Update: Distressed P2P Investing Experiment

Sometime back, I embarked on an experiment that involved investing in Lending Club notes on the secondary market. My goal was to buy “distressed” P2P loans at a discount that was higher than the default rate.

The hope was that I could squeeze a slightly better return than I’ve seen with my more traditional P2P experiment buying primary loans when they’re originated.

Now there are plenty of loans available on the secondary market at pretty steep discounts. But I have come to realize that most of those discounts are warranted (i.e. the true default rate of the distressed notes is equal to or even maybe greater than the discount on offer). Case in point:

When I first started out with this I bought a bunch of notes indiscriminately, focusing more on the size of the discount than the underlying debt.

That initial batch of loans has had a pretty bad failure rate and is dragging down the initial results of this experiment.

I’ve since gotten a lot more discriminating.

I’d like to think that a system-based method of selecting secondary notes along with my new-found discipline is improving my returns, but honestly the sample size is probably too small to tell anything.

I have to admit that I’m losing interest and motivation to dig through a bunch of garbage loans to find the few that meet my criteria. It’s extremely tedious.

Anyway, this is what’s going on with my junk P2P investing experiment.

Distressed notes purchased

46 (no change from last month)

Total amount invested

$395.42 (no change from last month)

Outstanding principal remaining

$251.01

Adjusted value of principal remaining

$158.49

Payments received

$59.80

—-Principal received

$43.98

—-Interest received

$15.72

—-Late fees received

$0.10

Actual losses (charged off)

$235.27 (32 loans…$708.39 in original principal)

Principal in default

$0.00 (0 loans…$0.00 invested)

Principal 31-120 days late

$105.14 (7 loans…$73.79 invested)

Principal 16-30 days late

$0.00 (0 loans…$0.00 invested)

Principal in grace period

$0.00 (0 loans)

Principal issued and current

$145.87 (7 loans…$86.36 invested)

To get any meaningful feedback about my selection criteria, I really need to buy some more loans, but like I said, finding new loans that aren’t total crap is really time consuming and tedious. Not sure how much longer I’ll stay interested in this.

Of the 7 notes that are still alive but seriously late, 3 of them are almost guaranteed to end up charged off.

Here’s the latest from note #147588532 (Loan ID: 96326810):

From what I’ve seen with other notes, a 3rd party calling on behalf of the borrower either means the borrower is entering bankruptcy or dead. Neither is promising for those of us holding unsecured debt.

And notes #130699384 and #130696717 aren’t looking very promising either (both from Loan ID: 83344786):

Oh well. So it goes I guess. As long as I hold “distressed” P2P debt, I’ll keep on keeping on with this and keep you all up to date.

Well, what do you think about my crack-pot, half-baked, waste-of-time experiment?

Shout! Shout anonymously on the internet! Comments are encouraged.

 

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