Another update on trading: The two loans I bought earlier, with the specific intent of immediately reselling, have not sold. The sell order has expired twice and I’ve relisted them (with a selling price at or below other instances of the same loans). FolioFn isn’t reliable about cancelling sell orders; several existing loans that I’m trying to sell, are not selling and I’ve had to relist them; the two new ones nominally expired 2 days ago but are still listed in my open orders section.
It’s got to be hard to make money just purchasing on the trading platform. You’ve got one strike against you right away, in that if someone’s selling a good loan, they’re surely marking it up enough to cover their 1% fee (in addition to accrued interest). So right there you’re taking a 1% hit.
The 3 loans I had earlier this month, that were in grace period, have all been brought current though I’m going to keep trying to unload them.
Not ridiculous at all, that’s “only” a 12% markup. grin Actually you didn’t say what the accrued interest was, which is important, but we’ll just assume it was zero.
You’ll note that LC is nice enough to supply the calculation for “remaining payments” near the top of the listing. This is actually where I start my listings for sale if they are of good quality. The rationale is if I, as the seller, can make all of the money that I would have received over time in one fell swoop instead, I’ll take it. If not then I’m content to hold onto the note. Nothing lost either way. Yes, this means the buyer gets a yield to maturity of zero.
So why would they buy it? Beats me. Some do.
As for that $5 note priced at $5.60, the seller was selling themselves short. That same note will often times sell for $8.40. I have a feeling new secondary platform investors buy anything that looks cheap (dollar-wise) even when it’s marked up. Or maybe some algorithm trader has gone wacko.
$33 sounds about right. On a $19 principal note you’re allowed to sell it for a max of $32.30 regardless of the accrued interest. They obviously just posted it for the maximum allowed – the site whines at you if you try to post for more and tells you what price you have to put in.
I doubt there’s anything like money laundering going on. It’s probably as simple as they are hoping someone will be foolish enough to buy it. It happens. Another explanation is the person just wants the thing posted even if it won’t sell. I often do this because it keeps all my notes on the same internal report and I can keep track of them easily.
FolioFNforLendingClub has made some BIG changes in the last couple of weeks which may explain this. I’m extremely interested in your orders that did not cancel because I have not personally seen that one yet. But they have implemented a new policy behind the scenes that notes expire after 7-9 days regardless of whether you update the expiration date by changing the price. So your open sales will say they expire next week for example but yet they get yanked down tomorrow unexpectedly.
The other thing they have changed is they have become much more aggressive about busting trades for which a payment or payment failure occurred the same day of the trade. I have a sneaking suspicion this was done manually by a human each day before, because they would always miss several. I can’t even imagine how much work that would have been. Now they seem much more consistent both about not missing any, and also the time of day that it occurs. Seems someone has finally decided to write some code over there.
I think they’re still working the bugs out. At any rate, it’s sad that they’re more interested in busting my trades than spending their time making actual improvements to the site search features.
Non-expiring loans: I have two right now, that expired yesterday but are still up. The ones from last week have finally been formally expired.
The 5.00 loan going for 5.60: At that point, the accrued interest isn’t going to be more than a dime, so any buyer is going to lose money - if they buy it for 5.60, and their payments add up to 5.70, they’re still losing money because of the fees. I really do NOT understand why anyone would make such a purchase. I mean, I can understand misjudging the figures and inadvertently buying a loan that is going to lose you money in the long term, but some are so GLARINGLY bad.
I haven’t had a lot of luck selling anything, actually. My two initial notes (one sold for a profit, one for a slight loss but counting prior payments, I’m still in the green on it). The others, including two new ones bought specifically to resell, no luck. The new ones I put up for 25.70 or thereabouts, to cover the fee plus just under 2 months worth of interest. Both comparable (or a penny or so less) than other folks selling the same loans. I’ve relisted each of these at least twice.
Interesting find: I listed random notes at just a little over principal, and I sold 20 out of 23 notes in a few hours. The solution to selling seems to be to list only your low-prinicpal notes. Notes that sell are like “$8.25 outstanding, total payments $8.35” and they sell for $8.40ish…insane, but they sold. The ones that don’t sell are like “$24.50 outstanding, $28.70 payments left.” I think it’s just too long of a time frame, even though the profit is there.
So sell low to crazy people, not high to sane people.
Greater fool theory. I will gladly pay that $5.60 because I think/“know” that I can turn around and sell it for $8. I’m a fool, so is he. Both of us fools would be glad to take that note at close to $5, certainly, even when YTM is zero or negative.
At the same time the seller is smart from a yield perspective because they aren’t making any money at that point. So unload it before the real (not LC-reported) yield is low. Fortunately for traders, these folks don’t know that 70% markup would sell just as well.
I dunno, but if you saw comparable notes that means you saw them when they didn’t sell yet. ‘brown520’ has the right idea about using the accrued interest to automatically increase the discount and entice buyers, and I wish I was in a state where I could participate in this scalping. Sounds like maybe it doesn’t always work out?
The key is to decrease the price of the note, day by day, until it sells. Even below your cost basis. Yup, you’ll take a few losses, which means next time you buy one you’ll remember what that price point was, and not buy another similar note above that point. I think this behaviour alone gives an edge as things currently are at LendingClub. If they implement an auction system, I’m ruined, game over, no profits.
I’ve mentioned in an earlier post why I think this occurs, but my opinion of why is most certainly irrelevant. You have confirmed that it does happen. And I’m glad about that, because it’s a good thing for us all.
But “too long of a time frame”??
(I’m not directly referring to you Chessic, forgive me but you just supplied the great example… the math looks good)
Buy a note at $8.17, outstanding balance $8.25. This is a discount of 1%, which can be found repeatedly each day. Let’s say you buy this on the 1st of the month.
Note settles the next day, on the 2nd of the month. It’s in your account.
Same day, post it for sale. Let’s use the above real-life-seen figure of $8.40 for now*.
Note sells that day in 2 hours (2nd of month), settles the next (3rd). $8.40 minus the 1% fee means you get $8.31 in your account the next day.
This is a staggering profit of 14 cents. (!yay! j/k)
But that’s 14 cents profit on $8.17 cash/margin. And over how may days? Two days in the example. Let’s call it three days conservatively because they’re taking time to settle these days.
If my math is right, you’ve earned 1.71% in THREE days. On an annualized basis, that’s 208%.
Do you know where else to get a 208% return?
I don’t. Small startup biz and a LOT of work might net a lot of money, but not 208% for the investors in one year generally. My bank doesn’t pay that. Stock market doesn’t shoot out coins like that even when you’re right.
This is what’s called a slot machine. Using Chessic’s own numbers (generally), this is called BIG profit. There is no way in heck that these kinds of returns are “too long of a timeframe”, “too much work”, etc. …unless it takes time out of your day. <– #1 caveat. Doesn’t have to, though.
makes that annoying cash register sound
-core
Selling price of $8.40 is lowball for an $8.17 note. It will sell 95% of the time for $9.75 within 25 days. The profit on a 3-day transaction would be 2,207% annualized in this case, or 265% after having to hold it for the full 25 days.
This is still puzzling - and reminds me of a stock market bubble (but even less sensible).
You pay 5.60 on that 5 dollar note. Maybe you hold it to maturity, maybe you hope to sell it for 8 dollars. You might get lucky, but why would a sucker buy that note? Their chances of reselling it at a profit are even lower than yours, and if they hold it, they’ve automatically lost money. It’s not like an overpriced house where at least you get the use of the house - it’s almost literally money down the drain.
With stock, you can hold onto it even if its value has dropped (assuming the company doesn’t go full-on bankrupt), may have an income stream if it pays dividends, and it might rebound after a year or two. That loan is GONE within 3 years, locking in your losses.
Getting to selling a note at a discount, and the reasons for it. As I see it:
It’s currently not performing.
It’s currently performing, but you have an inkling (dropping credit score, prior late payments) that this will not last and you want to get while the getting’s good
Opal told you to
You’ve held it for a couple of years, gotten most of the profit from it, and even with the discount and sales fee, you’ve gotten a net profit overall.
You just want to cash out and get away from Lending Club entirely.
If I’m an investor looking to purchase a note, I can see its history and if it’s in #1 or #2 category above, I imagine I’d be fairly leery.
Of the 3 notes I’ve sold so far: 1 was at a discount (category 2 above), and 2 were at a small markup. One was a year old, performing well, good interest rate (D-class) and the credit score had gone up. I made about a dollar profit (not counting prior interest) on the 21ish dollar balance. Possibly I could have asked more for it. The third one was in category 2 but had been brought current and I sold it for a small profit as well.
To me, “discount” means any figure less than principal + accrued interest, or even P+I plus the one percent fee.
Good point on the longer time-frame for newer notes. What I think I’m going to do is list any new note at a dollar(ish) profit just because, just in case it sells. If I’m choosing a note that I plan to resell, I’m still limiting it to ones that otherwise meet my own criteria.
I’m glad you mentioned bubbles and the stock market, because that’s all this is. The market in general is one big casino, and here we are. No comment on the bubbles, but I don’t believe we’re in a lending bubble. Not until one of the two companies goes bankrupt, and then it starts.
** Note to visitors: Please understand that if a P2P lending company goes bankrupt, you can/will loose all of your money that you have ‘invested’ with them **
I’m afraid you’re right. There is no mathematical reason for them to purhase my note. I try to be an upstanding citizen, but I guess some “suckers” are allowed to buy my notes if they want. Unfortunately LC does not let us choose what kind of folks get to purchase the notes. I’m glad they don’t! Seems ok to me if the farouts go find pluto.
Anyway, the stock market is a perfect example. Greater fools. That doesn’t mean they’re all fools though, and certainly they are not. They only have to be a greater fool than me about that thing.
It’s not a zero-sum game. Or if it is, I hope I kill them. (Oh?) Nevermind, I hope I do something good for society.
Who knows, “they” could be laughing at both of us for not seeing the way.
Maybe they are laughing about ‘that thing’.
That thing could be on your head for $19.95/mo.
(Disclosure: I am long some stock and short lots of option spreads, delta about short to ** my pants so I’m neurtral)
Missed two, Mama:
#10: Note holder has been notified that the loan is delinquent. Meaning more current information than that which shows on the note page #11: Note holder knows note is not performing but knows that if s/he posts it for sale, it will be listed as perfectly performing and thus sell quickly.
How is the note holder notified that it’s delinquent, without something showing on the note page? I mean, I find things out one of two ways: when I sort my notes by due date and there’s one that’s more than 4 days past its date, and it says “in grace period”, or I happen to pull up the note detail page and see something wonky down below (collections action / borrower contacted lending club).
That last (“borrower contacted”) is the only time in which I could see something where there isn’t at least “in grace period” on the note. I’ve never gotten any kind of notification.
As an aside, just unloaded 2 more notes. One was in the grace period, I priced it for a penny less than the outstanding principal. Even with that and the fee, I’m coming out slightly ahead. The other one had a history of one late payment, and its credit score had dropped, but I still sold it for a 65 cent markup over principal (basically, to cover the fee plus 2 months interest).
I have a few new loans that I’ve listed, all at roughly a dollar markup. No activity on those yet. A couple are near or at their first payment date (but not yet completed); I wonder if they’ll see faster once that first payment has been made?
They’ve screwed up stuff so much in the past 2 weeks I can’t even think now. Certainly it will (or DID) say payment failed in the collections area, and at times you would see the principal balance numbers change. Also sometimes last payment made 7/01 and next scheduled 9/01, so 8/01 is plain missing.
But heck with these recent changes everything is borked. I used to lower my prices so they were lowest right before the payment was due. Now you can’t hardly do that because if it sells in the 2 days before the payment is due they’ll just bust the trade after you think you sold it. Whether the payment was successful or not! Grrrr.
My first sale, last month, showed both in the canceled section AND the completed section - listed twice in the canceled section as “canceled because payment made”. BUT the sale went through. Very bizarre. I felt bad for the buyer, as I’d priced it assuming the payment wouldn’t go through until after the sale.
Something else annoying: if you look at your “account activity” on the Lending Club side, it doesn’t show any line item for “money from sale of note” - the cash balance just jumps inexplicably from one line to another.
This used to be normal. The day the payment gets made, always around the same exact time of day, you could snag tons of notes at a discount if you were the buyer. They’d then disappear and show up again 10-15 mins later and you’d have to again buy them up. If you bought them the second time you stood a pretty good chance of having the sale go through but one of em obviously has to get canceled.
Oh and I just read the part about you getting the payment too. Yeah that did happen once or twice to me (on the bad end of the stick) but ah well stuff happens.
Bearing out Chessic Sense’s recent experience, I just listed a few older notes. One, original value 50.00, had 3 payments of 1.70 left. Its principal balance was either 5.01 (from the “payment history” section at the bottom) or 5.18 (from the “outstanding principal” at the top). I think FolioFn uses the outstanding principal figure.
Either way, the total of outstanding payments was 5.10. Maybe a few pennies more once they sort out the rounding; maybe they’d throw in that 17 cents difference. So let’s say the borrow will get 5.27 (5.10, plus the 17 cents difference in the two principal figures).
Anyway, I listed it for 5.30. It sold within 10 minutes. The buyer is guaranteed a loss on this loan.
So I think my new approach to pricing those older loans: total of the remaining payments, plus the difference between the two principal figures. If that figure is less than the outstanding principal (can’t imagine how it would be), then I’ll list 'em at the outstanding principal plus 1% (to cover sales fee) plus 2 months interest and see what happens.
Feels good, doesn’t it? I mean to take money from another trader who is stupid. Even if you don’t mean to, it sure feels good as long as you’re on the good end.
And I’m glad that it was Chessic Sense that brought up this whole deal about trading notes for profit.
I could have sworn there was another person annoyingly insisting that you sell things for more than they are worth and you make money.
(Ok, sarcasm off)
If any of you are fortunate enough to own $5-7 notes with no lates, list them for 70% markup and gradually decrease them to 1% the day before payment. Worst case you’ll make a bunch.
Here’s one from yesterday (actually two):
Bought $4.02, sold $9.78. (68% markup)
Bought $6.16, sold $9.86 (51% markup)
These folks don’t care what the markup is. They don’t care what anything says, or else they wouldn’t have bought those. All they see is “gee George, under $10! Gimme that!”. I would have posted the P+I figures but my software doesn’t display them on this screen once sold. Besides, the markup implies the orig price.
It’s like crack to these people; I swear.
I’m tempted to post a photobucket of that exact 30 minutes to show what that one guy bought.
Ok I said I was tempted, and here it is. This one guy. Nothing personally-identifiable, but you can see that he’s a dumb trader. (Or IS he? Maybe not, we don’t know)
And I’m sorry that I can’t figure out how to post a thumbnail image on here, but that link should explain all. The guy just bought everything I had in that price range, no matter what the markup was. You can’t see column headings but it should be obvious.
This is absolutely pathetic, but hey, the other guy WANTED it. He bought all of mine. He would have bought all of yours too, if you had them out there at a “good” price.
Hell, he might have bought them. I put a bunch of my oldest loans out there, plus a couple slightly newer ones that either were actively going south (one: second month in a row where payment was late, other, payment is a couple days behind).
The older non-troubled loans were snatched up in an hour. All at enough of a markup that even after the 1% fee, I made a small profit. The ones that were going south, I’d gradually decreased the price until there was a net loss on the sale, but an overall profit over the life of the loan.
I just listed another loan, at about 30 cents more than the sum of the remaining payments. Principal 5.74, 7 payments of 81 cents (5.67 total), selling at 6.20. We’ll see how THAT goes.
Well in truth, I do not. But I don’t get that kind of volume, I mean, I’m lucky to get 1 sale an hour outside of CrazyTime. So when I get rapid-fire sales, all low-dollar, all wacko-markup, well you saw. Basically somebody bought a “Mr. T. Startup Kit” and decided they were gonna invest in notes today.
Translation: Yes, it’s one guy. I’m no spring lender!
(The scan isn’t done every second but that’s still not the point, that is ONE guy. See that, and you get a popsicle. See more interesting patterns and maybe we make money.)
Naw, how long until payment due??? $10.32 is the max, and I can tell you it probably won’t sell at that. But I’d start it at say $9.74. Then graaaaadually an eeeeeeeasy ease it down towards your breakeven.
You’ll probably get $1.50 to make you holler when it’s all settled. Nice profit.
