Author Topic: Throwing in the Towel  (Read 7604 times)

Skeptical

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Throwing in the Towel
« on: September 05, 2017, 10:10:41 AM »
I started buying notes in April. My position is nominal, and I have made the decision buying notes is not for me. Although I have decades of investing experience, I don't know how to allocate these notes. Very early I had a note default from the start. The borrower never paid one penny from day one. This smells like a case of fraud to me. My returns were pummeled.

Also, these notes function more like a bond because my upside is capped. To be honest, I feel more comfortable buying stocks because if a stock goes down in value, at least it has the possibility of going up. With these notes I am lost. Why torture myself trying to make this work? So I have officially thrown in the towel, and I will concentrate on what I feel comfortable with and what I have been doing successfully. It is important to be honest about one's limitations.

A quote by Aristotle comes to mind: "The aim of the wise is not to secure pleasure, but to avoid pain."

To all of those who continue buying notes, I wish you the best. Buying notes is not for me.

rawraw

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Re: Throwing in the Towel
« Reply #1 on: September 06, 2017, 06:11:26 AM »
Sorry to see you go. The behavioral aspect of investing is more important than the numbers. I hope when you talk about buying stocks, you mean broad based indexes.  Good luck!

lascott

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Re: Throwing in the Towel
« Reply #2 on: September 06, 2017, 11:05:40 AM »
I started buying notes in April. My position is nominal, and I have made the decision buying notes is not for me. Although I have decades of investing experience, I don't know how to allocate these notes. Very early I had a note default from the start. The borrower never paid one penny from day one. This smells like a case of fraud to me. My returns were pummeled.
<snip>
It seems the biggest answer to having one/few notes impacting returns is buying notes in large quantities. My kids account had a default early and was hard on the return. It's XIRR is 5.3ish now after buying conservative notes for a couple years. Trouble is that it is less than $10K so there is an annual fee.  Thinking of selling notes and transferring to an indexed mutual fund instead. Have never sold notes and don't know the taxes ins/outs.
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

Skeptical

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Re: Throwing in the Towel
« Reply #3 on: September 12, 2017, 10:54:59 AM »
@rawraw

Since I have thrown in the towel, I have had two notes to go into the first grace period. I don't get it. Out of the notes I own, 12% have gone into grace periods and one never paid a single penny! I chose notes with FICO scores above 723. Half of borrowers have scores above 723 and half below 723. This was my way of putting the odds in my favor. Needless to say, either my assumption was flawed or there is a lot of fraud out there. With the recent release of the LC changes, it looks like I have timed my exit perfectly. I believe the "easy" money has been made.

I have been investing for decades and I currently hold ETFs and individual stocks. I prefer strategies because growth and value go in and out of favor. Last year my penny stock portfolio returned 46%. This year my Dogs of the Dow and Ivy Portfolio are doing nicely. Personally the less I trade, the better my returns. I rebalance my Dogs of the Dow portfolio once a year and my Ivy Portfolio every quarter. With my penny stock portfolio, I practice risk management and my portfolio is up 62% since February 2015.

Investing takes time, discipline, a plan and the practice of risk management. This adds to my confidence. When I invest in the LC notes, I am a fish out of water.

Skeptical

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Re: Throwing in the Towel
« Reply #4 on: September 12, 2017, 10:59:32 AM »
@lascott

Back in the doldrums of 2002, I began putting money for my grand children in a vanilla S&P 500 Index fund. I have never regretted it. This is my way of building intergenerational wealth for them.

lascott

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Re: Throwing in the Towel
« Reply #5 on: September 12, 2017, 12:42:52 PM »
@lascott, Back in the doldrums of 2002, I began putting money for my grand children in a vanilla S&P 500 Index fund. I have never regretted it. This is my way of building intergenerational wealth for them.
I understand and that is great thinking. Along those lines (intergenerational wealth) I think if parents can afford monetary gift then their kids may be able to use it to fill their ROTH IRA limits each year as a way to 'pass on' wealth.
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

nonattender

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Re: Throwing in the Towel
« Reply #6 on: September 12, 2017, 05:53:43 PM »
@lascott, Back in the doldrums of 2002, I began putting money for my grand children in a vanilla S&P 500 Index fund. I have never regretted it. This is my way of building intergenerational wealth for them.
I understand and that is great thinking. Along those lines (intergenerational wealth) I think if parents can afford monetary gift then their kids may be able to use it to fill their ROTH IRA limits each year as a way to 'pass on' wealth.

Roth IRA contributions - even for kids - must be from "earned" income, not "gifts" - so, be careful how you document - and the kid, no matter their age (or whether they will owe any taxes) will have to (have his/her parents) file a tax return reflecting income/contribs...  It's been a while since I read up on this, but allowances and chores don't "count" - and income must derive from third-party earnings. (It's not impossible; just slightly more complicated than letting Junior open a bank account, a custodial Roth IRA, and shoving piggy bank money  into it.)
A little nonsense now and then is relished by the wisest men.

lascott

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Re: Throwing in the Towel
« Reply #7 on: September 12, 2017, 09:43:34 PM »
Aside:
@lascott, Back in the doldrums of 2002, I began putting money for my grand children in a vanilla S&P 500 Index fund. I have never regretted it. This is my way of building intergenerational wealth for them.
I understand and that is great thinking. Along those lines (intergenerational wealth) I think if parents can afford monetary gift then their kids may be able to use it to fill their ROTH IRA limits each year as a way to 'pass on' wealth.

Roth IRA contributions - even for kids - must be from "earned" income, not "gifts" - so, be careful how you document - and the kid, no matter their age (or whether they will owe any taxes) will have to (have his/her parents) file a tax return reflecting income/contribs...  It's been a while since I read up on this, but allowances and chores don't "count" - and income must derive from third-party earnings. (It's not impossible; just slightly more complicated than letting Junior open a bank account, a custodial Roth IRA, and shoving piggy bank money  into it.)
I should have been clearer. As you get older "kids" can be in their 20s.  I was absolutely referring to them earning income from an outside the home W-2 job.  There are other ways but that was not my situation or what I was referring to.
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

nonattender

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Re: Throwing in the Towel
« Reply #8 on: September 13, 2017, 07:00:17 PM »
I should have been clearer. As you get older "kids" can be in their 20s.  I was absolutely referring to them earning income from an outside the home W-2 job.  There are other ways but that was not my situation or what I was referring to.

Gotcha.  It's a good(-hearted) question.  Yes, if the "kid" (and I know just what you mean - I referred to one of my probably 40 year old doctors as a "good kid" to a friend, the other day) is legally an adult and has their own income, then parental gifts are an easy (& legal) way to say "here, take this $5500 and use for whatever, and then take the $5500 of your income that you otherwise would have spent and max out your Roth"...  You can do, I think, $10k per "kid", per year, as a straight-up gift - and that doubles if the kid has a spouse... (If the kid is the one with money and is supporting parents, one can do $10k/yr per parent, as a gift, as well, I believe).

I took it, initially, to mean "child" - because I know a 7 or 8 year old little guy who's the only first-grader in his class w/a retirement acct. :)

(He was a cute, symmetrical kid and had a "job" being photographed playing with legos or nerf guns or whatever some co. was selling.)
« Last Edit: September 13, 2017, 07:02:38 PM by nonattender »
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Data Junkie

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Re: Throwing in the Towel
« Reply #9 on: September 19, 2017, 11:09:13 AM »
I hear you, Skeptical.  Before I learned about backtesting and filtering, I started off with the automated investing.  Even though I went with the most conservative setting, I am just inundated with Lates and Defaults.  Since then I've learned a lot and wrote my own backtesting and analysis codes, but that initial investment I don't think I can overcome.  The only reason I haven't bailed is to see if my method works.

I started with an initial investment of 200 loans.  Of the 16 Defaults in my portfolio, 13 were with automated investing.  Of the 9 Late loans, 7 were with automated investing.  It is very discouraging because my returns are just awful.

It's funny-- folks bemoan early payoffs.  I'm so happy they paid off and didn't default!
« Last Edit: September 19, 2017, 11:17:34 AM by Data Junkie »

Skeptical

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Re: Throwing in the Towel
« Reply #10 on: September 19, 2017, 12:59:05 PM »
@Data Junkie

What drew me to explore P2P investing was my attempt to diversify my assets. I started slowly and cautiously. Read about this type of investing. Attempted to allocate these notes in a sane manner and from the start everything imploded. The average FICO score is 723, so I assumed anything above that would likely have a chance to mature. Wrong! FICO scores seem to be meaningless.

A lot of the guys on the forum have graphs to try to explain what went wrong, what is happening, etc.. The answer is not to be found in a graph. It is much simpler. Paying a debt to your debtor is a moral obligation as well has a financial obligation. How does one quantify morality on a graph? It's impossible. You are making a bet that the debtor will honor his/her obligation. Many will not. When a person who takes out a loan doesn't make one penny of payment, no one can tell me that this debtor's intention was clear-take the money and run. No moral obligation to pay back, to honor or even to acknowledge that someone put his/her money on the line to help this person. This person boldly took the money and never paid a penny. This is stealing and fraud.

LC can tweak, quantify, run back tests, analyze, reanalyze, etc. It is not going to matter. It comes down to the character of the person making the loan and their willingness to honor the obligation made between lender and borrower.

I'm letting my remaining notes mature. I feel much better after throwing in the towel. I can spend my time and money where I have more confidence and have succeeded in the past.


« Last Edit: September 19, 2017, 01:16:15 PM by Skeptical »

anabio

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Re: Throwing in the Towel
« Reply #11 on: September 20, 2017, 10:12:01 AM »
A lot of the guys on the forum have graphs to try to explain what went wrong, what is happening, etc.. The answer is not to be found in a graph. It is much simpler. Paying a debt to your debtor is a moral obligation as well has a financial obligation. How does one quantify morality on a graph? It's impossible. You are making a bet that the debtor will honor his/her obligation. Many will not. When a person who takes out a loan doesn't make one penny of payment, no one can tell me that this debtor's intention was clear-take the money and run. No moral obligation to pay back, to honor or even to acknowledge that someone put his/her money on the line to help this person. This person boldly took the money and never paid a penny. This is stealing and fraud.


Ya know...that's exactly how I felt at first with my LC involvement. I am luckier than most on this board. Because of an interpretation error I stopped buying notes in Jan, 2016 and missed the 2016 loan debacle, but I still have plenty of charge offs, 1 of which was that "0 payment fraud" you mentioned. At first I was upset at "those conniving sobs" but that attitude eventually changed. It's true that someone making none or only a few payments probably  gamed the system; those making less than 12 payments probably never "mended their ways" after getting an LC loan to payoff credit card excesses. But what do you say about those who made more than 12 payments?

Of the 1,426 loans I have bought 190 have charged off so far. The majority of those charge offs (130) paid more than 12 payments. I guess some of those could have been credit card excesses who just held on longer than others but, how can you explain someone who made 24 (or even 34) payments and then stopped?

LC opened my eyes to that fact that there are many hurting people out there who through little or no fault of their own are having problems. Maybe sickness, maybe job loss, maybe hurricanes, maybe earthquakes, maybe fires, etc. They held on as long as possible but eventually reality sets in and they just can't do it anymore.

As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

Data Junkie

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Re: Throwing in the Towel
« Reply #12 on: September 20, 2017, 10:48:39 AM »
I, too, had one of those "immediate default" notes and it fueled my misanthropic inclination.  I decided to explore those a little further, and identified many common characteristics, but the aggregate of those characteristics were not revealing (as you might expect).  There is, as Skeptical said, no metric for morality!

I guess another reason I haven't given up completely is that most loans do not default (but a significant number do).  For example, of completed B&C loans, approx 16% defaulted, or about 1 in 6.  This is not my area of expertise by any means, but that seems really high if that includes a significant number of average joes and jills.  My goal is, can I identify with confidence those that will not default?  If I can do that then maybe I can move on to choosing loans with higher interest rates.  Of late, I am gunshy and leaning towards A's from the ones my code is identifying.

This has been another example of my jumping in the pool before learning to swim.  Fortunately it was on the shallow end.  But it has also been a good excuse to indulge my coding hobby, and I've learned a lot about reading credit reports which will help me, I think, with my newest hobby, a rental property.

Thanks. Skeptical, for sharing your opinion and experience.
« Last Edit: September 20, 2017, 11:01:26 AM by Data Junkie »

Skeptical

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Re: Throwing in the Towel
« Reply #13 on: September 20, 2017, 03:29:54 PM »
@anabio

You are right. Sometimes circumstances are beyond a debtor's control. That is part of the uncertainty and the risk. And I have no problem with that. I would call a person who pays 12 months on loan and then defaults-a normal deviation. Now someone who fails to pay one penny, I would call that an abnormal deviation. There is a big difference between the two and if I purchased a note that defaulted after 12 months, that would make sense to me.

My wife and I have borrowed money in the past. But with the intention of paying it back. We would never borrow more than we could rightfully pay back. Maybe it is a mistake for me to think that everyone who takes out a loan on LC views his/her debt this way. Obviously they do not.

This is a new asset class. P2P lending does not have enough history to determine how these loans will perform under varying economic circumstances. The key is to pick the notes that will not default and avoid those that will default. How? Is there any reasonable way to allocate these notes? I'm not sure. With stocks or bonds, this is much easier. I invest in stocks some investors would not touch. But I have a plan and practice risk management. I don't know how to practice risk management with these notes. Buy only A rated notes? Your return would make this strategy trivial.

Circumstances happen to people beyond their control. I'm not a cold-hearted person. But someone never paying one penny on a loan tells me to be careful, cautious and reconsider if this asset class is for me.

kib

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Re: Throwing in the Towel
« Reply #14 on: October 16, 2017, 01:54:59 PM »
I have to admit, I place enormous faith in FICO scores.  Maybe this is naive but I feel that someone with a FICO of 800+ worked for and earned that, and is a lot less likely to game the system and trash that kind of a score unless they're planning suicide or a run to Canada.  It's not necessarily that high scorers are more moral than other people, but they have something significant to lose with gaming shenanigans. So far I haven't been burned on any new loans to the 800 club.  (Have to admit I'm still considering leaving, as these more reliable loans net about 4% after fees and I can do better with an insured muni bond with No Work Whatsoever and the possibility of a better return than the stated rate if I time it well.  oh yeah, and almost no tax liability either.  Jeez ... why on earth am I here?
« Last Edit: October 16, 2017, 01:58:23 PM by kib »