In the second episode of the Lend Academy podcast (first episode is here) I am excited to welcome Larry Ludwig of Investor Junkie on to the show. I have been following Larry’s blog ever since I started blogging about p2p lending because he was one of the few people writing about p2p lending when I started.
He provides detailed reviews of Lending Club and Prosper on his site where he shares his investment strategy. In our discussion I wanted to go a bit deeper into his thoughts about the industry. He certainly has some interesting perspectives. Larry is one of the only people I have met who was interested in consumer credit as an asset class before he discovered p2p lending. We talk about that and much more.
Here are some of the topics we covered in this interview:
- Why Larry was interested in investing in consumer credit even before he knew p2p lending existed.
- The mistake he made when he first started investing with Lending Club.
- How his strategy has changed over the years.
- Why he still prefers to invest manually.
- How he has adjusted to the more competitive environment for investors.
- What the Lending Club IPO will mean for investors.
- The main problem with the trading platform.
- Why p2p lending is not really a new industry.
- Why he is not too concerned about the prospect of increasing interest rates.
- Where p2p lending fits into an overall investment portfolio.
- The biggest risk to our p2p lending investments.
- The expectation for his returns going forward.
If you want to subscribe to the Lend Academy Podcast you can do so in iTunes or Stitcher. And since we are still so new I would appreciate it if you could leave a review in either place to let me know what you think. Of course, as always you can also share your thoughts in the comments section below.
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Thanks for having me Peter and enjoyed being on the podcast. Let me clarify one statement in the podcast that I didn’t get into detail.
I’m in the camp that I’m not expecting the FED to taper, and if they do it’s already baked into the cake of the stock market. This is based upon the state of the economy currently (which is slowly improving but still has many structural issues), but also the choice of the new FED chair who is very dovish. The FED wants inflation pretty much at any cost, over full employment (even though they have this dual mandate).
I’m also in the opinion that the FED has pretty much painted themselves into a corner. If rates did rise to historical rates, the debt overhang for the Federal Government would eat too much of the annual Federal budget. So in this case they have no other option but to keep on the path they are doing.
Also if they do taper, they will only stop the bond purchasing program. I don’t think they will end the Federal Funds Rate of 0.0 – 0.25% anytime soon. With this said this still makes P2P investing an attractive investment for the foreseeable future. I think the bigger issue with P2P is selection of loans within the respective services, not a rising interest rate.
Even if bonds were to get to historical rates of (let’s say bond vigilantes) 4-6%, even then P2P is still an attractive investment. The only situation in which I could see P2P investments be an issue is either from high inflation (which all fixed income investments would suffer), or a very high Fed Funds rate (like we had in the early 80’s to tame inflation).
Otherwise I believe we are pretty much safe.
Thanks Larry. I appreciate the clarifications there. I agree that we will not see rates rise any time soon. Who knows? We could well be at a FED funds rate of less than 1% for the rest of this decade. And that bodes very well for p2p lending.
Hey Peter-
Quick question. In the podcast you mentioned towards the end when talking about the downsides of taxable accounts something along the lines of ‘if you’re above a certain income, you can’t deduct the losses’…. You are not my tax adviser, etc etc but what did you mean by that? Were you talking about the $3000 investing loss cap or something else?
Yes. What I was referring to was the maximum of $3,000 of losses that can be deducted from your income. If you have losses in excess of $3,000 then you cannot deduct the excess.
peter, podcast is really a good experience for me thanks for sharing it. plans and strategies – looks great
saverable
Thanks Prakash, Glad you liked it.
Wonderful job Peter, as usual:), and thank you Larry for your very candid interview, w/a lot of actual facts incorporated into it. We can all learn from each others’ experiences for the good of the industry, and I personally appreciate it.
As far as investing taking a lot of time, yes, this is the dilemma I face also, as I have a couple of thousand loans invested in, and would love to grow the amounts invested exponentially, yet lack the time, or the LC inventory to do so.
As far as quality control of LC underwriting, and the follow up to collect loans, I wish they think of the investor more, as I do have loans that go into default, or non-payment status on their initial, or 2nd, or third payments, which is kind of infuriating when one picks the loans based on min of 5 yrs employment, at same location, no past due, no late pays, then LC states “Can’t locate borrower”??? How hard do they really try??? To screen loans, and to collect???
This may be the Achilles heel as CMO’s were, to dump non performing assets to the retail venue…I hope underwriting and follow up gets much tighter, for the overall industry’s sake.
Please keep the pod casts coming, really enjoy them.
Thanks Hrant. Good to hear from you. Yes, collection efforts can always be improved and I would like to see more transparency in this area. But we will always have early defaults because sometimes bad things happen to good people. Mind you anyone who can’t be located by LC or Prosper soon after applying for a loan was likely not a good person in the first place.