Where's the money?

You guys seem incredibly smart, know a lot about investments and I’m honored to be a part of this forum (even though all I had to do was sign up). So I had this idea about a thread that may get interesting I guess.

Let’s say in a few years you’ll have $ 50 MM, you can do whatever you want with them, no liquidity needs whatsoever, and very little aversion to volatility (you’ll be happy to beat the market in a 20 plus year time horizon, no matter how you got there).

Basically, you’re free, except that you won’t enter into too much leverage or anything with unlimited negative potential, since you want to be sure to have your money down the line.

How would you prepare yourself to invest that money, assuming return maximization is the goal?

Would you specialize in analysis of individual equities, bonds, whatever? Would you try to be a great asset class allocator, choosing the right classes instead of the right securities? What you would you do, how would you do it, and why? In short, where is the money?

I just want to taste the variety of optimal paths to be a great investor for the future, in the view of the forum members.

Oh, and no cheating - “I would spend a few years been mentored by Buffet and then a couple more with Jim Simmons” is not an answer, OK? You can learn from books, periodicals, 10Qs, whatever is on Bloomberg, experience, magazines, psychology classes, poker, well, whatever is accessible to the average candidate/charterholder.

i am a trader at heart so i will keep a book and spread options… im much more interested in trading “markets” than individual securities.(energy/agricultural/metal/index/financial futures and fx - options). there is a research paper written by the head of DB FX called “Currency Markets: money left on the table?” that talks about how most corporate FX user enter postions for the purpose of cash flow management with no intention of profiting from the trade (they arent looking at a bloomberg screen caring about the tendency/ direction), thus leaving “money on the table” for financial speculators to remove as porfit… its the basic premise for speculating with futures/derivative and creating alpha. so that is where i believe the money is.

other than that, i would probably pruchase some prime real estate because i appreciate architectural design and would spend my time fishing on a mid size boat around the 30-40ft range.

i dont like to travel, i hate airports. it seems a lot of people spend a “fortune” to go to some far away place just to take a picture and get to say “hey ive been there”. i dont care about other cultures. i already live in a place with plenty of fine restaraunts and deserted beaches near by. if i want to -get away, i can just stay in a hotel in town and its already a vacation. it helps that i live in Rio.

i prefer women that are real women, that would appreciate the basic things and pleasing me. not over educated feminist ****s, so the more sheltered/dumb the better but they need to be hot… my kids will grow up on the beach and potentially become pro surfers/skaters and just enjoy life.

I would invest in LendingClub. I’ve done Lending Club for a few years now – I love the model and my ROI of roughly 10% – and we all know the difference between arithemetic and geometric measures of return. It’s a debt market, so theoretically lower violatility. That being said, I don’t know if I’ll be able to maintain that ROI moving forward as the platform becomes more mainstream, it will likely introduce pricing competition into the credit card business. I currently make my bread and butter through the securitization of credit card refinance loans.

I would have some equities and other things of course. But I’ve yet to achieve a 10% ROI year over year in the equity markets. I’m also young (23), so when I was old enough to invest the market was pretty lame. What has been the inflation adjusted geometric return for the last decade in the US stock market? It’s something absurdly low.

How do you make money from credit card refinance loans? I understand these are being securitized but how are you involved? or are you inferring that you purchase these types of securities?

Essentially the middle man (Lending Club [LC] in my case) gathers a bunch of borrowers and screens them based on LC’s min financial criteria. LC then has a pricing algorthm to determine the risk and assigns an interest rate. Say I have a CC at BofA of 20,000 at 20% and LC approves me at 14%. Then a borrower requesting 20,000 is listed on LC with basic financials and a place to do Q&A. I’ve done a lot of statistical analysis on the historical data to use to filter loans, but let’s just say that I find a loan that meets the criteria I’ve determined. I’ll fund $25 of that 20,000 loan. A bunch of me’s will do the same – some larger, but 25 is the lowest. LendingClub charges a 1% fee on each side for being the middle man. Their goal is to keep overhead down (I think they employ 50 people and roughly $1,000M loans originate daily) and to accurately price prime borrowers who were just given a 25% APR. So I go through and continually fund tese loans (maturity 3 or 5 years).

My current Loan Profile is as follows:

Average Loan Profile (weighted by loan size) Loan Size: $26 Inquiries: 0.9 Monthly Income: $7410 Credit History: 16.8 yrs Open Lines: 11.1 Total Lines: 27.1 % Utilization: 53% Revolving Debt: $19219 Average DTI: 15% Has Mortgage: 56.9% 2yr DQ’s > 0: 2.7% Owns Home: 4.8% Public Records > 0: 4.3% Renter: 38.3%

The Public Records are due to an experiment I’m conducting in the secondary market. I look at the payment history, try to find trouble debt at a deep discount that may actually pay, and then buy the loan. I’ve only done a couple but it’s been profitable so far (as in, turned 5.00 into 50). If I find out I figured out a way to make money off of other’s loss aversion, then I’ll figure out a way to scale it.

$700mm to date … not daily:

Summary (from 05/01/2007 to 07/08/2012) Funded Loans (62,921) $731,223,900 Two-Week Average Interest Rate (36-Month) 13.19% Declined Loan Requests (560,055) $6,969,777,429 Two-Week Average Interest Rate (60-Month) 18.59% Interest Paid to Investors $63,112,651 Two-Week Average Interest Rate (All Loan Terms) 14.64%

I didn’t mean since inception. I meant as of late. If instead of looking at the number originated and look at it graphically, you will see what I mean. I think in the past year it averages 1,500M daily. But I’m too lazy to do the math again.

you mean $1,500K aka $1.5M?

Oh, I’m sorry. Yes, in the field of finance I work in “M” = 000. So 1MM is 1,000,000. 1,500M is $1,500,000