Author Topic: Does "sell on FICO drop" strategy really work?  (Read 12381 times)

core

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Re: Does "sell on FICO drop" strategy really work?
« Reply #15 on: November 01, 2014, 06:33:51 PM »
I'm waiting for Core to chime in. He is a Folio only trader with a 400% NAR if I remember correctly so he should have some hard data.

My XIRR was 289% at last calculation, not 400, but let us not get wrapped up in small details.  NAR would be different (higher) than XIRR, but since LC has chosen not to let us see NAR's over 100 I will never know what mine is.

As for the "hard data" you mentioned:  I believe the crux of the original question was, does selling the note early yield you a better overall return than holding onto it until closer to default.  In order to answer this you'd have to know the exact price you'd be able to fetch on Folio for that exact note when it was in the various rotting stages of 31+ late, if you had waited.  That is no simple exercise.  Calculations based on total loss due to chargeoff would not answer the question properly IMHO.

I do not have such data.  Or more precisely, I do not have the data tallied in such a manner.  The difference in return is so small (in a relative sense) I have never been interested in putting in the long hours to find out.  But I do believe selling early will yield a higher return as long as you put lipstick on your pig and do not firesale it and take a bath in a panic.  The casual user who only checks notes and adjust prices a few times a week may run into time constraints, not get decent prices, and possibly not have a good experience with the strategy overall.  Even so, my gut feeling is you'd still probably come out ahead.

The FICO decline is public data when you go to sell the note.  Buyers should be compensating for the risk of default when they decide to make a purchase.

"Should be"?  In the sense that they "ought to", I would agree.  But if by "should" you mean they "probably are", I would not agree.  This assumes that all public data is created equal, and that it works at all times.  As we see time and time again, Lending Club is incompetent and their stuff barely works half the time.  For every thing that they screw up, there is often times a way to make money from it.  In the not too distant past it was common to see 3 different FICO scores for the same note.  Knowing which one was correct was the key, and it was no trivial matter to determine.  A poor human buyer would have no chance.  I will not comment on currently existing issues except to say that the buyer does not always get an accurate picture.

Also for anyone who might consider running the numbers on historical sales, you have to keep in mind that until recently it was difficult to immediately determine the recent FICO drop.  Even to see the borrower's current score, you had to click on the chart link and wait for it to load, etc.  I'm quite sure I made plenty of money just from people who did not know the FICO of the note they purchased.  Any Folio price data saved before that change I think would have to be ignored.  Now you have no numbers for defaults because that was too recent.

rawraw

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Re: Does "sell on FICO drop" strategy really work?
« Reply #16 on: November 01, 2014, 08:33:29 PM »
I'm waiting for Core to chime in. He is a Folio only trader with a 400% NAR if I remember correctly so he should have some hard data.

My XIRR was 289% at last calculation, not 400, but let us not get wrapped up in small details.  NAR would be different (higher) than XIRR, but since LC has chosen not to let us see NAR's over 100 I will never know what mine is.
Can't you use the numbers from that screen which shows bought/sold notes, income, etc and just calculate the NAR yourself based on their formula?

Joe6Luck

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Re: Does "sell on FICO drop" strategy really work?
« Reply #17 on: November 02, 2014, 11:31:19 PM »

My XIRR was 289% at last calculation, not 400, but let us not get wrapped up in small details. 


This is very impressive -- If you have a balance of $50k on Jan 1, does it mean your return will be more than 140k on Dec 31 (i.e., better than most full-time job?)? Such a high return might be achievable when the account size/balance is relatively small; but I wonder how scalable it is. Would you mind sharing your current account size (some rough number)?

core

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Re: Does "sell on FICO drop" strategy really work?
« Reply #18 on: November 02, 2014, 11:59:15 PM »
This is very impressive -- If you have a balance of $50k on Jan 1, does it mean your return will be more than 140k on Dec 31 (i.e., better than most full-time job?)? Such a high return might be achievable when the account size/balance is relatively small; but I wonder how scalable it is. Would you mind sharing your current account size (some rough number)?

No unfortunately it is not scalable which is why I pull out my profits every month.  My account is currently a bit less than $40k.  I'm quite sure it would be possible to scale up the income a bit, but there is a time tradeoff.  I don't have the free time nor the inclination to spend 4+ hours a day on this lately as I'm trying to sell a house.  And of course it's not like you can wake up and say "Ok, today I'm going to sit down and spend 8 hours coming up with an ingenious idea".  No, they just come when they do.  I find a large bottle of rum usually helps.

By the way that return is for the lifetime of the account.  About 3 years I believe.  I have said here before that I'm not making nearly that now.  So to heck with scaling, I'd just be happy to maintain the previous level given the same exact account size.

I meant to add in my previous post... Someone (turing I think) mentioned that after the IPO there won't be any Folio only states and thus everything's just a temporary opportunity.  I don't think so.  This assumes that everyone wants to buy notes on the primary platform.  (And I personally don't see why they would.)  Maybe when they first sign up they are disappointed, sure.  But whether they want to or not, they have to become Folio experts in short order.  In fact if I wasn't in a Folio-only state I'd probably be making 12% right now and feeling content with it... so thank God LC didn't let me invest the normal way!  Now that these Folio users have a taste of the discounts and data I don't think they would go back to boring, new, full-price notes with less borrower history.  Certainly the landscape will change to a certain extent, sure.  And this all ignores the fact that 3rd party lazy-investor tools are not really available on Folio.  That could be the thing that tips many people over the edge after the IPO.  Make less return, but don't do any work for it.  I can see the draw of that.
« Last Edit: November 03, 2014, 12:03:07 AM by core »

hoggy1

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Re: Does "sell on FICO drop" strategy really work?
« Reply #19 on: November 03, 2014, 08:51:48 AM »
Hey Core,
What size are the notes you trade on Folio?
Steve

turing

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Re: Does "sell on FICO drop" strategy really work?
« Reply #20 on: November 03, 2014, 11:20:25 AM »
I meant to add in my previous post... Someone (turing I think) mentioned that after the IPO there won't be any Folio only states and thus everything's just a temporary opportunity.  I don't think so.  This assumes that everyone wants to buy notes on the primary platform.  (And I personally don't see why they would.)  Maybe when they first sign up they are disappointed, sure.  But whether they want to or not, they have to become Folio experts in short order.  In fact if I wasn't in a Folio-only state I'd probably be making 12% right now and feeling content with it... so thank God LC didn't let me invest the normal way!  Now that these Folio users have a taste of the discounts and data I don't think they would go back to boring, new, full-price notes with less borrower history.  Certainly the landscape will change to a certain extent, sure.  And this all ignores the fact that 3rd party lazy-investor tools are not really available on Folio.  That could be the thing that tips many people over the edge after the IPO.  Make less return, but don't do any work for it.  I can see the draw of that.

This is a very good point.  Not everyone will want to switch to primary platform once it is open to them. 

I'm guessing a very small fraction of new signups decide to be Folio only if the primary platform is open to them.  And primary platform will be open to all new signups at some point in near future.

Quote from: core
"Should be"?  In the sense that they "ought to", I would agree.  But if by "should" you mean they "probably are", I would not agree.  This assumes that all public data is created equal, and that it works at all times.  As we see time and time again, Lending Club is incompetent and their stuff barely works half the time.  For every thing that they screw up, there is often times a way to make money from it.  In the not too distant past it was common to see 3 different FICO scores for the same note.  Knowing which one was correct was the key, and it was no trivial matter to determine.  A poor human buyer would have no chance.  I will not comment on currently existing issues except to say that the buyer does not always get an accurate picture.

I had never thought of this, but you are right Lending Club does provide a major hindrance to an efficient market.  I don't know the entire extent to LC's issues on this front, but I have seen glimpses without even looking for them. 

Inefficiencies and profit opportunities will last much longer than if Lending Club made the data more accurate and easier to get.

Fred

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Re: Does "sell on FICO drop" strategy really work?
« Reply #21 on: November 03, 2014, 12:18:21 PM »
By the way that return is for the lifetime of the account.  About 3 years I believe.

Still, congrats on getting the "early adopter" benefits of FOLIO algo trading.

I have said here before that I'm not making nearly that now.  So to heck with scaling, I'd just be happy to maintain the previous level given the same exact account size.

+1
The market is more crowded now.  It's getting harder to get our hands on fleeting opportunities.

However, I hope we would get fresh "opportunities" post-IPO.  8)

core

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Re: Does "sell on FICO drop" strategy really work?
« Reply #22 on: November 03, 2014, 05:20:38 PM »
Hey Core,
What size are the notes you trade on Folio?

I will trade whatever is available; I am an equal opportunity miscreant.  There is never any discrimination based on note size or obvious mental handicaps of the other party.  I buy 50cent notes, $500 notes, and I have even wound up with $5,000 notes.  Those $5k ones can be unpleasant when you only have a day or two to get rid of them.  And no, those larger ones don't sell as well as $25 notes when there's a blemish on them; I don't care what anybody says.

However, I hope we would get fresh "opportunities" post-IPO.  8)

Yes I hope you are right.  New market, fresh victims.  Like when they open up a new beauty school right down the street from your house.  There may be some new opportunities, but i think they will all be short lived.  Eventually all of this must come to an end.  Once LC is forced to become a real company with real employees (meaning not 20-something foreigners), this Mickey Mouse stuff of theirs won't fly.

DanB

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Re: Does "sell on FICO drop" strategy really work?
« Reply #23 on: November 03, 2014, 05:39:54 PM »
Turing..............But it is also worth remembering that 99%+ of Folio only state users aren't making returns that are substantially different than the people buying primarily through LC platform. If they were to leave Folio it need not be completely, nor would it likely be seen as that big of a loss, I suspect.  So there is going to be a certain migration to the main platform with the grass is always greener thing going on if & when the availability to all 50 states occurs...............which I'm not convinced will be as seamless or automatic as some have suggested.



   

DanB

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Re: Does "sell on FICO drop" strategy really work?
« Reply #24 on: November 03, 2014, 05:57:15 PM »
Hey Core,
What size are the notes you trade on Folio?

I will trade whatever is available; I am an equal opportunity miscreant.  There is never any discrimination based on note size or obvious mental handicaps of the other party.  I buy 50cent notes, $500 notes, and I have even wound up with $5,000 notes.  Those $5k ones can be unpleasant when you only have a day or two to get rid of them.  And no, those larger ones don't sell as well as $25 notes when there's a blemish on them; I don't care what anybody says.

However, I hope we would get fresh "opportunities" post-IPO.  8)

Yes I hope you are right.  New market, fresh victims.  Like when they open up a new beauty school right down the street from your house.  There may be some new opportunities, but i think they will all be short lived.  Eventually all of this must come to an end.  Once LC is forced to become a real company with real employees (meaning not 20-something foreigners), this Mickey Mouse stuff of theirs won't fly.

Wait, does this mean we might also get "real" journalists who might even attempt some investigative journalism in this industry?.................& not just a continuation of the industry friendly infomercial style slop that we've been offered these past years?  :)

core

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Re: Does "sell on FICO drop" strategy really work?
« Reply #25 on: November 03, 2014, 06:11:08 PM »
So there is going to be a certain migration to the main platform with the grass is always greener thing going on if & when the availability to all 50 states occurs...............which I'm not convinced will be as seamless or automatic as some have suggested.

I don't know enough about the legalities to know how long it will take on the legal end.  But the upcoming IPO is not a surprise.  They should be working on all of the transitional stuff right now so it's ready to go on day 1.  Unless they are incompetent.  Err... yes we may be in trouble there.

Dunno if this has been mentioned but this message started appearing on my account summary just a few short months ago:



The position and color of the message is rather prominent for it to be just a way of blowing off Folio-only investors.  I don't think it's any coincidence that the message appeared as the IPO was really ramping up.

Wait, does this mean we might also get "real" journalists who might even attempt some investigative journalism in this industry?.................& not just a continuation of the industry friendly infomercial style slop that we've been offered these past years?  :)

Yes Dan, I hadn't thought of it but you are quite right.  Real journalists who are real hungry and dying to get their stuff published.  There will actually be real news to read.  I think the days of the cheerleader blogger journos are numbered!  That is, unless they change their approach drastically.  They should be good at changing approaches by now though, having to run away from failing industries like newspapers.

I don't know if you'd call her a journalist, but personally I cannot wait to see Maria Bartiromo talking about Lending Club each day.  That's as good as finance news gets without removing clothing.

sbgaucho

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Re: Does "sell on FICO drop" strategy really work?
« Reply #26 on: November 04, 2014, 12:59:00 PM »
Is there a readily available source of historical FICO scores across for a given note or is this something Peer Cube has been collecting manually?  If so, where have they collected it from?