littleoldlady
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Post by littleoldlady on Apr 16, 2016 8:05:10 GMT
Have you read these? Is there any point in our doing our own DD if we are totally reliant on SS's DD (and they have not let us down so far)? Would it be better to opt for diversification, investing in everything even if we don't like the look of it?
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Post by queenvictoria on Apr 16, 2016 8:13:22 GMT
That is, largely speaking, my approach. I think the bigger risk is platform failure and I try to diversify across platforms to mitigate against this.
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mikes1531
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Post by mikes1531 on Apr 16, 2016 9:56:40 GMT
Have you read these? Is there any point in our doing our own DD if we are totally reliant on SS's DD (and they have not let us down so far)? Would it be better to opt for diversification, investing in everything even if we don't like the look of it? : I don't follow your logic. If you don't like the look of something and, as a result, don't invest then you aren't exposed to a potential loss if your judgement turns out to be right and the loan goes pear-shaped. Someone who doesn't do any DD and invests in everything would suffer the loss unless the PF trustees decide to cover the entire loss. (It's important to remember that the use of the PF is discretionary so the trustees could, particularly in a time when the PF is under stress, decide not to cover the entire loss.) If doing DD helps you avoid some losses, then that strikes me as a good reason to do it. Am I missing something?
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Post by brokenbiscuits on Apr 16, 2016 11:29:08 GMT
I invest the same amount in each and every loan.
Pull funds as the loans start to get nearer the end of the loan to reinvest.
You cannot predict which loan will fail. By picking and choosing and leaving out certain loans due to a perceived knowledge you will be investing more in the ones you favour. If one of your favoured loans fail, you now have a higher amount at risk.
I wonder how many people who invest in funds through their isa research every single holding or whether they research the fund manager/the sector generally and trust him/her to get on with doing a good job.
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littleoldlady
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Post by littleoldlady on Apr 16, 2016 13:35:28 GMT
Have you read these? Is there any point in our doing our own DD if we are totally reliant on SS's DD (and they have not let us down so far)? Would it be better to opt for diversification, investing in everything even if we don't like the look of it? : I don't follow your logic. If you don't like the look of something and, as a result, don't invest then you aren't exposed to a potential loss if your judgement turns out to be right and the loan goes pear-shaped. Someone who doesn't do any DD and invests in everything would suffer the loss unless the PF trustees decide to cover the entire loss. (It's important to remember that the use of the PF is discretionary so the trustees could, particularly in a time when the PF is under stress, decide not to cover the entire loss.) If doing DD helps you avoid some losses, then that strikes me as a good reason to do it. Am I missing something? Yes, as far as loans which you do not invest in. But for loans where you do invest the T&C allow SS to completely restructure the loan, making any DD you have done irrelevant. This is not purely theoretical. a quick look at IlMoro's pinned thread reveals that SS often change the terms of a loan during the course of its life. And any decision not to invest means missing a diversification opportunity.
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ben
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Post by ben on Apr 16, 2016 13:53:21 GMT
littleoldlady : I don't follow your logic. If you don't like the look of something and, as a result, don't invest then you aren't exposed to a potential loss if your judgement turns out to be right and the loan goes pear-shaped. Someone who doesn't do any DD and invests in everything would suffer the loss unless the PF trustees decide to cover the entire loss. (It's important to remember that the use of the PF is discretionary so the trustees could, particularly in a time when the PF is under stress, decide not to cover the entire loss.) If doing DD helps you avoid some losses, then that strikes me as a good reason to do it. Am I missing something? Yes, as far as loans which you do not invest in. But for loans where you do invest the T&C allow SS to completely restructure the loan, making any DD you have done irrelevant. This is not purely theoretical. a quick look at IlMoro's pinned thread reveals that SS often change the terms of a loan during the course of its life. And any decision not to invest means missing a diversification opportunity. If they restructure the loan all well and good but once it eventually defaults/stop paying interest your DD will then come in handy if you decided that the loan was to risky.
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littleoldlady
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Post by littleoldlady on Apr 16, 2016 17:25:00 GMT
If your own DD can successfully identify the loans which go bad then obviously that is great. But if you only invest in a portion of loans and your success in this regard is only average then you would have been better investing in all of them. And since all loans have filled, with the speed of filling related only to the size and not to any concerns expressed on this forum, it would seem that there is no consensus on which loans are more likely to default, so only a clever/lucky few can benefit from doing their own DD. IMO opinion diversification is therefore likely to be more effective than DD in minimising losses for most of us.
A strategy of selling loans before they are due to repay might work as long as various conditions are met:
- We can't all do it
- The SM remains liquid
- There is a supply of new loans to switch into
- You have no moral/ethical objection to taking some/most of the interest and giving someone else all the risk.
- There is not a collapse in the property market at an inconvenient time eg the loans you sold did not default but the ones you switched into do.
- By using this strategy you will be permanently locked into relatively long term loans. If the property market gets the jitters you will probably find that you cannot sell on the SM and neither can you exit reasonably quickly by loans maturing. Someone with a diversified portfolio could wind down their investment more easily.
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