 notes for $50 each in that year. In 2013 I purchased another 450 notes. My annualized return for 2012 is today a disappointing -0.85%, while the annualized 2013 portfolio shows 11.95% (with almost all of them already seasoned, meaning older than 10 months).

I know that 75 notes is not too diversified, but I am still surprised to see such a sobering performance for that year. Was 2012 a particularly bad year, and does anyone of you see a similar disproportionate performance between 2012 and 2013? Or was I just unlucky due to low diversification? Or even worse, do I have to expect that the seasoned 2013 notes will go down in performance over time as well in the upcoming years?

trevor

  • Newbie
  • *
  • Posts: 39
    • View Profile
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #1 on: August 19, 2014, 10:30:50 PM »
I've never used Prosper, but I would say that you just got unlucky. 75 notes is a very small amount of diversification. Your returns can get screwed over by a few bad notes. Your returns will naturally decline as your loans near maturity, but it should not be going anywhere near negative.

Here's an idea: go to a website like nickelsteamroller and you can check the average returns of notes issued in 2012. You can also put in the same filters that you used.


https://www.nickelsteamroller.com/#!/stats/prosper



At first glance, the average return now for every note issued in 2012 seems to be around 7-8%. So I'm guessing that you just got unlucky!


« Last Edit: August 19, 2014, 10:34:11 PM by trevor »

Randawl

  • Sr. Member
  • ****
  • Posts: 469
    • View Profile
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #2 on: August 19, 2014, 11:28:26 PM »
I've never used Prosper, but I would say that you just got unlucky. 75 notes is a very small amount of diversification. Your returns can get screwed over by a few bad notes. Your returns will naturally decline as your loans near maturity, but it should not be going anywhere near negative.

Peercube says otherwise, at least with Lending Club through 2012.     ;)

Lending Club:

https://www.peercube.com/histperf


Prosper:

https://www.peercube.com/histperf/prosperperf


I started investing in Prosper in early 2012 with 75 notes for $50 each in that year. In 2013 I purchased another 450 notes. My annualized return for 2012 is today a disappointing -0.85%, while the annualized 2013 portfolio shows 11.95% (with almost all of them already seasoned, meaning older than 10 months).

I know that 75 notes is not too diversified, but I am still surprised to see such a sobering performance for that year. Was 2012 a particularly bad year, and does anyone of you see a similar disproportionate performance between 2012 and 2013? Or was I just unlucky due to low diversification? Or even worse, do I have to expect that the seasoned 2013 notes will go down in performance over time as well in the upcoming years?



No, 2012 wasn't a particularly bad year depending on your definition.

Actually, we don't know if 2012 will be particularly bad year or not as most of the loans issued in that year still have a long way to go.
« Last Edit: August 19, 2014, 11:33:18 PM by Randawl »

Thatguybil

  • Newbie
  • *
  • Posts: 39
    • View Profile
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #3 on: August 20, 2014, 12:08:33 AM »

Peercube says otherwise, at least with Lending Club through 2012.     ;)

Lending Club:

https://www.peercube.com/histperf


Prosper:

https://www.peercube.com/histperf/prosperperf


I am a bit shocked by those lending club numbers.  Am I reading them wrong?  Negative performance for any "seasoned" loans?

AnilG

  • Hero Member
  • *****
  • Posts: 1123
    • View Profile
    • PeerCube
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #4 on: August 20, 2014, 01:05:45 AM »
You are reading right. Actual Yield numbers are designed to shock you  ;D

If you don't want to get shocked, look at Gross Yield, that tells you the interest you received as % of average outstanding principal then annualized based on average age of the loan. Loss Rate tells you the principal lost to default as % of average outstanding principal then annualized based on average age of the loan. The Actual Yield is just the difference between the two.

This measure works great for portfolio performance (Prosper uses it) as most loans have starting and ending outstanding balance but becomes little wonky for historical loans as the typical ending outstanding principal for majority of loans is zero (except loans that defaulted).

You want to focus on maximizing Gross Yield and minimizing Loss Rate when you read those numbers.

All measurements (ROI, Cash-on-Cash, IRR, Gross and Net Yield, NAR) being used for these loans have their own pros-and-cons. There is no one standard way of measuring performance of these loans. In the end what matters that you should get back more than what you put in adjusted for time value of money.

I am a bit shocked by those lending club numbers.  Am I reading them wrong?  Negative performance for any "seasoned" loans?
« Last Edit: August 20, 2014, 02:12:21 AM by AnilG »
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

rawraw

  • Hero Member
  • *****
  • Posts: 2795
    • View Profile
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #5 on: August 20, 2014, 06:43:23 AM »
I've been extremely busy for work lately, but one thing I want to do is look closer at those PeerCube returns.  I'm not so sure that they make sense to me.  For example, how can a gross yield be negative?

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #6 on: August 20, 2014, 10:52:20 AM »
If you don't want to get shocked, look at Gross Yield, that tells you the interest you received as % of average outstanding principal then annualized based on average age of the loan. Loss Rate tells you the principal lost to default as % of average outstanding principal then annualized based on average age of the loan. The Actual Yield is just the difference between the two.

AnilG, just to clarify.

The "average outstanding principal" should be zero now for matured loans (e.g., issued in 2005-2009), right?  Any number divided by zero would not be meaningful.  What am I missing?

Did you use a fixed "reference time" when calculating the yields?

AnilG

  • Hero Member
  • *****
  • Posts: 1123
    • View Profile
    • PeerCube
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #7 on: August 20, 2014, 11:30:36 AM »
Fred,

Average outstanding balance can never be zero as original principal was outstanding principal at one time.

Outstanding principal at period 0 = original principal invested

Average outstanding principal = sum of outstanding principal from period 0 through n / number of periods.

If you don't want to get shocked, look at Gross Yield, that tells you the interest you received as % of average outstanding principal then annualized based on average age of the loan. Loss Rate tells you the principal lost to default as % of average outstanding principal then annualized based on average age of the loan. The Actual Yield is just the difference between the two.

AnilG, just to clarify.

The "average outstanding principal" should be zero now for matured loans (e.g., issued in 2005-2009), right?  Any number divided by zero would not be meaningful.  What am I missing?

Did you use a fixed "reference time" when calculating the yields?
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

AnilG

  • Hero Member
  • *****
  • Posts: 1123
    • View Profile
    • PeerCube
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #8 on: August 20, 2014, 11:50:19 AM »
Rawraw,

Think hard how gross yield can be negative.  :)

When the fees you paid exceed interest received, your gross yield will be negative.

Gross yield is Interest received - fees / avg outstanding balance annualized.

It happens very few times but it does happen.

Amount lent $100, interest received in first month $0.50, principal paid back after first month $100, fees $1 (1%)  paid on return principal, fees $0.0050 paid on interest received.

Gross return = 0.50 - 1 = -0.50

Gross yield = -0.50 / (100 + 0)/2 * 12 = -0.50 * 12  / 50 = -6 /50 = -12%

Loss Rate = 0 as there was no principal lost.

I've been extremely busy for work lately, but one thing I want to do is look closer at those PeerCube returns.  I'm not so sure that they make sense to me.  For example, how can a gross yield be negative?
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

rawraw

  • Hero Member
  • *****
  • Posts: 2795
    • View Profile
Re: Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #9 on: August 20, 2014, 12:04:44 PM »
Rawraw,

Think hard how gross yield can be negative.  :)

When the fees you paid exceed interest received, your gross yield will be negative.

Gross yield is Interest received - fees / avg outstanding balance annualized.

It happens very few times but it does happen.

Amount lent $100, interest received in first month $0.50, principal paid back after first month $100, fees $1 (1%)  paid on return principal, fees $0.0050 paid on interest received.

Gross return = 0.50 - 1 = -0.50

Gross yield = -0.50 / (100 + 0)/2 * 12 = -0.50 * 12  / 50 = -6 /50 = -12%

Loss Rate = 0 as there was no principal lost.

I've been extremely busy for work lately, but one thing I want to do is look closer at those PeerCube returns.  I'm not so sure that they make sense to me.  For example, how can a gross yield be negative?
Yeah I get that. But for it to be negative for am entire year vintage

AnilG

  • Hero Member
  • *****
  • Posts: 1123
    • View Profile
    • PeerCube
Re: Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #10 on: August 20, 2014, 12:14:31 PM »
Now I am confused. Are you referring to gross yield or actual yield? Gross yield is not negative for any vintage. Actual yield can be because it takes into account principal lost due to default.

Yeah I get that. But for it to be negative for am entire year vintage
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

rawraw

  • Hero Member
  • *****
  • Posts: 2795
    • View Profile
Re: Re: Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #11 on: August 20, 2014, 12:22:28 PM »
The analysis in the link above for LC has negative gross yield for 2008
Now I am confused. Are you referring to gross yield or actual yield? Gross yield is not negative for any vintage. Actual yield can be because it takes into account principal lost due to default.

Yeah I get that. But for it to be negative for am entire year vintage
When I clicked the link this morning one of were negative.
Now I am confused. Are you referring to gross yield or actual yield? Gross yield is not negative for any vintage. Actual yield can be because it takes into account principal lost due to default.

Yeah I get that. But for it to be negative for am entire year vintage

AnilG

  • Hero Member
  • *****
  • Posts: 1123
    • View Profile
    • PeerCube
Re: Re: Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #12 on: August 20, 2014, 01:22:56 PM »
2008 vintage was interesting!  It is the only vintage when gross yield was barely negative (-0.29%). The attached figure shows the yields and loss rate for 36 month loans. The 2007 - 2010 vintage of 36 month loans are almost fully matured and offer good glimpse on potential yields and loss rate.

The analysis in the link above for LC has negative gross yield for 2008

When I clicked the link this morning one of were negative.
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #13 on: August 20, 2014, 01:23:38 PM »
Average outstanding principal = sum of outstanding principal from period 0 through n / number of periods.

This is where the discrepancy lies. 

My definition of outstanding_principal is simply the original_principal minus paid_principal.  Yes, originally outstanding_principal = original_principal; and when the loan is paid-off the outstanding_principal will be zero.  This the same concept when we derive the amortization schedule.  Average outstanding_principal, therefore, would simply be average of outstanding_principal of relevant loans at a given time.
« Last Edit: August 20, 2014, 01:27:25 PM by Fred »

AnilG

  • Hero Member
  • *****
  • Posts: 1123
    • View Profile
    • PeerCube
Re: Was 2012 a particularly bad year for Prosper notes?
« Reply #14 on: August 20, 2014, 01:42:42 PM »
OK, I understand difference in our interpretation. You assume average of outstanding principal to be the average of outstanding principal of all loans at one point in time (cross-sectional). I assume average of outstanding principal to be the average of outstanding principal across different point in time in the life of a loan (longitudinal).

Using your definition, we will need to know interest received and starting and ending outstanding principal every period to be able to calculate yield. Most of the time we don't have that much granularity in data provided.

My definition makes assumptions of interest received spread out over the age of the loan when payments were made. A simplification that makes estimation easier in light of lack of each period data with slight loss in estimation accuracy.

Average outstanding principal = sum of outstanding principal from period 0 through n / number of periods.

This is where the discrepancy lies. 

My definition of outstanding_principal is simply the original_principal minus paid_principal.  Yes, originally outstanding_principal = original_principal; and when the loan is paid-off the outstanding_principal will be zero.  This the same concept when we derive the amortization schedule.  Average outstanding_principal, therefore, would simply be average of outstanding_principal of relevant loans at a given time.
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com