That’s pretty neat. When I’m inevitably let go from my job, I wouldn’t mind brushing off the python books and trying some of this stuff out.
It’s interesting how you said the lenders are creditors to Lending Club. So, you are exposed to LC credit risk! This is very significant actually, and would materially change my thought process. Let’s say LC CDS is 2%, you are actually making 2% less, risk adjusted. Furthermore, under a crisis, LC, not just the individual borrowers, could default on your loans. So, the claim of diversification across hundreds of borrowers is false. That is, unless there are some other protections in your contract.
Anyway, the information is appreciated. It is quite an interesting asset class, and seems like it still has some opportunities for people who invest time in researching it.
i started learning when i was a CFA Level I candidate. most people i know starting learning around that time as well. trading is EXACTLY what you should be doing at a young age. the cfa curriculum provides basic knowledge but it doesn’t teach you how to trade or how to read the market. let me be clear, you can’t learn much trading S&P 500 stocks. i started trading S&P 500 stocks and it was a nice intro into various markets but other than that, nothing really learned. you have to get elbow deep in illiquid, messy stuff to really understand and feel the market. some people aren’t cut out for the volatility but you should try and see what kind of person/trader you are. it’s better he fails when he’s betting $2,000 or $10,000 than when he’s betting $100,000 or $1M. failure is learning, particularly in trading.
i fail to understand how he’s ever supposed to learn how to be an effective money manager (or whatever else) if he’s not willing to manage his own money actively. fundamental analysis is only the foreplay.
I see where our logic is off. You are offering advice for how someone can become a great trader, whereas I am offering advice on the best way to succeed financially. I agree with you, if it is someone’s goal to become a successful trader, then they must trade. They must put their money on the line so they can feel the pain of failure and the reward of success. To do so with play money just isn’t going to get the job done.
Now, will you also agree that the large majority who go this route will fail to grow their investment portfolio above and beyond what a simple passive strategy will deliver?
Doesn’t sound like a bad gig. Seems to be some suspicion in regard to those level 3 valuations. How much influence, if any, does the BDC have on those valuations? I, for one, think that most of the time things are on the up and up.
Lendacademy.com is a useful site. Peter Renton has become a spokeman for the industry and his website is a central hub for news and developments. He is now involved with one of those funds for accreted investors and also hosts fintech conferences in USA and China each year. He posts his quarterly returns from various accounts
Now remember, there is a difference between primary and secondary. On the primary market, LC sets the interest rate. So some people, including myself, try to apply models on top of their model to outperform their prediction. But there is no real way to get taken advantage of their – LC loan grades are very predictive of default.
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Interesting point about the CDS. Never thought of it that way. Also, there are 3 classes of LC investors: retail, large investors, institutional. Only retail is unsecured creditors. The middle class gets access to a bankruptcy remote vehicle via LC’s funds (Prosper provides BRV for all, if you wanted to eliminate the CDS cost). And institutional buy the whole loans and put it on their books.
There are some back up agreements for other companies to continue servicing the loans and LC states they can profitability just be a loan servicer if the platform ends up failing. The claim of diversification is correct, but the ultimate question is treatment if bankruptcy occurred. There have been some lawyers who have analyzed it and most suspect ultimately there is little risk of someone claiming notes owed to retail, except if they owe money to the government. But you never know what a bankruptcy judge could decide on a company with such a quirky financial structure.
I know in banks, level 3 valuations can be heavily influenced by the bank. I assume BDC is the same way. The accountants probably check it for SEC disclosures, but what do CPAs know about valuing those assets? I’ve reviewed the CPA work of banks before and sometimes they do a good job and sometimes they just check boxes.
^the BDCs or PEs are the client (they pay our bills), so certainly they have input as to the value conclusions. But the auditors also have to sign off, and all of the audit firms have their own valuation experts (CFAs) that will challenge any unreasonable assumptions. There is often a back and forth process among all 3 parties that generally results in a reasonable conclusion. It’s not an ideal system, but without an active marketplace, it’s probably the best possible.
of course, but given he is a cfa candidate, he already has a better chance than ~95% (maybe 99%+) of the population. i know at the day trading firms, approximately 90% are unsuccessful and unprofitable, but those who are successful tend to do very well. if we’re talking averages, passive is better but if he’s an ambitious cfa, why not throw a few grand at the market and see what sticks? isn’t trading and managing money why 90%+ of us are here?
Yeah, no flaws in a martingale betting strategy. Similar to negatively skewed trading strategies. Both are the way to riches. Why isn’t everybody rolling in the dough? Pro tip: I’ve lost 19 hands of blackjack in a row. Do the math.
^Actually no. Common misconception. Has due with risk management unrelated to martingale. The casino professionals are throughly entertained watching people use such a system. Similar to watching a retail day trader. Nothing stops you from moving to a table with a higher limit. Table max can very from $500 to over $10,000 in the same casino. And you can negotiate higher limits, even for one time bets. The reason they do eventually have a cap is because of the p and l swings they are willing to take. Volatility is a bitch even if the odds are in your favor. A bet is a bet. Using martingale does not change the edge, nor does any non-skilled "system. "