Thursday, March 13, 2014

Warren Wednesdayish: H1 1962

A rather uninspiring letter but it does only cover half a year and they all can't be groundbreaking works of financial wisdom...

H1 1962
Written: July 6, 1962
Length: 7 pages
SourceRPCPA.com
DOW return for H1 1962: -21.7%
Buffett's return for H1 1962:  -7.5%
Major events: The U.S. Navy Seals are created.

Bob Dylan releases his debut album

Warren starts of this letter with reprinting his prediction warning from a previous letter. Essentially reminding everyone that he doesn't make predictions and that he doesn't expect to beat the Dow every year. When it drops he does plan to do better then a rising market.
What is new this time around is that he mentions his declining market goal of only losing 0.5% for every 1% loss in the Dow which he beat this time around.

He again discusses how large funds are doing as way of comparing himself and the Dow to other professional money managers.

The next sectional really has to make you wonder about where his partners are right now. He mentions people taking monthly payments and others taking 6% annually out of their partnerships. Wonder how much that set people back vs the potential of being billionares. I'm sure they still did good assuming they staid with Warren.

Warren must be getting popular as his lawyers advice him to take on only another dozen new people and the entrance fee is raised to $100,000

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Saturday, March 8, 2014

Monthly Update: February 2014

In this day and age where Amazon is working on flying robots to deliver your packages and Google is working on self driving cars, how in the world can Lending Club be so slow? It took over a week to get their monthly statement to me, hence the delay in my monthly update. For a guy who is used to running his monthly numbers the night of the last day of the month, waiting a week felt excruciating. #firstworldproblems to be sure and it is better then #eatingketchupsandwichestillpayday.

Portfolio Activities
     $900 deposits into Investing account

     $100 deposits into Lending Club account     

     Sold SPLS, +8.3% gain
     Bought 3.4936 shares of IBM @ $179.19
     Bought 42 shares of ARCP @ $14.17

Portfolio Income
Dividends

Total: $49.16
     POT: $10.85
     BLV: $2.78
     JNK: $1.43
     AAPL: $3.05
     ARCO: $5.62
     NDRO: $3.66
     PSEC: $7.51
     RKT: $3.10
     STX: 8.31
     PCY: $1.93
     Interest from cash: $0.52
Lending Club
     Interest: $4.86
Rental Income
     Townhouse 1: $855


Lending Club:  I'm also not pleased that they sit on my deposits for one week before releasing it to me to invest. I understand that they want to get some interest and have it in their accounts but come on.

Their fees are much lower then when I was with them in 2009 probably due to then I was buying and selling notes and they take extra money from the sale. I am open to the fact that I could well be wrong on the reasons for those 2009 fees but I'm not worried enough about it to look into it as that's in the past. I'm focusing on the now.
The now includes some great interest rates so I don't have too much to complain about. I'm pretty excited to see how LC turns out for me over the course of the year.

Low deposits: Had lower deposits than I had wanted this month. A positive life event happened that I wanted to take advantage of that needed money. I keep my deposits at a high % of my income so there is little wiggle room in my budget but that means that when something has to give it's my investing money. I know that some people want consistency and to keep it the same with their portfolios so make wiggle room for events. I'd rather plow as much as I can into the portfolio.

Sold SPLS: The problem with investing in a turn around story where a company that has fallen out of favor rises up to its former greatness is... when it doesn't. I wasn't comfortable at all with SPLS progress last year. They were supposed to be expanding in Europe, spending a ton on revamping their online website and expanding into more products. The money was spent but the new business has failed to come.
I had set a mental line in the sand that I cannot take a loss with this position. It got to about my entry level and the dividends were the profit. I wasn't planning on this being a trade but I also hadn't planned on losing money after nearly a year invested with them.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Monday, March 3, 2014

My Lending Club Strategy

Alright time to get to the reason I am in Lending Club, my strategy for making money. I've seen a lot of ideas out there involving both the primary and secondary markets, using LC for income off the interest to flipping notes for capital gains. There are lots of different ways to make money with LC so how am I going to do it?

As much as I love dividends it should be no surprise that I will be focusing in on the income. I acknowledge that one can make money flipping notes but I see mark ups of a month or two of interest payments. A strategy of funding a loan, then putting it up for sale so you can get $0.60 profit and start over isn't my idea of time well spent. Yes its risk free but I don't want to be chasing pennies.
I'd rather search for a loan so I can make $9 total interest over a 5 year loan. Its a matter of how much is my time worth in actively spent going through the LC markets.

Hold to maturity: When I find a note I want to hold it to maturity. I understand that you won't be getting as much interest as time goes on but its the same yield.
When a note is young a $0.70 payment will be $0.20 principal and $0.50 interest. Yet those last few payments are going to be reversed at $0.50 principal and only $0.20 interest. It can seem like you aren't making as much money.
Here is the thing though that I think many miss, those smaller $0.20 interest payments are on smaller amounts of principal. They are both $25 notes but one is worth $24 and has 5 years of payments left and the other is worth only $10 with a year or two left. Its not like you can sell your $25 note for a full $25. Thats not its worth its just what it started out as.
Both of these notes in my example are going to give you the same yield on the remaining principal so I am going to skip the work and time in finding the sweet spot and only taking the early months of a loan.

Secondary Market only: I have to realize I will not be in the primary market where loans get funded. I meet the requirements but I do not want to be hovering over my computer racing against everyone else to fund a loan. Even though loans are released four times a day in batches, they get funded in minutes because of the institutional investors doing automated investing. I can't blame them as they have hundreds of thousands of dollars ready to be invested. I don't want LC to be a second job for me.

Next lets talk about what type of person and note I want to be invested with...

Credit card or debt consolidation needs only: I want to be invested in the people who have hit a financial rock bottom. Where they have struggled with money have few other choices and realize the mistakes they have made. Now that might seem harsh but these people are going to be deadly serious with the loan and thusly, deadly serious with my money. I don't want the people starting a new business. I love the idea of people creating jobs and pursuing their dreams but this is an unsecured loan. If they default then I am out of luck. I don't want the people who think a $30,000 loan @ 18% interest is a good idea for their wedding. That seems like they are just beginning their debt lessons in life. I want to be at the end after they realize what lifestyle that leads to. I also do not want the person who things an 18% loan for a new deck in their back yard and remodeling is a good idea. They may have good reasons and they may be disciplined enough to handle these choices but I don't know them personally. I just have the information available so instead of taking a chance, I'll go with what seems like a safer bet.

10 months history minimum: Multiple 3rd party sites offering data from LC, bloggers, and commenters in discussions point to the majority of defaults occurring in the first year of a loan.  It makes sense why this would occur...
If people are going to scam LC and just take the money, they are going to do it early.
If people are going to use LC as a lender of last resort and are struggling with old habits they refuse to change, they are going to default early.
However if people are truly wanting to turn their financial life around and are being truthful that they can meet their current payments they just want to free up some cash, then they will never even be late with a payment.
So I want notes that have been around for 10 months and have never even been late on a payment.

Rising credit score: If a person is turning around their financial life then they either consolidated all their debt into this LC loan or they freed up cash to pay off other debt. Either way their credit score should not be dropping further and in fact should be rising. If its dropping then I take that as meaning they have other obligations they are not meeting. Perhaps they lack the discipline to pay their debts on time or they are not being smart with their money. Either way I don't want my money with those people.
The way credit scores work is that if you pay your debt on time your credit at worst stays flat. As you lower your debt to maximum allowed debt by paying them off and not taking on new debt, your score increases.
I don't think credit scores are the best indicator of a person's financial habits but its the best one available to me through LC.
I don't want flat credit score, I don't want dropping. I want rising, improving credit as proof that this person is being serious in managing their debts.

Those are the three biggest priorities for me. I have a few others that is best shown in a screenshot of my screen...

15% interest minimum. If I am avoiding the majority of defaults then I feel I can take on more risk vs the 4% loans.
Never been late.
60 month duration only.
5% mark up only. I get it that a person wants to make a little money and I am willing to meet them halfway but don't be ridiculous.
700 credit score or higher. Again, I want people who have shown they are disciplined and turned their financial life around.

As you can see from the screenshot, there are currently over 300, $25 sized notes. $7,500 available at this time. Over the course of the past month I've seen it be 300-500 so there a market for me here.

I feel that this is a very conservative screen that will avoid most, but not all, the defaults allowing me to take on the high yields for a high net yield.
Tell me what you think of this screen.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.