Author Topic: FolioFN Return Calculation!!!!!!!  (Read 20307 times)

hoggy1

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Re: FolioFN Return Calculation!!!!!!!
« Reply #45 on: September 21, 2014, 12:21:46 PM »
\They should have gone XIRR's route, etc., calculating returns based on bank transactions(deposit and withdraws) and end of period account market value. It's simple and clear and is actually what investors really care about at the end of the day. Just like operating a fund, when you report fund return, you should not report stock/bond return, but how much money the fund investors pooled together and how much the fund is worth today.  If cash is not invested but held in LC account, it's still part of investment earning 0% ANAR return, plain and simple.

I disagree at least in part. Our LC accounts are different than a fund. A fund is managed by a third party and their choice to hold cash A) is nothing to do with my choices as an individual and B) certainly does affect my returns on the investment in that fund. That is not the case with self directed P2P accounts.

Let me put this case to you: Two LC investors hold precisely the same collection of 1000 loans, worth $20,000. One has $0 cash balance and the other has $10,000 cash in his account that he will use next month to pay for Junior's tuition. They both have the same investment and both will have the same return on that investment. The cash held by the one is a non-investment which he individually has chosen to maintain. The return on his investment is unaffected by his decision.
 
Now Core correctly pointed out a possible exception as it applies to him. If, in an actively traded account, large cash balances are required to execute the trading strategy (i.e. if the cash wasn't there, there would be no money making opportunity) then that cash is integral to the investment and should be included in return calculations.

This argument is not strong. Why would someone spend 5 business days to deposit $10k, sit there at 0% interest for 15 days, then spend another 5 business days to withdraw? The only reason someone puts money in LC is to invest and the money should count since money in LC has no another options available. This is opportunity cost, and why people demand interest for US treasury notes even it's risk free.

I agree no, one is likely to do what you describe, but you are presuming facts not in evidence. Suppose the guy with $10k cash had that money invested and has been building the cash reserve for months knowing junior's tuition would come due next month.  Or maybe he did precisely what you describe intending to invest the money but got cold feet after reading something on this forum that made him reconsider the risk. Why the cash is there, how it got there, and why he chooses to keep it in cash (un-invested) are irreverent. Cash is by definition not an investment and just like the guy with no cash he is interested in what the return on his actual investment is, and should calculate it in precisely the same way the other guys does.
« Last Edit: September 21, 2014, 12:43:52 PM by hoggy1 »
Steve

hoggy1

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Re: FolioFN Return Calculation!!!!!!!
« Reply #46 on: September 21, 2014, 01:05:56 PM »
Anyway here is the link.  It still appears to function fine.
https://www.lendingclub.com/account/investorReturnsAdjustments.action

Bless you Core, I feel in control again (spoken in the "I am Hanz and he is Franz and we are here to pump you up"  dialect)

Then again I was not working in finance... big difference. 
Yes, or other mission critical software involving lives or multibillion dollar decisions.

Customers liked the fast changes.
Also agree and I have made may instant changes to satisfy individual customers. But this is a release affecting 10s of thousand of users at the same time. Makes you question the entire LC enterprise!
Steve

Randawl

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Re: FolioFN Return Calculation!!!!!!!
« Reply #47 on: September 21, 2014, 02:41:40 PM »
\They should have gone XIRR's route, etc., calculating returns based on bank transactions(deposit and withdraws) and end of period account market value. It's simple and clear and is actually what investors really care about at the end of the day. Just like operating a fund, when you report fund return, you should not report stock/bond return, but how much money the fund investors pooled together and how much the fund is worth today.  If cash is not invested but held in LC account, it's still part of investment earning 0% ANAR return, plain and simple.

I disagree at least in part. Our LC accounts are different than a fund. A fund is managed by a third party and their choice to hold cash A) is nothing to do with my choices as an individual and B) certainly does affect my returns on the investment in that fund. That is not the case with self directed P2P accounts.

Let me put this case to you: Two LC investors hold precisely the same collection of 1000 loans, worth $20,000. One has $0 cash balance and the other has $10,000 cash in his account that he will use next month to pay for Junior's tuition. They both have the same investment and both will have the same return on that investment. The cash held by the one is a non-investment which he individually has chosen to maintain. The return on his investment is unaffected by his decision.
 
Now Core correctly pointed out a possible exception as it applies to him. If, in an actively traded account, large cash balances are required to execute the trading strategy (i.e. if the cash wasn't there, there would be no money making opportunity) then that cash is integral to the investment and should be included in return calculations.

This argument is not strong. Why would someone spend 5 business days to deposit $10k, sit there at 0% interest for 15 days, then spend another 5 business days to withdraw? The only reason someone puts money in LC is to invest and the money should count since money in LC has no another options available. This is opportunity cost, and why people demand interest for US treasury notes even it's risk free.

I agree no, one is likely to do what you describe, but you are presuming facts not in evidence. Suppose the guy with $10k cash had that money invested and has been building the cash reserve for months knowing junior's tuition would come due next month.  Or maybe he did precisely what you describe intending to invest the money but got cold feet after reading something on this forum that made him reconsider the risk. Why the cash is there, how it got there, and why he chooses to keep it in cash (un-invested) are irreverent. Cash is by definition not an investment and just like the guy with no cash he is interested in what the return on his actual investment is, and should calculate it in precisely the same way the other guys does.

I agree there are many individual scenarios in which idle cash is intentionally being built up and probably then shouldn't be considered in return calculations. 

However, and though it's speculation, I think it's fair to say that in the majority of accounts idle cash is unintentionally accumulated because people are actively trying to invest it and should be included in return calculations as part of cash drag.

Lovinglifestyle

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Re: FolioFN Return Calculation!!!!!!!
« Reply #48 on: September 21, 2014, 06:15:43 PM »
My screens don't have the "Historical Returns" line.

Is there any known reason for this?  For example, do only accounts which have not bought on Folio have "Historical Returns"?
Does it have anything to do with a browser?  Should I ask LC if/when it really bothers me that much (it doesn't, yet), in about a month?

hoggy1

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Re: FolioFN Return Calculation!!!!!!!
« Reply #49 on: September 22, 2014, 05:47:09 AM »
THE LINK IS BACK.
Steve

core

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Re: FolioFN Return Calculation!!!!!!!
« Reply #50 on: September 30, 2014, 07:39:18 AM »
I spoke with Lending Club about the 100% limit last week.  I don't know why I even bothered with the direct approach this time.  Bashing them here on the forum seems to work better for fixes.

They refused to spend development time for working on something which only affects a handful of investors.  Ok, I can understand that.  But when I asked what possible work would have to be done since the system already calculates the number (to know that it's over 100%) I didn't receive a good answer.  Maybe I got a chuckle out of him.  I think the rep was placed in the unfortunate situation of defending something that was obviously silly.

I did learn one interesting tidbit though:  There is also a lower limit of -100%.  At the time this made sense to me, but I was in error because I forgot that this is annualized.  It most certainly would be possible to have a traded notes return way under -100%.  Last year I think I traded with some people sporting such returns. :)

So it seems Lending Club doesn't want to show returns which are "too" good.  But they also don't want to display returns which are too poor.  How convenient.

Stay tuned for the next episode when they decide limits of -15% to +15% would be better for their PR purposes, and use the "vast majority" as an excuse.