Author Topic: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack  (Read 7591 times)

AnilG

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Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« on: September 06, 2016, 02:27:53 PM »
Second part of my analysis of Folio listing of delinquent notes is posted. In this post, I review the post listing performance of delinquent notes.
  • Loan Status Migration
  • Post Listing Profitability
  • Post Listing Returns
Trading Delinquent Notes, Part 2: Needle in the Haystack
https://www.peercube.com/blog/post/trading-delinquent-notes-part-2-needle-in-the-haystack
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
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Rob L

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #1 on: September 06, 2016, 06:10:42 PM »
Once again thanks for a most interesting and informative analysis.

Additional confirmation of how extremely overpriced the Folio market is overall.
An investor buys and holds the BEST priced of each note that's late 31+ days late and is rewarded with an average 65% loss of their investment. Right?
Unbelievable; but I'm sure (if sanity prevails) that very very few trades are actually happening at the ridiculous listing prices analyzed.
Meanwhile, your analysis makes me wonder if there are enough needles in the haystack to make them worth finding (i.e. time value of me). I dunno ...

Your teaser plot of 31+ day late notes has a clear note series asymptotically approaching -100%, but I can't imagine why.
You probably know, so how about a hint.


AnilG

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #2 on: September 06, 2016, 08:08:50 PM »
The other end (left) of asymptotic approach is 150+%  :) The line ends on the right at -100%, the maximum losses a note can have. That line when crosses 0 on the left tells you at what discount the 31+ days Late notes are starting to become profitable. The line is actually lot of individual points that seem to form that line indicating differences between individual notes may not matter much beyond discount. The same trend you could see somewhat for 16+ days Late and IGP notes also.

Yep, if you were just buying one note with most discount from each loan with no consideration to magnitude of discount, you will probably lose money at portfolio basis. But the note Ask Price may matter (not addressed here). If you could buy notes at higher discount you can make decent returns. There was another thread where someone mentioned someone buying notes at 90% discount. The chart kind of confirms that if you buy 31+ days notes at 90+% discount, you are likely to break-even or make profit.

Anyway future posts will be reviewing post listing performance with different secondary market attributes of notes. One such attribute will be Markup/Discount.

Once again thanks for a most interesting and informative analysis.

Additional confirmation of how extremely overpriced the Folio market is overall.
An investor buys and holds the BEST priced of each note that's late 31+ days late and is rewarded with an average 65% loss of their investment. Right?
Unbelievable; but I'm sure (if sanity prevails) that very very few trades are actually happening at the ridiculous listing prices analyzed.
Meanwhile, your analysis makes me wonder if there are enough needles in the haystack to make them worth finding (i.e. time value of me). I dunno ...

Your teaser plot of 31+ day late notes has a clear note series asymptotically approaching -100%, but I can't imagine why.
You probably know, so how about a hint.
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

Rob L

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #3 on: September 07, 2016, 10:39:06 AM »
The other end (left) of asymptotic approach is 150+%  :) The line ends on the right at -100%, the maximum losses a note can have. That line when crosses 0 on the left tells you at what discount the 31+ days Late notes are starting to become profitable. The line is actually lot of individual points that seem to form that line indicating differences between individual notes may not matter much beyond discount. The same trend you could see somewhat for 16+ days Late and IGP notes also.

Got it. Individual points on the line may represent one note or dozens; many notes may precisely overlap.
Have to tune in later for your next installment. Guess that's why you called it a teaser.


jpildis

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #4 on: September 17, 2016, 09:06:39 AM »
Does this analysis include recoveries to date?  It would be interesting to see what portion of the return was generated from recoveries.

AnilG

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #5 on: September 18, 2016, 01:16:28 AM »
Yes, the analysis includes all payments including recoveries. What value or actionable conclusions do you expect to make by segmenting payments by type?

Does this analysis include recoveries to date?  It would be interesting to see what portion of the return was generated from recoveries.
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Anil Gupta
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jpildis

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #6 on: September 18, 2016, 10:29:49 AM »
Yes, the analysis includes all payments including recoveries. What value or actionable conclusions do you expect to make by segmenting payments by type?

Does this analysis include recoveries to date?  It would be interesting to see what portion of the return was generated from recoveries.

I think it's just interesting.  Recoveries are somewhat opaque and, from my limited analysis, only appear 12+ months after the charge-off.  I think the timing of cash flows is critical to setting expectations for potential investments.  Buying 31+ late loans at a steep discount is kind of like playing roulette... many of your bets will have a zero return and several will become 2,3,4 or 5 baggers.

AnilG

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Re: Post: Trading Delinquent Notes, Part 2: Needle in the Haystack
« Reply #7 on: September 19, 2016, 02:10:44 PM »
The other datasets (historical and payment) offer better insight into recoveries than 31d+ late loans listing on Folio.

On primary platform, you have frequent small gains and occasional large losses. On secondary market, you have frequent small losses and occasional large gains. The dynamics and strategies are very different to make money from both sources.


I think it's just interesting.  Recoveries are somewhat opaque and, from my limited analysis, only appear 12+ months after the charge-off.  I think the timing of cash flows is critical to setting expectations for potential investments.  Buying 31+ late loans at a steep discount is kind of like playing roulette... many of your bets will have a zero return and several will become 2,3,4 or 5 baggers.
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com