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My First Year in Peer to Peer Lending

My First Year in Peer to Peer Lending

Peter Renton·
Peer to Peer Lending
··2 min read

This past weekend I was at a Financial Bloggers Conference in Chicago. Here I met many other bloggers, most of whom knew something about p2p lending which was a pleasant change.

Obviously this was not your typical crowd, these were financially literate people and many of them had either started investing with Lending Club or Prosper or were considering it. A question I got a lot was how I came to be writing a blog about the somewhat unusual subject of p2p lending.

I realize I have never told my story on this blog (although there is a summary on my About page) and I thought if all these other bloggers now know I should at least share it here on the blog.

From Label Printing to P2P Lending

My background is in the label printing industry, believe it or not. I came from Sydney, Australia to Denver, Colorado to setup the U.S. operations of the family label printing business back in 1991. I sold this business after about 13 years and started another company also in the label printing business. Then in 2008 I sold that company (just before the financial crisis) but continued to work for the new owners for a couple of years.

After taking a few months off to travel and just be at home with my two young kids I was looking for a new opportunity. I enjoyed writing and blogging in my past companies so I thought starting a blog would be a good fit for me. But then I noticed this Social Lending Network blog for sale. Here is how the site looked before I purchased it.

I had read an article about Prosper when I was looking for alternative investments soon after I sold my business in 2008. But when I got around to actually signing up Prosper was in their quiet period. I kept checking back every so often and after a few months I started looking for an alternative. I quickly discovered Lending Club who was open to investors so I opened an account with them.

Anyway, by the time I noticed this blog for sale I had already been an investor in Lending Club for more than a year and I was delighted with the returns I was getting. So I decided to go ahead and buy the blog. This week marks exactly one year since that purchase took place.

Thank You

Since buying this blog and writing 3-4 articles a week for the past year I have learned a great deal about p2p lending. And I have become even more convinced of the long-term success and viability of this industry. I truly love p2p lending and believe there is no better risk/reward investment in the world today.

I have certainly appreciated all the comments from you readers over the last year. I think I have learned more from you than from any other source. I hope you will continue to share your pearls of wisdom with me and the rest of the p2p lending community. Thank you.

 

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Ed D.
Ed D.
Oct. 3, 2011 7:27 pm

No thank you! It’s obvious you put a lot of time and thought into this site. Besides a Google News alert, you’re the primary source–really hub, of my P2P info. My initial news quest was about monitoring the continued viability of Lending Club, but now that it appears the industry is maturing and setting up fro the long haul, my focus is more about tuning in my note selection strategy. Keep up the great work!! BTW I’m in at around 20k at 11 months with 12.4% NAR after some recent defaults and it looks like I’ll be able to hold it above 10%–fingers crossed.

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Peter Renton
Author
Peter Renton(@peter)
Oct. 3, 2011 7:55 pm

@Ed, I am glad to be your source. Frankly I am surprised that with millions of blogs out there are hardly any focusing on p2p lending. That’s ok with me, I will continue to work hard bringing you the latest news and analysis.

Congrats on your Lending Club returns. A 12.4% return after 11 months is certainly a good effort.

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Michael
Michael
Oct. 4, 2011 8:43 am

@Ed D.

At 11 months that’s really good. Are you doing 25 per note?

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Ed D.
Ed D.
Oct. 4, 2011 3:27 pm

Michael,
Yes and burning a lot (less lately) of time with screening which initially was based on “Positive Initial Popularity” . Trying to let others do the work ! Now it’s more numerical and based on the myriad of suggestions here and other places. It’s really a pretty loose process, but when you’re picking from a lot of grade D’s or about, I think a quick filtering is important. I should add that my 20k took nearly 3 months to fund so some notes are only at 8 months. We’ll see!!
Ed

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Michael
Michael
Oct. 4, 2011 3:32 pm

Ed D.
At 8 months you’ve passed peak default season. If you don’t mind sharing can you elaborate on selection technique. Are you saying you look for notes that are more funded in shorter amount of time? And that you stick to D loans?

You might find these two links of interest:
https://www.nickelsteamroller.com/analysis/chart

https://www.nickelsteamroller.com/blog/2011/08/default-rate-of-36-month-loans-vs-age/

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Peter Renton
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Peter Renton(@peter)
Oct. 4, 2011 4:30 pm

@Ed, I would also be interested to hear your loan selection criteria.

@Michael, I wouldn’t say that at 8 months you have passed the peak of defaults. Keep in mind with your charts you need 4 months to the time frame, right? Because any default received at 8 months means that only 4 months of payments have been received because it takes 120 days of non-payment for a loan to default. I would say that you are really not out of peak default season until after you have held the note for 14 months. Would you not agree?

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Ed D.
Ed D.
Oct. 4, 2011 4:49 pm

Michael,
Yes or I used to more than now. Taking into consideration the loan amount, you can see patterns where some loans fund faster than others. I tend to sort loans from the bottom up i.e. 13 days left to fund after applying my filters (which is another discussion) and then look at % funded (Positive Initial Popularity!) . I focus more on C, D and E with an occasional B or F if I’m desperate. D is my largest holding. I spend no more than an hour a week on maintaining re-investment and a $200 monthly deposit. I think the best learning for setting filters is to analyze the Defaults (I have 6 with more in the pipe – I can’t handle Folio), something other people have done a great job at. I hope this helps understand my approach, but I certainly don’t feel qualified to offer guidance as technical analysis in spreadsheet land tends to makes me dizzy and I just don’t have that much time for this.
ed

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Ed D.
Ed D.
Oct. 4, 2011 6:19 pm

(Re-reading my blabber, the questions asked and checking the facts – actually I have 7.2 defaults (.2 is a cheap folio buy) and although initially I spent way too much time, now the energy spent is way down. )

My filters focus on 0 delinquencies, 0 public records, 0 inquiries and as much age, income and years at job as possible. Living in CA, I don’t filter out CA, but I may give higher points to certain cities. Being honest here. There’s always exceptions as this criteria leaves little to choose from. I read the questions/answers, but as others have pointed out, these are best used to screen out rather than in a candidate. We live in a culture of liars, unfortunately. People who claim $150/month food expense aren’t living on the same planet as I, unless they’re farmers or live with mom–which is certainly possible. Based on what I see in my 90-120 days late-read 12, I’m sure my NAR will take some solid hits soon. Still I’m quite at ease with this investment and glad I took the plunge.
Ed

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Michael
Michael
Oct. 4, 2011 7:06 pm

, recall the age estimation in my chart is based on total payments divided by expected payments. In theory we can estimate someone who stopped paying after just one month. I actually had not looked at that chart in a while and it’s updated daily. It actually looks like “peak default season” is over around 11 months, so I misspoke – thanks for the correction. Regardless, Ed’s performance is great. Ed, you should run my portfolio analysis tool and see what you get for a result: https://www.nickelsteamroller.com/portfolio It will allow you to do accurate projecting including your late loans.

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Peter Renton
Author
Peter Renton(@peter)
Oct. 5, 2011 10:23 am

@Ed, Thanks for sharing. This is something we all have to balance: being picky by maintaining strict filters and having enough loans to invest in. The main difference that I have with you is that I rarely read the loans. I download everything to Excel once a week and then run some macros to do the filtering. Takes me 5 minutes a week. But my approach is certainly not for everyone.

@Michael, Yes, but someone who has stopped paying after 1 month won’t register on your own account as a default until month 5. That is just what I was saying. By the way, I love your portfolio analyzer – very helpful. Dare I say it is more helpful than the big NAR number that greets you every time you logon.

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Ed D.
Ed D.
Oct. 6, 2011 10:25 am

@Micheal, I’ll try out your tool soon when I get a chance – thanks for the comments.

, Thanks again and maybe someday I’ll get my spreadsheet act together!

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Ryan
Ryan
Oct. 6, 2011 4:55 pm

I have never commented before, but I often read your blog. Thanks for putting it out there, and congrats on making it a year!

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Peter Renton
Author
Peter Renton(@peter)
Oct. 7, 2011 11:32 am

@Ryan, Thanks for your kind words. Welcome and thanks for joining the conversation.

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RAS
RAS
Mar. 4, 2012 5:54 pm

any thoughts re having an account at Lending Club And Prosper? Advantages? Dis-advantages?

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