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Post by goldservice on Oct 26, 2014 14:31:41 GMT
There are occasional references (eg Dark Horse on p2pindependentforum.com/thread/1539/yellow-cards ) to this, call it Strategy 1, which seeks to reduce default risk. It is based on evidence that defaults are less frequent in the first six months of a loan. Operating this strategy may improve on the FC predicted returns which are based on expected default rates of 0.6% for risk band A+ etc. However, alongside this benefit there may be two costs (in addition to the 0.25% sale fee): - Strategy 1 increases cash in hand earning no interest; and - it requires significant extra time to identify and sell older loans and to buy replacement loans. The lender may be tempted to lower their target rates in order to reduce the time spent buying. An alternative, Strategy 2, would be to spend extra time when buying loans in the first place in order to achieve higher rates. This extra time includes things like chasing the close of numerous auctions, covering many auctions in the hope of an early ender etc. The loans would be kept to term. The issues that I’m pondering here are: Time - How does the extra time in Strategy 2 (a one-off cost for the life of each loan) compare with the extra time in Strategy 1 (which occurs every six months for each loan)? Money - Do the higher rates achieved in Strategy 2 balance the less frequent defaults in Strategy 1? What started me thinking about this was the effort required to reach my target investment whilst keeping to both my diversification target of 0.5% (I have 300 loans, 3800 parts) and my returns target. The idea of having to repeat it all every six months horrifies me! Also, as my initial investment took about a year, it seems impossible to do it all again in only six months. |
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Post by GSV3MIaC on Oct 26, 2014 14:57:39 GMT
I think strategy 1 is incompatible with maintaining a 0.5% exposure target .. Not enough reasonable loans coming up every 6 months. However maybe if you churn them you can mitigate the extra risks of being less diversified. And of course you can apply both strategies at the same time .. Buy at best marginal rates AND churn every 6 months. 8 >.
6 months is actually getting faintly risky, compared to 2 or3, althoughh last time I looked I think the big crater was around 8 or 9 months.
Neither strategy works for the property loans currently taking over the world though.
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ianb
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Post by ianb on Oct 26, 2014 17:44:37 GMT
I'm a strategy 1 disciple after getting a spate of defaults 1-3 months back - my creed is to sell before 10 repayments. I do a little bit of strategy 2 as well by having 1 bid in at the 14%+ mark, targeting the early enders, and another at my headline rate of 9.2% (adjusted by risk band) - I don't bother with the excitement of walking it in at the end of the auction now though. If I get both accepted I'll sell the lower bid in a couple of months. It'll take a while to prove whether this is really effective as I still have to wash thru a number of older loans which are stuck in the risk band removed state. So far, I think this may work for maintaining my investment though if I wanted to increase it (which I don't) it may be more difficult. What is fun though is when I need a bit of cash, put up a +14% C- unit and whoosh, snapped up by the magical auto-bot in a flash. Love that, wonder what they do with them.
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min
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Post by min on Oct 26, 2014 18:13:07 GMT
What is fun though is when I need a bit of cash, put up a +14% C- unit and whoosh, snapped up by the magical auto-bot in a flash. Love that, wonder what they do with them. Are you putting them up at par - autobid buyers, or adding a healthy markup - bots buying?
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baldpate
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Post by baldpate on Oct 26, 2014 19:45:11 GMT
I started lending on FC in April (this year) with just £2K, my initial objective being to get that lent out over 100 loans as quickly and as 'safely' as possible - (A+, A, and B) at fairly low rates, using Autobid; I then exited Autobid, and started manually building to the current position of £8K over 200 loans in all risk bands. After about 3 months, I started to operate the 'sell before 6 payments' strategy (initially those 'older' loans that Autobid had picked up at par on the aftermarket). I've now got rid of the autobid stuff, and am starting to recycle some of the loans I purchased for myself at auction.
Being retired, I can afford to spend some time looking for decent rates at auction (I no longer buy on the secondary market). I have no particular skill at analysing loan proposals; so, apart from rejecting outright the more obvious duds, I will consider most loans, irrespective of risk band, provided the loan amount is >£60k; I also have a few negative rules (like : never loan to solicitors, to anonymous borrowers, to firms with very low credit rating or rating grossly inconsistent with the FC-assigned risk band). I used to chase the rate to the end of the auction (down to my target); this was very time consuming, but it did give me a feel for the maximum rate at which a loan might land ; I now tend to peek at the loan some time before the end and leave a bid a bit below where I judge the maximum will end. For a couple of weeks I tried to pick up the early-enders, but I found it tied up to much cash for too little result, so I no longer bother to systematically chase early-enders.
I think it will take at least a full year, possibly somewhat more, to see if the 'sell before 6 payments' approach really works. So far no defaults, although I do have one de-rated loan (Top Tier Shysters, picked up by autobid) which looks pretty dodgy. Whether it is worth the effort is another matter. I'm doing this as a sort of pre-ISA trial : if it works out, I may commit enough money under the ISA wrapper to make the effort worthwhile. At present it's more like a retirement hobby.
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Post by davee39 on Oct 26, 2014 20:06:31 GMT
I have been sticking to selling before the 4th payment. The downside is that I generally have about £1000 tied up in bids earning nothing (£7000 invested, but increasing slowly) and reducing my overall rate (currently 12.2% after fees and defaults). The upside is a lowish default rate - there are still some that fail very early. Max in any loan at 1.2% and falling.
I am looking for a return, after fees and estimated defaults, of at least 7.5% so I only end up going for the larger loans. I am happy with most of the trash though as long as Autobid can be relied on to suck it up when the time comes. Currently I spread several bids across 0.1% increments, this keeps me in play for early closers and reduces the need to be in at the end for each auction. Most parts are cleared at a small premium.
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ianb
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Post by ianb on Oct 27, 2014 4:30:26 GMT
What is fun though is when I need a bit of cash, put up a +14% C- unit and whoosh, snapped up by the magical auto-bot in a flash. Love that, wonder what they do with them. Are you putting them up at par - autobid buyers, or adding a healthy markup - bots buying? The low 14%'ers (less that say 14.6) I'll just put up at par. If I added a markup it wouldn't get such an immediate reaction from the botty's. If I can be bothered to plan more in advance I'd add markup or a couple of days and then take that off to release the cash if it hasn't sold.
Interesting thread this, I tend to choose based on score alone but think that switching out anonymous borrowers is a good one i'll adopt, thanks baldpate for that.
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is
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Post by is on Oct 27, 2014 13:25:20 GMT
Are you putting them up at par - autobid buyers, or adding a healthy markup - bots buying? The low 14%'ers (less that say 14.6) I'll just put up at par. If I added a markup it wouldn't get such an immediate reaction from the botty's. If I can be bothered to plan more in advance I'd add markup or a couple of days and then take that off to release the cash if it hasn't sold.
Interesting thread this, I tend to choose based on score alone but think that switching out anonymous borrowers is a good one i'll adopt, thanks baldpate for that.
Not really true about markup - ni***a169 regularly buys up at reasonable premium, and I fed it up to £5k of one loan at a time so it has good capacity. It also tries to lift the market by having one low-nominal part for sale at the time (e.g. an A at 10.8). If you list at same rate yours will get bought immediately but that part stays  . I find him very useful as I market-make, always happy to sell out at a 1.5%+ markup, he is welcome to low-value arbitrage on the rest!
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ianb
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Post by ianb on Oct 27, 2014 15:36:19 GMT
Not really true about markup - ni***a169 regularly buys up at reasonable premium, and I fed it up to £5k of one loan at a time so it has good capacity. It also tries to lift the market by having one low-nominal part for sale at the time (e.g. an A at 10.8). If you list at same rate yours will get bought immediately but that part stays . I find him very useful as I market-make, always happy to sell out at a 1.5%+ markup, he is welcome to low-value arbitrage on the rest!Thanks, wasn't aware of that, will give it a whirl. Good old ni***a169, what a generous person.
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Post by Deleted on Oct 27, 2014 18:09:48 GMT
This strategy (and I was tempted by it myself for a while) is one of the most retarded possible strategies there are.
Firstly it's totally immoral because you're betting that some of the assets you pass to other people will end up hurting them. Why would you want to do that?
Secondly the evidence is really weak: I've seen companies default on loans almost immediately and others go to term without a hiccup: there's no substitute for full disclosure, proper reason-based decision-making and due vigilance. No statistical rule of thumb is going to out-perform that.
Thirdly you're adopting a position of pessimism with something and then carrying on doing it! If you think the risks of p2p are too high for your taste, stop doing it! If you think you can gamble that your losses will be more than adequately offset by your gains, good for you, but it's a 1:10 / "10:1 on" bet: put down ten grand that you might lose and you make 1! Whoopidoo.
Best strategy in my humble opinion: if you can't afford to lose everything you put out there, don't put it out there. If you think you're doing good for the economy by supporting fringe businesses, or you believe the banks are under-lending and there's just not enough debt out there (LOL) then go for it, feel good about how socially responsible you're being as your savings go 'poof'!!!!
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Post by GSV3MIaC on Oct 27, 2014 18:36:47 GMT
Actually the evidence, if you can do statistics, is very strong (that loans are much less likely to default in the first few months). Some will die early, sure, but fewer than average.
As for "immoral", I don't believe anyone is being Bullied or even lured, into buying whatever is put up for sale. .. And if the buyer is a bot, then my sympathy level is zero, going on negative.
Of course, someone probably is doing very well out of buying used parts at knockdown prices 6 months into the loan ... If they buy the right ones.
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Post by goldservice on Oct 27, 2014 19:07:13 GMT
Best strategy in my humble opinion: if you can't afford to lose everything you put out there, don't put it out there. If you think you're doing good for the economy by supporting fringe businesses, or you believe the banks are under-lending and there's just not enough debt out there (LOL) then go for it, feel good about how socially responsible you're being as your savings go 'poof'!!!! Could you tell us the other half of your best strategy viz where you put your own savings, please?
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ianb
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Post by ianb on Oct 27, 2014 21:44:00 GMT
This strategy (and I was tempted by it myself for a while) is one of the most retarded possible strategies there are. Firstly it's totally immoral because you're betting that some of the assets you pass to other people will end up hurting them. Why would you want to do that? Secondly the evidence is really weak: I've seen companies default on loans almost immediately and others go to term without a hiccup: there's no substitute for full disclosure, proper reason-based decision-making and due vigilance. No statistical rule of thumb is going to out-perform that.Thirdly you're adopting a position of pessimism with something and then carrying on doing it! If you think the risks of p2p are too high for your taste, stop doing it! If you think you can gamble that your losses will be more than adequately offset by your gains, good for you, but it's a 1:10 / "10:1 on" bet: put down ten grand that you might lose and you make 1! Whoopidoo. Best strategy in my humble opinion: if you can't afford to lose everything you put out there, don't put it out there. If you think you're doing good for the economy by supporting fringe businesses, or you believe the banks are under-lending and there's just not enough debt out there (LOL) then go for it, feel good about how socially responsible you're being as your savings go 'poof'!!!!
Thanks Sterling @ p2p-millionaire.com for your latest words of wisdom. At least you can't say this strategy is racist, unlike your last rant (or at least, the last one I saw). What comes next after racists and retards - this looks like an alphabetic sequence ? Sexist is all I can think of, sorry imagination is a bit burnt out today. Looking forward to the next one though, keeps us all amused.
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Post by brettb on Oct 28, 2014 8:54:36 GMT
Interesting strategy, but I think it would be too time consuming unless you just lent out larger amounts of money per loan. I guess it might be worth looking at if FC ever get their API up and running.
I've been in Zopa since 2009 and my strategy there has simply been to stick to the autolend and hope the default rates aren't too high. That has worked OK because I've only ever had 3 defaults (totalling somewhat less than £30*). More importantly, it's taken very little of my time, which is better spent on acquiring more cash to invest.
*Since they introduced their contingency fund I don't know how many more defaults I've had.
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blender
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Post by blender on Oct 28, 2014 9:32:21 GMT
I have an even more retarded and morally bankrupt practice. I actually sell loan parts which have gone late and come back, thinking them to be risky and knowing that another lender will buy them, perhaps through Autobid. I can hardly live with myself.
It's almost as bad as selling equities which you think are at their peak price, or buying those which you think will rise - without thinking about the other anonymous party.
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