Author Topic: New to LC - Need advice on deploying 250k  (Read 19530 times)

core

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Re: New to LC - Need advice on deploying 250k
« Reply #15 on: September 10, 2014, 10:47:42 AM »
You can find more about this in the thread http://www.lendacademy.com/forum/index.php?topic=1674.0
Seems to be interesting to a fair number of forum participants (more views and replies than any other LA thread to date).
It was started by a formerly prolific forum member about 11 months ago who happened to discover the newly posted ban message(s) himself.
If you haven't seen it, check it out :).

Rob, thank you for the link.  That thread is a shocker indeed.  It has all the makings of a cheap novel except for the naughty stuff.

What I'd like to know is:  Why didn't Peter make a post after the obligatory Renton-25-day waiting period?  It seems that thread is rather old; surely he would have had time by now.  Do we need to start another DanB conspiracy thread, perhaps?  Maybe this post will disappear into moderation too?
« Last Edit: September 10, 2014, 10:51:26 AM by core »

turing

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Re: New to LC - Need advice on deploying 250k
« Reply #16 on: September 10, 2014, 10:59:09 AM »
Welcome to the boards.

I echo want a few others have said.  Buying on Foliofn is the fastest way to deploy your funds.  Investing $200 at a time would take a long time with $250K and only buying through normal process.

Good luck with your investments.

hoggy1

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Re: New to LC - Need advice on deploying 250k
« Reply #17 on: September 10, 2014, 07:00:52 PM »
I don't have time to read all 16 pages of thread 1674 again which I followed when it was active. Can anyone quote or site a 1st hand experience where (despite what the rules say) someone tried to sell from a LC IRA account on folio and were NOT ALLOWED to execute the transaction or where the transaction was reversed, blocked, police showed up at the door, SEC or FTC filed suit, FBI tapped phones, state banking commissioner call your mom a bad mother in the local rag, OR ANY EVIDENCE OF ENFORCEMENT.
 
Steve

Randawl

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Re: New to LC - Need advice on deploying 250k
« Reply #18 on: September 10, 2014, 07:17:27 PM »
I don't have time to read all 16 pages of thread 1674 again which I followed when it was active. Can anyone quote or site a 1st hand experience where (despite what the rules say) someone tried to sell from a LC IRA account on folio and were NOT ALLOWED to execute the transaction or where the transaction was reversed, blocked, police showed up at the door, SEC or FTC filed suit, FBI tapped phones, state banking commissioner call your mom a bad mother in the local rag, OR ANY EVIDENCE OF ENFORCEMENT.

The fear/hesitancy/worry is not that those things are currently happening, but that we've been "warned" that it is not allowed.  And one day the powers-that-be have a basis to at least create a tax predicament for people that trade or once traded in their LC IRA's.

hoggy1

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Re: New to LC - Need advice on deploying 250k
« Reply #19 on: September 10, 2014, 08:31:00 PM »
Here's my suggestion...

There are 12,749 notes on folio that meet the following criteria:

- YTM >20%
- FICO >660
- Never Late=true
- Status = current or issued

These notes total $856k of principal and $9.3k of accrued interest.  They are for sale @ $902k.  Because I'm a nice guy, I sorted the results by YTM decending to get to your $250k working.  You would invest in the top yielding 3726 loans, win a minimum 22.7% YTM.  You'll pay an average mark-up of 2.8% so your first month and a half's interest will get chewed up but, after that, you'll have a well diversified portfolio.

If you want to only buy notes with a positive FICO trend, there's still $390k worth of listings with YTM >20%.  You'll pay a higher premium but, after the first few months, you'll be back in the black.

This sounded attractive to me but is not quite as simple as it sounds.
A) The initial screen is correct returning (now) over 13K loans. However that figure includes all loan amounts up to $2600. Limited to $25 notes the number is 9000+. Add the no down FICO filter and you are at 7600+ NOTES. But those notes are not unique loans. Some loans have up to 10 or more notes against the same loan. Those 7600 notes represent less that 2000 unique loans with outstanding principle of less that $50000 if you bought them all.
Steve

jpildis

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Re: New to LC - Need advice on deploying 250k
« Reply #20 on: September 11, 2014, 10:31:59 AM »
Here's my suggestion...

There are 12,749 notes on folio that meet the following criteria:

- YTM >20%
- FICO >660
- Never Late=true
- Status = current or issued

These notes total $856k of principal and $9.3k of accrued interest.  They are for sale @ $902k.  Because I'm a nice guy, I sorted the results by YTM decending to get to your $250k working.  You would invest in the top yielding 3726 loans, win a minimum 22.7% YTM.  You'll pay an average mark-up of 2.8% so your first month and a half's interest will get chewed up but, after that, you'll have a well diversified portfolio.

If you want to only buy notes with a positive FICO trend, there's still $390k worth of listings with YTM >20%.  You'll pay a higher premium but, after the first few months, you'll be back in the black.

This sounded attractive to me but is not quite as simple as it sounds.
A) The initial screen is correct returning (now) over 13K loans. However that figure includes all loan amounts up to $2600. Limited to $25 notes the number is 9000+. Add the no down FICO filter and you are at 7600+ NOTES. But those notes are not unique loans. Some loans have up to 10 or more notes against the same loan. Those 7600 notes represent less that 2000 unique loans with outstanding principle of less that $50000 if you bought them all.

Limiting to $25/loan is silly for a $250k portfolio.  I've got ~200k invested and my loans go up to $300.  I'm able to sell distressed notes fine on Folio.  There's no objective evidence that smaller loans are easier to sell.

As for multiple copies of the same note... once you're above 500 notes, it really doesn't matter.  Bad outcomes for loans are pretty random and normally distributed.  As long as you stay below $1k per underlying loan, you'll be fine.

Emmanuel

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Re: New to LC - Need advice on deploying 250k
« Reply #21 on: September 11, 2014, 10:47:05 AM »
Limiting to $25/loan is silly for a $250k portfolio.  I've got ~200k invested and my loans go up to $300.  I'm able to sell distressed notes fine on Folio.  There's no objective evidence that smaller loans are easier to sell.

Indeed. There's also little evidence that diversifying in 10,000 loans is much safer than in 'only' 1,000. Our back-testing shows that the average return curves flatten quickly, see https://lendingrobot.com/#/resources/charts#diversify.

Without automation, buying and selling $25 is utterly tedious, anyhow.

rawraw

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Re: New to LC - Need advice on deploying 250k
« Reply #22 on: September 11, 2014, 10:47:44 AM »
I'd like to keep the notes at $200 increments to maintain marketability on Folio.

About 75% of all notes on FOLIOfn nowadays have "Original Note Amount" of $25.
About 95% of all notes on FOLIOfn nowadays have "Original Note Amount" of {$25, $50, $75, $100}.

If you are thinking of selling notes on FOLIOfn, you should consider this liquidity issue.
Maybe it's because all the higher dollar stuff sells super fast :)

brycemason

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Re: New to LC - Need advice on deploying 250k
« Reply #23 on: September 11, 2014, 11:01:39 AM »
An individual loan charges off with a probability of approximately 0.2 and you can treat a portfolio of N loans as a binomial random variable. The expected number of charge-offs will be 0.2*N. The standard deviation in the charge-offs of your portfolio will be SQRT(N*0.2*0.8). So, the mean number of bad loans grows linearly with your portfolio, but the standard deviation will only grow with the square root of N. As your portfolio grows you will get more predictable numbers of charge-offs.

In terms of charge-off rates, a random sample of N loans will be expected to (95% of the time) to have a mean charge-off rate between:

N: CI
25: (4%, 36%)
50: (9%, 31%)
100: (12%, 28%)
200: (14%, 26%)
400: (16%, 24%)
800: (17%, 23%)

If you feel your strategy can eliminate some of the bad loan choices, you may need fewer loans in your portfolio to overcome the variance. For what it's worth. Once you get above 1000 loans the benefit of diversifications really drops.

turing

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Re: New to LC - Need advice on deploying 250k
« Reply #24 on: September 11, 2014, 01:12:47 PM »
An individual loan charges off with a probability of approximately 0.2 and you can treat a portfolio of N loans as a binomial random variable. The expected number of charge-offs will be 0.2*N. The standard deviation in the charge-offs of your portfolio will be SQRT(N*0.2*0.8). So, the mean number of bad loans grows linearly with your portfolio, but the standard deviation will only grow with the square root of N. As your portfolio grows you will get more predictable numbers of charge-offs.

In terms of charge-off rates, a random sample of N loans will be expected to (95% of the time) to have a mean charge-off rate between:

N: CI
25: (4%, 36%)
50: (9%, 31%)
100: (12%, 28%)
200: (14%, 26%)
400: (16%, 24%)
800: (17%, 23%)

If you feel your strategy can eliminate some of the bad loan choices, you may need fewer loans in your portfolio to overcome the variance. For what it's worth. Once you get above 1000 loans the benefit of diversifications really drops.

Great math to back up the discuss instead of generalities.  Thank you.

Djnate

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Re: New to LC - Need advice on deploying 250k
« Reply #25 on: September 11, 2014, 04:15:08 PM »
Do 3rd party sites using API not get data at the same time its posted to LC?

All API users are at a disadvantage to manual buying. The API gets updated around 40 seconds after the hour. The website will have the new loans on the hour. You get a 40 second free-for-all to deploy using your filters on the website. Happy hunting.

I have noticed many loans fill in a matter of seconds... How is this achieved without using API?
« Last Edit: September 11, 2014, 04:30:24 PM by Djnate »

Djnate

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Re: New to LC - Need advice on deploying 250k
« Reply #26 on: September 11, 2014, 04:21:07 PM »
Here's my suggestion...

There are 12,749 notes on folio that meet the following criteria:

- YTM >20%
- FICO >660
- Never Late=true
- Status = current or issued

These notes total $856k of principal and $9.3k of accrued interest.  They are for sale @ $902k.  Because I'm a nice guy, I sorted the results by YTM decending to get to your $250k working.  You would invest in the top yielding 3726 loans, win a minimum 22.7% YTM.  You'll pay an average mark-up of 2.8% so your first month and a half's interest will get chewed up but, after that, you'll have a well diversified portfolio.

If you want to only buy notes with a positive FICO trend, there's still $390k worth of listings with YTM >20%.  You'll pay a higher premium but, after the first few months, you'll be back in the black.

This certianly has advantages over long cash drag. Thank you!

Djnate

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Re: New to LC - Need advice on deploying 250k
« Reply #27 on: September 11, 2014, 04:29:14 PM »
An individual loan charges off with a probability of approximately 0.2 and you can treat a portfolio of N loans as a binomial random variable. The expected number of charge-offs will be 0.2*N. The standard deviation in the charge-offs of your portfolio will be SQRT(N*0.2*0.8). So, the mean number of bad loans grows linearly with your portfolio, but the standard deviation will only grow with the square root of N. As your portfolio grows you will get more predictable numbers of charge-offs.

In terms of charge-off rates, a random sample of N loans will be expected to (95% of the time) to have a mean charge-off rate between:

N: CI
25: (4%, 36%)
50: (9%, 31%)
100: (12%, 28%)
200: (14%, 26%)
400: (16%, 24%)
800: (17%, 23%)

If you feel your strategy can eliminate some of the bad loan choices, you may need fewer loans in your portfolio to overcome the variance. For what it's worth. Once you get above 1000 loans the benefit of diversifications really drops.

OK, I'm upping the note size to $300! Thank you!

Fred93

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Re: New to LC - Need advice on deploying 250k
« Reply #28 on: September 11, 2014, 05:52:36 PM »
I'm upping the note size to $300! Thank you!

Just a note about note size... 

If you have $250,000 and you buy notes at the $300 size, you will initially buy about 830 notes each at $300 balance.  However, as time goes on, and you get payments, and use that money to buy new notes, you will end up with a portfolio containing notes of various ages, and various balances between $300 and $0.  At that point, the average balance will be much lower than $300, probably closer to $150, and you'll have about 1500 notes.

This is not necessarily a problem, but just a note to say that many folks end up with more notes in their portfolio than they imagined when they started.

RaymondG

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Re: New to LC - Need advice on deploying 250k
« Reply #29 on: September 11, 2014, 06:55:39 PM »
Do 3rd party sites using API not get data at the same time its posted to LC?

All API users are at a disadvantage to manual buying. The API gets updated around 40 seconds after the hour. The website will have the new loans on the hour. You get a 40 second free-for-all to deploy using your filters on the website. Happy hunting.

I have noticed many loans fill in a matter of seconds... How is this achieved without using API?

One possibility is to use your LC filter online at loan releasing time and add all passed loans to order (or shopping cart), then take time to do more research before placing order finally.