Sean, what day do they update? They would be useful to know for those of us who like to monitor it.
I have almost an identical system to the OP and it's been working well for me so far. I sell as soon as they go late or when they have a drastic FICO drop. (I don't worry about a small drop, but for example I had someone drop from 690 to 510, and that makes me feel like they are probably having a serious financial problem.) I bookmark the ones I sell with a note about why they were sold, and I check up on them every week or two just to see how my strategy is panning out.
So far, the results of the sell-offs were:
2 severe FICO drops have not seen any payment problems
5 missed payments, went into grace period, then paid and are now current
1 missed a payment, went 17 days late, paid, and is now current
2 are currently in grace period
1 never paid after I sold it and is now a week from being charged off
1 never paid after I sold it and is about 30 days into late period
Most of them were sold at par or a slight discount. One or two were sold at 10-20% discount and one was actually sold at a 50% profit - I'd picked it up absurdly cheap in grace period and flipped it in 24 hours. Overall I think I nearly broke even on what I paid for them and what I sold them for, as a group. And I suspect at least two of them are going to default soon and others are not looking great (multiple payments in grace period). So I think this is a strategy that is doing well for me. I don't have a single note that is so much as a day late because I'm aggressive about selling them.
The downside is that it's pretty work-intensive and you have to be checking in daily and micromanaging it a bit. I don't know if you would want to do it for a larger-scale investment.