Author Topic: Who buys a note like this from Folio?  (Read 3425 times)

dr.everett

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Who buys a note like this from Folio?
« on: January 07, 2017, 03:16:55 AM »
https://www.lendingclub.com/foliofn/loanPerf.action?loan_id=61503198&order_id=114358862&note_id=98059822

I'm curious as to what others smarter than I think.

This note, along with 4 of its brothers sold for me tonight on Folio at a 38% discount. For me this is an older note from 5/17/16 when I was switching automation and had two systems purchasing. At the time this was a good note, however a few months after purchase the FICO plummeted. (FICO Graph attached)

The automation did what it was supposed to and listed the note as IGP- then Late 16-30. It paid to Current today. It's been Late 16-30 every payment the last 4 months. While I'm bummed to lose a little money on it, the Catbert in me is ROTFL right now at the thought that someone will likely lose out on their purchases when this note finally stays bad.

Is that a fair assessment or am I missing something?

Fred93

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Re: Who buys a note like this from Folio?
« Reply #1 on: January 07, 2017, 03:40:52 AM »
This note, along with 4 of its brothers sold for me tonight on Folio at a 38% discount.

How did you choose 38% discount?

That borrower is certainly seems to be having some difficulty, but I don't have a clue what the appropriate discount would be for that situation.


dr.everett

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Re: Who buys a note like this from Folio?
« Reply #2 on: January 07, 2017, 01:15:07 PM »
This note, along with 4 of its brothers sold for me tonight on Folio at a 38% discount.

How did you choose 38% discount?

That borrower is certainly seems to be having some difficulty, but I don't have a clue what the appropriate discount would be for that situation.

I have a range set that I've tweaked through trial and error based on past sales, some analysis of similar listed notes (16-30), etc. My automation then lists the notes at the low end of the range and then increases the discount until it sells or the listing ends. In this case, whomever bought the note decided 38% was an acceptable discount. That is around the middle of the range I list those type of notes for. I don't sell many 16-30 notes, so that's why this one caught my attention- that and just looking at it yesterday morning.

SLCPaladin

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Re: Who buys a note like this from Folio?
« Reply #3 on: January 07, 2017, 05:59:15 PM »
Quote

The automation did what it was supposed to and listed the note as IGP- then Late 16-30. It paid to Current today. It's been Late 16-30 every payment the last 4 months. While I'm bummed to lose a little money on it, the Catbert in me is ROTFL right now at the thought that someone will likely lose out on their purchases when this note finally stays bad.

Is that a fair assessment or am I missing something?

Difficult to say I think. I think it would take a lot more performance data of notes on the secondary market to determine what the inflection point is. As I see it, this is the question: Is a 38% discount sufficient to compensate for the quality degradation? Look at it another way, if the note never defaults but instead continues to pay late 16-30 days until maturation, then the note buyer got a pretty good deal.

With enough data from Folio, it should be possible to determine a price for each note that is better than what can be had on the primary market.  You'd kind of have to have a pool of similar notes and see what the likelihood of default is within a vintage that is close to it and then make some extrapolations and assumptions then assign a probability to various outcomes.

Unfortunately, I do not have said data, nor am willing to invest the time and energy to crack the code. I spent a Sunday evening pulling out my hair trying to build a rather crude model that would help me figure out, for any given secondary note, if it was worth purchasing relative to what was currently available on the primary market. It was too time consuming, so I abandoned it. This is also why I don't buy or sell on Folio. I'm leery that there is a quant on the other side of the trade who has invested more time and energy and is picking up whatever I would be selling at a bargain due an information asymmetry. For an impaired note like the one you mentioned, there must be some price where it is worth buying, but how to determine it?
« Last Edit: January 08, 2017, 06:28:13 PM by SLCPaladin »

Fred93

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Re: Who buys a note like this from Folio?
« Reply #4 on: January 07, 2017, 08:38:45 PM »
I have a range set that I've tweaked through trial and error based on past sales, some analysis of similar listed notes (16-30), etc. My automation then lists the notes at the low end of the range and then increases the discount until it sells or the listing ends. In this case, whomever bought the note decided 38% was an acceptable discount.

So you sell without having an opinion about whether the price is right?

That's nuts.

dr.everett

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Re: Who buys a note like this from Folio?
« Reply #5 on: January 07, 2017, 11:17:30 PM »
I have a range set that I've tweaked through trial and error based on past sales, some analysis of similar listed notes (16-30), etc. My automation then lists the notes at the low end of the range and then increases the discount until it sells or the listing ends. In this case, whomever bought the note decided 38% was an acceptable discount.

So you sell without having an opinion about whether the price is right?

That's nuts.

I actually do have an opinion about the price- back in the day when I used Interest Radar I looked at what most notes in the various late states sold for on Folio- they had a nice page that updated daily that showed an average discount for the previous day's sales. I used that as a starting selling point in Lending Robot and then tweaked it slightly until the notes I wanted to sell started selling. The min/max range is currently set where I can accept the outcome. I don't do anything blindly on Folio- that's way too risky.

SLCPaladin pointed out the exact question which led to the original post- without getting into one's "secret sauce", was there something I was missing out on by selling this note that someone else knew made it a good buy? All I'm interested in is if there was a good suggestion- without divulging someone's special means- pointing me in the right direction so I can figure it out, or as least starting the thought process.

Fred93

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Re: Who buys a note like this from Folio?
« Reply #6 on: January 08, 2017, 12:08:44 AM »
I actually do have an opinion about the price- back in the day when I used Interest Radar I looked at what most notes in the various late states sold for on Folio- they had a nice page that updated daily that showed an average discount for the previous day's sales. I used that as a starting selling point in Lending Robot and then tweaked it slightly until the notes I wanted to sell started selling.

You're not understanding me.  You are  just selling at some price that people seem to be willing to pay. 

You are letting the buyers set the price for you.

You have no idea whether that is a reasonable price. 

If they are overpaying, then you did well.  If they are paying less than these things are worth, then you did poorly.

A seller should form an opinion about what a thing is worth before he sells rather than just selling blindly at whatever price the market is paying.

This is the reason I don't sell IGP notes.  There is no good source of data from which we can establish what they are worth.  I would only want to sell them if people are paying more than they're worth.

fliphusker

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Re: Who buys a note like this from Folio?
« Reply #7 on: January 08, 2017, 10:46:25 AM »
All of you are touching on why most will not get into FOLIO.  What factors come into play when buying on FOLIO?  Where does the level of comfort hit with notes compared to the level of fear?  For me, that is a huge grey area and not one easily defined. 
Paladin-2 problems with the data.  It is not accessible, I believe.  2nd what factors do you look at?  Anil slapped me around awhile back and really got me thinking about FOLIO on what matters and what does not.  On the primary, you care about inquiries that are new, but on FOLIO do you care about inquiries that could be as old as 6 years?  Should you care about income level on a note with zero issues?  What factors are actually relevant on FOLIO for backtesting if you could?
Fred-FOLIO is a buyers market.  Many who list notes on FOLIO are clueless to the value.  Of the 42k notes listed that are IGP or worse, 12k of them are listed with a markup.  230k notes listed with a markup have a down FICO, that is over half. 
I think you look at his reasoning for selling the note in a wrong way.  It comes down to really only the risk factor.  Doc is betting that the note is a ticking time bomb and will eventually default.  He is taking only a 38% hit on a note that LC says will default at a 58% clip historically.  170 point FICO hit in one month means bills are not getting paid.  LC is already on the list of items the guy is not paying, well not paying on time.  That is a 60-month note and he is struggling to pay it at 14 months, long ways to go with zero hope of refinancing anytime soon. 
Do not get me wrong though, I also see why the guy who bought it did so.  Not my cup of tea with the huge amount of risk involved with the note. 

nonattender

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Re: Who buys a note like this from Folio?
« Reply #8 on: January 08, 2017, 01:32:43 PM »
Anil slapped me around awhile back and really got me thinking about FOLIO on what matters and what does not.

He'll do that every once in a while.  Not often enough, for my tastes, but that just makes it all that much more of a treat.  Glad you noticed!
A little nonsense now and then is relished by the wisest men.

SLCPaladin

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Re: Who buys a note like this from Folio?
« Reply #9 on: January 08, 2017, 06:39:13 PM »
Quote
This is the reason I don't sell IGP notes.  There is no good source of data from which we can establish what they are worth.

George Akerlof, husband of Fed chairman Janet Yellen, won the Nobel prize in economics for his famous work "The Market for Lemons." One of the major takeaways from his work is that a lack of information about quality of assets leads to a breakdown in markets. I see a parallel here. The quality of the impaired asset is largely a mystery to me, mostly due to a lack of easily digestible data about expected performance, so I basically withdraw myself as either a buyer or seller on the secondary market.

fliphusker

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Re: Who buys a note like this from Folio?
« Reply #10 on: January 09, 2017, 03:08:02 PM »
I had read a lot of his articles on PC while I was waiting for my initial investment to arrive at LC, but nothing on FOLIO that I remember.  So I had it stuck in my head that one could treat Primary and Secondary markets the same with filtering.  It took me awhile to understand that some of the things that are very meaningful when buying notes on the Primary have really no bearing on the Secondary market.  I will always be forever grateful to Anil for that and gave me a month trial on PC.  I am thankful that he slapped me around when he did and got me on the track I am on in regards to FOLIO.
I would also like to thank Fred93 and Rob for sharing their vast knowledge as well here.  Would be a lot more people fumbling in the dark without you 2. 
Anil slapped me around awhile back and really got me thinking about FOLIO on what matters and what does not.

He'll do that every once in a while.  Not often enough, for my tastes, but that just makes it all that much more of a treat.  Glad you noticed!

Rob L

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Re: Who buys a note like this from Folio?
« Reply #11 on: January 09, 2017, 06:28:31 PM »
I had read a lot of his articles on PC while I was waiting for my initial investment to arrive at LC, but nothing on FOLIO that I remember.  So I had it stuck in my head that one could treat Primary and Secondary markets the same with filtering.  It took me awhile to understand that some of the things that are very meaningful when buying notes on the Primary have really no bearing on the Secondary market.  I will always be forever grateful to Anil for that and gave me a month trial on PC.  I am thankful that he slapped me around when he did and got me on the track I am on in regards to FOLIO.
I would also like to thank Fred93 and Rob for sharing their vast knowledge as well here.  Would be a lot more people fumbling in the dark without you 2. 
Anil slapped me around awhile back and really got me thinking about FOLIO on what matters and what does not.

He'll do that every once in a while.  Not often enough, for my tastes, but that just makes it all that much more of a treat.  Glad you noticed!

Thanks for the kudos but I'm still fumbling about in the dark myself. Just post the stuff I learn when I bang my head on the next wall of the LC maze.

fliphusker

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Re: Who buys a note like this from Folio?
« Reply #12 on: January 10, 2017, 04:38:38 AM »
Ya should not sell yourself short.  I learned a lot with your selling spree on FOLIO.  Curious if you think that was the right move or not.  Some have seen a sharp downturn in 2016 notes.  I do not think those were notes you were peddling, correct?
I had read a lot of his articles on PC while I was waiting for my initial investment to arrive at LC, but nothing on FOLIO that I remember.  So I had it stuck in my head that one could treat Primary and Secondary markets the same with filtering.  It took me awhile to understand that some of the things that are very meaningful when buying notes on the Primary have really no bearing on the Secondary market.  I will always be forever grateful to Anil for that and gave me a month trial on PC.  I am thankful that he slapped me around when he did and got me on the track I am on in regards to FOLIO.
I would also like to thank Fred93 and Rob for sharing their vast knowledge as well here.  Would be a lot more people fumbling in the dark without you 2. 
Anil slapped me around awhile back and really got me thinking about FOLIO on what matters and what does not.

He'll do that every once in a while.  Not often enough, for my tastes, but that just makes it all that much more of a treat.  Glad you noticed!

Thanks for the kudos but I'm still fumbling about in the dark myself. Just post the stuff I learn when I bang my head on the next wall of the LC maze.

Rob L

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Re: Who buys a note like this from Folio?
« Reply #13 on: January 10, 2017, 06:45:53 PM »
Ya should not sell yourself short.  I learned a lot with your selling spree on FOLIO.  Curious if you think that was the right move or not.  Some have seen a sharp downturn in 2016 notes.  I do not think those were notes you were peddling, correct?

I'm certain I made the right move when I decided to reduce my LC exposure. It may seem foolish to some, but the events last May sharply reminded me that there is a small but non-zero chance I could lose my entire investment. After three years of very substantial gains my account had grown to an amount that I was no longer willing to risk in entirety. If my notes were more than simply IOU's from LC things would be different and my risk less. That is not the case. Now I'm comfortably at the "sleeping point" with my LC account.

The notes I offered for sale last fall were all 36 month term and had 18 or more payments remaining. Of the notes I sold about 1/3 were 2016 and 2/3 were prior.

And from Caddy Shack:
https://www.youtube.com/watch?v=EeJVTimlyWk


nonattender

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Re: Who buys a note like this from Folio?
« Reply #14 on: January 11, 2017, 12:55:18 AM »
A little nonsense now and then is relished by the wisest men.