Basically non existent. I have only sold positions maybe 3 times in the past 6 years. As I receive paychecks or bonuses, I try to put those in areas where I am under invested though.
Looking back, I should have bought more bonds. Who would have known rates would go this low. Other than that, I guess it has been ok.
Outside of the funds I keep available for the rental real estate and general opportunities in a bank account , I have a large exposure to consumer credit via LendingClub. I actually moved some of my typical cash holdings to LendingClub around a month ago to purchase highly discounted short term loans from panicked lenders. I currently have stopped investing in new consumer loans because I’m hoping 2Q earnings will feed the media machine and create another fire sale I feel a little bad about how high my returns have been on this strategy, but I just tell myself I’m giving people who probably don’t understand what they were getting into emotional comfort upon their fire sale exit. I’m currently looking to where to put money next. My natural inclination is into under followed bank stocks if I can’t find other places of value , since I know that industry best and there are tons of them out there. I’m also considering more real estate exposure, but current trends in cap rates and vacancy give me pause. So I’m evaluating the opportunity cost of waiting for a distressed market vs being very conservative on investments here
^The BDC PSEC apparently invests relatively large sums in consumer lending through lending tree or similar. Are you seeing bigger players entering the space? If so, I would think it might get a little tougher to find opportunity. …
Definitely competitive on the primary funding market. The secondary market is still almost entirely retail and very irrational. It’s impossible for institutions to deploy capital easily on it. Would be in 25 increments and not worth their time. People with programming backgrounds virtually print money off the mispricing. One guy was making 100 percent returns on around 20k
Yeah actually, when the bad news in LC came out and people stopped lending, I thought it would be a great opportunity to issue new loans.
What sort of yields can one expect at the moment, anyway? I’m seeing 8.9% ish from Lending Club’s website. But you have to pay ordinary income tax rates on that. Is there another way to get a higher return? Also, does that include the 1% issuance fee? It’s sort of interesting asset, but there are a lot of things that I don’t know about it.
What happens? Somebody just wants their money back immediately and gives their loan away?
^i think you can open an IRA account with LC
Yes - I think IRA is the way to go with Lending Club. However, it’s a hassle to deal with rollovers, and due to contribution limits, I only have a small amount of percentage assets in retirement accounts anyway. So, it’s interesting for me to learn about how the investment looks in different sorts of accounts.
I respectfully disagree. Trying to figure out if you ‘have the stuff’ before you learn the fundamentals is setting someone up for failure. I used to teach Jiu-jitzu in college and we’d have men and women of all skill levels stop by to learn or practice. I would have never placed a beginner on the mat with an expert. I liken your logic to you encouraging a newcomer onto the mat full of experts. Without the skills necessary to operate in that environment, the newcomer has no chance of success.
Take SDS for example, the name of the fund indicates that this product would be an excellent way to bet against the S&P 500. But would a beginner understand why this product should only be used for extremely short trading windows and not held for weeks/months? My guess is most of the people on this forum don’t have a good grasp of this, let alone someone who lacks the fundamental education and experience.
I’d also suggest that trying to encourage trading at a young age is a great way to waste most of your investment dollars on transaction charges and costs. When you have a small portfolio, each transaction charge is disproportionately large. If you’re paying $8 a trade at fidelity, and you’re using products that have to be constantly traded, you’re creating a ridiculous hurdle for someone who might have $10k to trade with. Also, depending on their situation, it encourages them to direct income away from tax advantaged 401ks or IRAs so that they can reach open platforms that allow exotic trading. The tax hit and transaction costs may very well represent a 40% hurdle immediately, along with ongoing hurdles.
To your point about the CFP/CFA. The undeniable truth about the financial services industry is that the vast majority of investors would be better suited using low-cost passive investment strategies. The amount of wasted dollars in active managed products is staggering. The amount of wasted time and effort is staggering. And because the majority of money is allocated by people who consider themselves to be superior investors, we end up in a market where the majority of the money is allocated towards active strategies. As such, which is apparent in this thread, it takes someone with more than a CFP level of education to explain to smart individuals why they are better off pursuing a low cost globally diversified portfolio.
I’ve been holding this for a nearly 2 years. Lots of volatility for the type of investment, but I’ve got a LT horizon and I DRIP the dividends. Was yielding 16-17% not long ago, before this recent run up.
^I’m in from under 6 early this year. Awesome for qualified accounts. what did you think of the little letter they sent out pleading their case?
^dividends usually come from loan interest collections? whats the payout ratio usually
Don’t get me wrong, I’m not in love with the mgmt team and there are plenty of reports/articles out there bashing them. They do pay themselves too much, but they’ve also been recently putting some of that to work since they’ve been aggressively accumulating shares over the past year. I’ve never filled out the proxy, but the one i believe you are referring is to issue shares below market price, which is unacceptable in my opinion.
There has also been talk of a carve-out at some point, but I haven’t heard anything lately.
I want to also see a higher NAV after a few consecutive quarters of declining NAV. With the recent increase in share price, the discount to NAV is a lot lower than it used to be. This particular BDC tends to have a higher discount than most (it is also riskier than most), and I think the stock is getting a little high without a corresponding bump in NAV.
Payout has been good, even in the low rate environment. They haven’t cut the dividend since late 2014.
Do you follow BDCs professionally?
We have many clients that are BDCs, so I have some insight into how they operate. Many of these investments are Level 3 assets, for which we help them determine the fair value for financial reporting purposes. Of all the BDCs out there, PSEC is probably the most interesting/controversial.
thats some crappy ROE/ROC
It can be all sorts of things. For the 100% return guy, he said he could only keep around $20k at work at any given time, since he was limited by the market. He had a computer code that checked folio every couple of seconds. Say a retail person wants to sell a note for $25 but puts in $2.50. He’d try to buy those before the order was canceled and then immediately list it for resale. Him and others also correlated the credit data to probability of default at a given delinquency stage. So if this loan is selling at a 90% discount, but the data tells us that it is only 70% likely to default, they will buy and hold those loans while also trying to resell the ones that cure back to current. The guys who make the money on folio are usaully quants on Wall Street or Silicon Valley types who know how to code very well. Of course they tend to be secretive of their methods, but they have posted some of what they do and screen shots of their accounts and returns. Pretty impressive stuff
I would say for a mature account, the range of returns is 5% to 12%. The tax treatment certainly sucks, but I know a little about you to know that you probably qualify for some of the accredited investor options, such as funds that turn LC investments into dividends and use leverage to amplify returns. I’m still a young guy just hoping LC adds a few bps to my compounding.
In terms of issuing new loans, the scare didn’t impact the pricing – just the competition. But on the secondary market, you had people putting notes on fire sale. Assuming no prepayments, I put roughly 15% of my portfolio is notes yielding ~20-25% with FICOs above 770. They were lower grade notes that had since had massive FICO improvements because they used the loan to refinance their debt. And then on top of that improvement in risk, they were being sold at discounts ranging from 3-10% because the holders were so scared. That strategy is going to yield very well, because of both the pricing at origination didn’t reflect the current risk and the discount which adds outperformance all else equal.
My average age of notes is roughly 18 months and my net return after fees is currently a little higher than 11%. My adjusted return, which assigns a loss factor to past due notes, is something around 9.5%. Part of the attractiveness to me is that the geometric return is very close to the arithmetic return.
When going long LendingClub notes, there are some things a retail person should be aware of. You are technically an unsecured creditor to LendingClub. Probably exceeds the scope of this reply to discuss what that means functionally, but it does add some risk. But larger investors like yourself have options available that eliminate this risk, either through LC or through funds. Hopefully one day I’ll be an accredited investor (or the SEC stops trying to protect me from risk), but until then I’m stuck in the retail spot.
I also have some leverage, which amplifies my LC returns. The numbers I quote ignore the leverage. There are plenty of creative ways to get leverage into LC cheaply, but that also exceeds the scope of this reply. But some people have created LLCs to invest in LendingClub to get different tax treatment on the notes (there is also a cap on how much you can deduct in a given year of losses, so people with large accounts look for LLCs to avoid that issue as well). My investment isn’t quite large enough for that and we’d probably need to go through 2008 again for me to see that level of losses given my portfolio size.
dp
^Sounds like I would get my ass kicked in this market by those that know what they are doing. Is there a LC forum you follow or other resource that would be educational? Thanks for the feedback.