Today, Lending Club has added some long awaited features for investors who use the Lending Club trading platform to buy and sell notes. Until today many people who traded notes on Foliofn had no idea what their actual returns were – these were often mispriced by Lending Club’s NAR calculation. No more. If you have never bought or sold notes through Foliofn then these changes do not affect you.

Below is an explanation of these changes using my own main Lending Club (taxable) account as an example.

Primary Notes Return

This 10.85% number above represents the NAR return on all the notes that I have bought on the primary platform and not sold. These are now called Primary Notes. Any notes that were either bought or sold on Folio are excluded from this number.

When you click on the Understanding Your Returns link (underneath the NAR number) here you will go into the same screen as before with the dot-chart that plots similar investor returns.

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[Editor’s Note: This is a guest post from New Jersey Guy, an active member of the Lend Academy Forum and investor on the Lending Club trading platform. He now lives in Florida and could invest on the Lending Club retail platform if he wanted, but he chooses not to – investing only through the trading platform still. In this, his second post, he gives some insight into one of the unique strategies he uses to invest. This article should not be considered investment advice – it is the personal opinion of the author of this guest post.]

Some of you are aware that I wrote the guest post  “Foliofn Users at Lending Club Are Not Second Class Citizens”.  Time flies, and that was now exactly one year ago!  I took some criticisms over one of the strategies that I called the “Penny Note Strategy”.  One forum member even referred to it as the “Toilet Note Strategy”.  He could have been right, but I decided to follow through with it any way.  I thought now would be a good time to report back to show you what has developed over the past 12 months.

Memory Refresher.  What is the “Penny Note” strategy?

Simple.  The Penny Note strategy is a very short-term strategy based on buying quality, seasoned notes with no more than 15 remaining payments.  This can only be done off of FOLIOfn.

I think Simon Cunningham of Lendingmemo best explained it in this post. He described a loan as having “Three Seasons” with the first season (the first 10 months) as having the highest odds of default.  The Final Season, as he describes “(are) months 18 and up, (which) has the most stable returns since the majority of loans that default would have done so.”

There is absolutely no research needed in picking these notes.  The Lending Club profiles that we rely on when picking new issues are totally obsolete.  Obviously, the borrower’s situation has most likely changed over the past 20 months making the profile worthless.  Therefore, there are only 4 factors used when choosing these notes.

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[Editor’s Note: Today we have a guest post from New Jersey Guy – he is an active member of the Lend Academy Forum and investor on the Lending Club trading platform. In this post he provides his reasoning on why it is better to invest via Foliofn for Lending Club investors.]

Whether you’re new to Lending Club or already a seasoned investor, I’m sure you’ve already made one important discovery.  The Lending Club platform to invest in new loans is only available to just over HALF of our 50 states.  This leaves 24 states (including my state of New Jersey) dangling in the wind, left only with the secondary market as a means to invest in peer to peer lending.

Foliofn (or Folio for brevity’s sake) is the gateway to the secondary market.  Unfortunately, the platform is viewed as inferior and filled with notes (as one forum member put it) considered to be “the toiletries of loans.”  Stop here for a second.  On any given day, there are over 60,000 notes listed on Folio.  Look at that number again…..60,000!  That’s a lot of notes available for sale!  It’s a ton more than you’ll ever find for sale on the Lending Club Platform at a single time!  But again, they must all be poor performing notes that are not making payments and on the verge of default, right?  Well, as of this writing 56,000 of those notes are showing up as either freshly issued or current in their payments.  Only 4,500 notes are showing up as being over 30-days late.  Not quite the toilet as we were led to believe!

Granted, Folio is the market where investors will dump very poor performing notes.  However, ultra-conservative investors will dump perfectly good notes at the drop of a hat.  You know the old saying!  “What’s one mans garbage is another mans treasure!”  Yup, there’s treasure in there, and if you know how to mine Folio for it, you can create a portfolio that will rival any investor on Lending Club.  This article is going to show you different thoughts and ideas that aren’t available to Lending Club retail platform users. [Read more…]