Any mentors out there? - Secondary Market

I wouldn’t touch the secondary market with a barge pole.

As a disclaimer I perhaps should say I rarely buy on the secondary market, but here's my views.

1. Many investors (me included) use the secondary market to sell loan parts that we aren't happy with, often ones that have come back after a few late payments. Before buying a loan part, check the comments in the "repayments" tab and avoid any with a history of "we are chasing the borrower" type comments. Late first payment is often a direct debit issue and if subsequent payments have been ok then those loans are worth considering.

2. There are now several "buy bots", programs that automatically scour the secondary market for high rate parts, which they snap up instantly. So it is not really possible for a manual buyer to find "bargains" on the SM, but it is possible to buy reasonable parts at a fair price which is what the SM was intended for.

3. If a loan part repays early then you could lose money if you pay too high a premium. Also, buying parts with a 3% markup gives no leeway to resell those parts at a profit later so while going for buyer rate is a reasonable aim, be a bit wary of paying too high a premium.

4. The SM at the moment is stuffed full of property loans being offered at deep discounts (these loans were offered with 2% cashback, so flippers can resell these with up to about 1.7% discount and still make a profit. Personally, I think these loans, especially the shorter duration ones, are generally good value and would happily buy them at 1.5% or more discount (and have done when I have missed the auctions and failed to get any on the primary market). You'll probably not be able to resell these parts, though, so consider this if you think you may need your capital quickly.

Hope that helps a bit.

Well, this is probably as good a place as any to say Hello...

I dipped a toe in to the FC waters a month or so ago, and after an initial AutoBid semi-debacle (lots of cash tied up at ho-hum bid rates before being returned but which, at least, gave me a good way to test out loan part sales!), I think I've got it reasonably understood.

I've bought in at a few primary sales at decent rates, but most of my parts have been bought on the secondary - at rates far higher, even after premiums, than I've seen on primary in that time. Mostly As, with a good smattering of A+s and the odd B (I've avoided C and C- totally), I'm sitting at a gross of ~11%. Because I've bought on the secondary at, often, highish premiums - yes, the fees paid have been high - the fully diversified is "only" a bit over 8% at the moment. Yes - all in all, after a month, the total I have in the account is down a tidge - less than 0.5% of what went in. That's OK by me, it's climbing back to that point quickly enough, and it's been a cheap enough learning curve.

My secondary buying strategy has been to use the filters to search by the effective rate to find the highest (the rate shown is, of course, after the effects of the premium/discount), then have a good once-through the details. Repayment comments? Avoid, except for obvious first-repayment admin errors. Don't like the numbers (I'm no accountant, but I do have a basic clue)? Avoid. Rate for this part anywhere except near the top for that loan? Avoid.

No, it's not a strategy that'll scale terribly well towards large investments. But, so far, it seems to be delivering a perfectly acceptable return whilst getting the money doing something reasonably quickly, and minimising both the risk (I've got max £20 in any one loan) and the amount of sitting there at auction-end trying to second-guess the inflow of botcash then waiting a week for the loan to be rejected by the borrower...

Have a drink on me, flipperbotters...

Secondary market pros .. you can take your time over reviewing the loan, and probably some payment history, you can be sure your money is going to be earnng interest 'at once', you can usually pick up parts at well above the 'average rate' for the loan.

Cons - some folks dump dross (but usually at 0% since autobidders are not selective and don't read repayment history), 'old parts' are (statistically) more likely to default than 'newer ones', you may have to pay a premium (but you have a choice often - you can buy a 9% part in loan X at par, or you can buy a 11.5% part in the same loan at a premium .. you pick!) which you can lose if the loan repays early, you may not be able to buy what you want if nobody is selling.

I buy occasionally, if I see a bargain the bots haven't already eaten, and have a lot of (newish) parts for sale at any one time, but I don't get frantic if they don't sell (unless FC comes along and invents an MBR overnight, like they did last year! That caused some frantic selling at the time).