Monday, July 16, 2012

One Year of Lending Club: The (Getting) Ins and (Getting) Outs of Lending Club

Well now, I was hoping to be further along before this post than I am. I intentionally (this time it really was) did not post last most. I considered it my quiet period as I was liquidating.

My one year experiment with Lending Club has led me to the following for those who do not live in a "funding state":
  1. It is easy and quick to get going in Lending Club, although I would recommend buying in slowly to get the best performance
  2. It is easy and very slow to get out of Lending Club (sold 150 Notes over two months)
  3. Learn how to find Pre-Grace Period status of Notes
  4. Don't hold on to Grace Period Notes and hold no hope for Late Notes (it's just better that way)
  5. There are three very different markets: A/B, C/D, E/F/G. I focused on E/F/G most of the time. My conclusions may not hold as well for the other two markets.
  6. Both High Yield To Maturity and Low Markup buying techniques work well
  7. Lending Club's Net Annualized Return is only valuable to compare against other investors and to track historical changes, the number itself is pretty much meaningless
So yes, I am really liquidating my Lending Club account (just about finished now). This was an experiment with my play money and it is now time for me to pull all my cash together to buy my mother-in-law a house. I will invest in Lending Club again when all this house thing settles out.

I also wanted to be able to report on what it is like to get your money out of Lending Club (a concern for many). You can do it. It will take time. I am selling them off at about 2 to 3 Notes a day on average.  I offer my Notes for sale at either 16% Cash-on-Cash-Return or a specific Markup, which ever leads to a lower price. I started with a 3.9% markup, and dropped it to 3.4%, 2.9%, 2.4%, 1.9%, 1.4% and now 0.9% markup. When I noticed that I was not selling 2 to 3 Notes a day, I would lower my Markup by 0.5%. I am not selling any of my Notes at a loss (except any Grace Period Notes, but those are becoming rare as my portfolio shrinks). 

It is weird not going in and buying Notes anymore.

This has been a terrific experience. I have really enjoyed working with the P2P lending community, especially Peter Renton of Social Lending Network. There is so much great information out there to learn.

If you run across this post and are considering Lending Club as an investment, might I make a few suggestions:
  1. Read all you can. My blog, Social Lending Network (BTW Peter has a course you can buy that should give you plenty of information), etc.
  2. Start investing right away. Don't wait until you have all the details.
  3. Start small. As you gain experience (and make mistakes) your educational process will accelerate. You will not learn enough from reading alone, and you want your mistakes to be with a small portfolio.
  4. Make mistakes, but try not to make my mistakes (or Peter Renton's, etc. learn from us). Don't be afraid to make mistakes.
  5. Share what you learn. Start a blog (free at blogger.com) and share what you are learning. Link to great sources of information you've found.
  6. Get involved. The P2P lending community has several great leaders in it. Follow their twitter accounts. Read their blogs. Circle them on Google+. Comment. Share. Be part of the discussion.
This is not goodbye, but until next time. I've had a great time. I look forward to coming back and investing in Lending Club.

Signing off for now.

- Marc

13 comments:

  1. Hi Marc, Sorry to see you go, I certainly hope you will come back to p2p lending one day. I appreciate all the work you have done in shining a light on the secondary market. Also, your Chrome plugin is great, I still mention that to people looking for help in buying notes on Folio.

    Thanks for the mentions. Best of luck to you and hope to see you back some time soon.

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    Replies
    1. Thanks, Peter. And thank you for all you do fro P2P lending.

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  2. I've enjoyed your blog since I got into LC at the beginning of the year. You have been one of the best resources related to the secondary market. Thank you.

    How do I "Learn how to find Pre-Grace Period status of Notes"?

    I've been struggling with the whole Grace Period thing. If I log in to LC today, I can't figure out what loans where in GP last week for a few days. Browsing or downloading my list of notes doesn't seem to indicate that historical tidbit. Did you figure that out? Or are you simply logging in every day and keeping your own manual GP list?

    Thank you

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    1. @Frankie C,

      I check daily the Notes that are pending payment (next payment date is earlier than today) and open each Note in a separate tab. I then go through the tabs looking for collection logs. If there is a collection log, it gets sold (before it can become a Grace Period Note).

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    2. Thanks Marc. I was afraid you'd say that. That's an insanely tedious daily process. I'll have to think about it some more, but at this stage, I'm not sure it's worth the time it takes.

      Delete
    3. I realize this is an older blog...but just wondering if anyone can answer this. Marc Page says "If there is a collection log, it gets sold (before it can become a grace period note).

      What does it mean, then, if there is not a collection log yet, but it is still labeled as "In Grace Period". How does that happen. It also says payment is "scheduled". What does that mean exactly?

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  3. Apparently 0.4% markup is the magic number (or somewhere between 0.4% and 0.8%). When I dropped my markup from 0.9% to 0.4% Notes started selling like hotcakes. I dropped from 50 to 2 Notes left in less than a week.

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  4. Two months and 10 days to shed about 300 Notes.

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  5. Hi Marc, you have an invaluable blog. Hope you can keep posting.

    I had a question. If the Net Annualized Return is pretty much meaningless, how do you actually know what kind of return you are getting?

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    1. @J@tin,

      What I do is have a spreadsheet that has a row for each month and a column for total deposited/withdrawn. I then calculate what interest rate a bank would give to get the total I have now (APR, but compounded monthly).

      I'll be back. The plan is to rewrite the plugin to calculate returns for you, be able to export all kinds of information, and have deeper analysis when buying Notes.

      Thanks for the encouragement. Happy investing.

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  6. I really like the Chrome tool, but for some reason I can't seem to get the MARKUP or YIELD TO MATURITY boxes logic to work. Can anyone enlighten me as to how the values are to be entered into the left to boxes and how the negative amounts are entered with the parentheses?

    Jim, Sturbridge, MA

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  7. Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained! Lender

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  8. Just recently started my Lending Club account, so far I have liked it, just like you I've taken quite the risk. With my first time investing in Lending Club, purchased first notes around the 31st of December, the risks I have accrued range between the D-G, with a greater emphasis on F and G.

    I took the time to read, and check up on the credit reports that is offered. I'm quite confident about my choices in bonds. I hope to see it grow soon ;).

    Have you returned to Lending Club yet?

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