am
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Post by am on Aug 9, 2017 21:09:01 GMT
Personally, I think active funds are just a device to enable financial institutions to make money out of the little people. IT are a little better at providing a consistent long term return but the premium/discount is something to watch out for. All I need to know is that the single most successful investor ever says that just about everyone should buy cheap trackers. I don't believe I am special enough to know which few percent of the active funds that do manage to beat the index consistently I should buy. Also, if you're old like me, it can be risky investing in something priced in a currency other than the one used in the country you intend to retire in. i would prefer to be in Warren Buffett's own fund then in a tracker If you happen to have a spare quarter million dollars and counting to pay for a single share ... (The B-shares are more affordable, but come with reduced voting rights.) Extra: some issues with Berkshire Hathaway are cash drag (nearly $100bn in cash, but this does give them a war chest for the next correction/recession), the size (which makes it harder for them to be more than a closet tracker), and the succession questions.
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am
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Post by am on Aug 9, 2017 15:04:28 GMT
What's next ? Well in 5 to 6 months, the first development finance tranche for a certain language school in Paisley. MT say they have first refusual for the development finance, in practice, MT may have to provide development finance to prevent a default on this loan. Since the former hotel in Burnley is on the market for £700,000, it's conceivable that the proceeds from the sale of this could be used to repay this loan. Update: cooling_dude points out that the ownership of the hotel is an inference too far.
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am
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Post by am on Aug 9, 2017 14:55:41 GMT
I believe that it would depend on the precise instructions given to the valuer, but I doubt that in this case there's any prospect of a successful claim. I still think it's a bad VR, but it's a bad VR because it doesn't have any tyres to kick, not because there's anything obviously wrong with the valuation. (My assessment is similar to yours - this is a security with a relatively high risk of falling well short of the valuation on a forced sale.)
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am
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Post by am on Aug 9, 2017 14:34:48 GMT
Commercial assets liquidate easily below 65% LTV so at 43% LTV MT are well inside that threshold. Any inaccuracies in the valuation in the event of a default would also be covered by the valuers PI which should be c.£5m for a commercial valuer at least so either way the security basket on this one is well covered. Taking the principles out of the equation the security basket is solid, even if they don't perform. People tell me that making a claim on a valuer's insurance isn't particularly easy. There have been defaults on other platforms were the recoveries were well below the valuations, but as far as I can tell there's no prospect of claiming against the valuers. For me there's also an ethical dimension. I don't wish to engage in unethical/predatory lending. But there is a question as to where the line was drawn. One answer is to draw the line at the interest rate, and not engage in, say, pawnbroking or payday lending. But there is a counter argument that excluding some people from loans is also unethical. I've recently come up with an alternative criterion. The loan transaction should be beneficial to both parties - that is the weighted mean return over all scenarios to both parties should be positive. (And on a finer degree the relative returns should reflect the relative risks, reflected as variance in returns, each party is taking.) From this I conclude that I shouldn't lend just on a basis of the security covering the value of the loan.
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am
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Post by am on Aug 9, 2017 12:42:55 GMT
ah, I thought it was - I'm not going mad then (yet), the discussion was as if it was a term loan as it concentrated on the principles, that's what's confused me. As I've said elsewhere the best security is the security you don't need to exercise*. For this loan that means asking whether the exit plan via development finance is viable. Which means asking whether the business plan is financially sound. *As this wasn't universally understood the first time, this is meant to be a pithy way of saying that avoiding defaults is at least as important as recovering your money in the event of a default.
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am
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Post by am on Aug 9, 2017 12:35:48 GMT
You can pick winners in stocks and shares as well. There is an argument for concentrated stock portfolios - there's less benefit to picking a 10-bagger if it's only 0.5% of your portfolio. With stocks and shares one 10-bagger outweighs 5 wipeouts. This isn't the case for P2P, where there's an upwards cap on returns, but you can still lose the lot. Because of this I think (depending on your appetite for risk) diversifying away abnormal returns is more important for P2P. I've got a few hundred loans going across several platforms (I managed to reach 200 at FC after several years), as well as autodiversification via P2P Global, RS, GEIA (AC) and GBBA (AC). which I think is a small number compared to some people. I try to restrict myself to "quality" loans, for reasons relating to comfort and investment ethics, but the diversification is there is case I get it wrong, and a loan turns out to be a disaster. (I traded out of some of the bad loans at Lendy for cash flow management reasons, but if I had foreseen the problems I wouldn't have been in them in the first place.) As the purpose of diversification is to suppress abnormal returns, and as loans are not wholly independent, I think that you should be looking at diversifying across several axes (borrower, platform, asset class, possibly even duration). Investing in the ITs adds discount risk; investing in non-sterling loans add exchange rate risks. You have to make a decision whether the extra diversification outweighs the idiosyncratic risks. Possibly we might agree - don't take on any old dross just to increase diversity, but try to keep a moderately diverse portfolio of decent assets. Exactly. Perhaps I came across as a little disparaging of diversification, but I really just meant that it's not the be all and end all when building up a P2P portfolio. For example, I'd like to increase my exposure to MT at the moment, but I'm not going to invest in their latest loan just because it's there to diversify to. Probably verging into the stock market chat thread territory, but I'd be interested to hear your theory/practice about picking stock market winners. If you're talking about 10-baggers I assume you're more interested in very small and rapidly growing firms rather than large cap well known ones? I admit both my reading and personal experience has really put me off trying anything remotely active in that space. I mentioned 10-baggers more to emphasise the uncapped upside on shares, rather than to suggest that you should be actively pursuing them. But my 10-baggers are ARM, Persimmon, and The Biotech Growth Trust, all of which took some time to get there; Shire was also a 10-bagger at its peak, but it's fallen off a lot since them. This shows that you don't have to go for microcaps - Persimmon would have been a large cap when I bought it, and ARM and Shire midcaps. Persimmon has also produced large dividends over the duration - the last dividend was well over 50% of my initial investment. I've got some bad losses to show the counterside - Skye Pharma, Filtronic, Volex, Torotrak, Marconi. You can't pick winners reliably on the stock market any more than you can pick safe loans reliably in P2P (but I've an annual bad debt rate of under 0.5% at FC, with recoveries still outstanding); you just have to be right often enough. As the stock market is expected to produce a positive return, and as there's a random element, it's easy to mistake luck for judgement. I've got to an age and wealth where capital retention is more important than growth, so now I'm looking for value and income rather than growth (and I always kept a large cash balance). But I've still got legacy investments in biotech and tech funds, which I'm retaining for portfolio balance, and I would still consider small investments in more speculative growth stocks (I'm currently mulling over Sirius Minerals - already a midcap). In theory you're paid a premium (excess returns) for taking on risk, but in practice the great achievers have been value investors such as Graham, Buffett and Bolton. I presume that the problem is people buying blue sky shares in the hope of getting rich quick - the stock market equivalent of buying a lottery ticket - and inflating the share price thereby. With blue sky stocks you're liable to lose out to failure, or dilution, so if you're chasing them I'd consider diversification to be important. I bought Beazer in 1999 and Persimmon in 2000 (and Persimmon promptly took over Beazer giving me an unwanted CGT liability). At the time they had a p/e of under 10, good yields and capitalisations well below the NAV. Buying was just a case of taking advantage of the market inefficiency, when everyone was piling into tech, telecoms and biotech. (There was clearly a bubble by the end of 1999; companies expressing an intention to invest in internet startups were valued at 10 times their cash assets, which was equivalent to the assumption that they could buy internet companies at a tenth of their true value, when it was fairly clear that the targets were already overpriced. My problem was I underestimated the magnitude of the bubble; cashing in would have exposed me to a hefty CGT bill, but in hindsight I would have been better taking that hit and redeploying into builders and banks and electricity generators and other boring old economy businesses. If the bubble had lasted another month, into the next tax year and another CGT allowance, I probably would have done so.)
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Post by am on Aug 9, 2017 11:01:36 GMT
Yes. Title edited. (I suffer from missing negative syndrome - I often type out a sentence and leave out the "not", or in this case the "out").
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am
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Post by am on Aug 8, 2017 20:23:59 GMT
For what it's worth, I reckon the collective angst expressed about this loan to be massively overdone. Comparing against some other student accommodation scheme loans, the valuation doesn't look out of line and the low LTV provides a degree of further comfort. As to who is right, only time will tell... The angst was less about the loan/asset and more about the whole mess behind it - adverts for things which aren't there (and may never be) and the track record of the participants. As I see it (which is pretty much the same as what you've just said) there were three layers of problems involved. 1) Insufficient loan details: we weren't told about the transaction history on the project (knowing this might have short-circuited the sales listing issue), we weren't told the loan purpose beyond equity release (commercial confidentiality might get in the way - but if possible the more knowledge the higher the confidence), the VR didn't present a worked justification for the valuation, and we weren't given any numbers relating to the business plan (again commercial confidentiality might get in the way, but AC and F&P manage to provide them). 2) Worrying information on the web relating to the project: recent sales listings for the property at prices well belong the valuation (which I'm now pretty much convinced was a result of sloppiness by estate agents), and various marketing websites for the college and the accommodation written as if the project was up and running (which I'll accept as prepared websites escaping into the wild). 3) Concerns about the principals' track records.
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am
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Post by am on Aug 8, 2017 17:00:09 GMT
I have mixed feelings about diversification. It was probably what I saw as the highest priority when I set out, but after a few months it became apparent that unlike stocks and shares, you can to some extent pick losers and winners in P2P, especially the losers. I'm not advocating ignoring it, but if you have the opportunity/time/interest to, I'd still say it's worth a critical look at the proposals and/or this forum. This will happen naturally anyway, as when you hit your first bad eggs, it's human nature to want to find out what went wrong and whether it was foreseeable. I have about 70-80 loans going currently aside from the 'blind' platforms - I'd love to take on more and diversify further, but not at the cost of taking on loans I perceive to be more risk then their offered rate. So, newbiealert , I would wager that many (possibly most?) people who have been using P2P for a couple of years or more find that quality rather than quantity counts and are less focused that you might expect on driving the pure number of loans upwards and upwards. I'm sure some would disagree though. However, early on, I think you're wise to make that a starting point to lessen the blows of any early possible mistakes. If you prefer not to have to put the time/effort to building all of this up at this stage, then there are plenty of P2P sites that offer auto-diversification - e.g. Zopa, Assetz, Ratesetter, Bondmason, Growth Street. All have their own pros and cons of course, very well documented in their respective threads You can pick winners in stocks and shares as well. There is an argument for concentrated stock portfolios - there's less benefit to picking a 10-bagger if it's only 0.5% of your portfolio. With stocks and shares one 10-bagger outweighs 5 wipeouts. This isn't the case for P2P, where there's an upwards cap on returns, but you can still lose the lot. Because of this I think (depending on your appetite for risk) diversifying away abnormal returns is more important for P2P. I've got a few hundred loans going across several platforms (I managed to reach 200 at FC after several years), as well as autodiversification via P2P Global, RS, GEIA (AC) and GBBA (AC). which I think is a small number compared to some people. I try to restrict myself to "quality" loans, for reasons relating to comfort and investment ethics, but the diversification is there is case I get it wrong, and a loan turns out to be a disaster. (I traded out of some of the bad loans at Lendy for cash flow management reasons, but if I had foreseen the problems I wouldn't have been in them in the first place.) As the purpose of diversification is to suppress abnormal returns, and as loans are not wholly independent, I think that you should be looking at diversifying across several axes (borrower, platform, asset class, possibly even duration). Investing in the ITs adds discount risk; investing in non-sterling loans add exchange rate risks. You have to make a decision whether the extra diversification outweighs the idiosyncratic risks. Possibly we might agree - don't take on any old dross just to increase diversity, but try to keep a moderately diverse portfolio of decent assets.
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am
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Post by am on Aug 8, 2017 16:02:41 GMT
As a backup plan for letting the accommodation if the college turns out not to be viable one might look at how convenient the site is for the University of the West of Scotland (Paisley Campus).
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am
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Post by am on Aug 8, 2017 15:21:01 GMT
From the side letter "We understand that some investors are concerned with values being expressed on the website Zoopla, which is stating £595,000. Zoopla is a website that collates land registry data at point of sale of asset and adjusts this figure according to property fluctuations pegged against the postcode. This is not a website to be relied upon for accurate valuation of assets."
If my understanding is correct things have been lost in the telling. As I understand the concern was not about Zoopla's price estimate, which we know to be unreliable, but that the property had apparently been on the market until last December (it seems that this may have been estate agents being sloppy about changing the status) at a price well below the valuation.
However I have now found another portal where the portal suggests that the property was removed within the last 24 hours, and where the Google cache has it on the portal at £675,000 as late as 12th July 2017. I have not been able to identify the date of instruction.
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am
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Post by am on Aug 8, 2017 14:16:41 GMT
DFL024 tranche 5 seems to be on the pipeline .. at 12%. Last tranche was, iirc, 9% with CB. This is making my head spin! Surely you mean ' pivot' -- after the Lendy CB pilot ' fast fail'? It does say in the attached summary that " The interest rate on this loan has been increased to 12%." - so with 155 days left and at 12% we may also see some of the £275k on the SM reduce. Am I missing something - if tranche 5 is paying 12% why would anyone take an interest in stuff on the SM at a lower rate?
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am
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Post by am on Aug 8, 2017 14:05:13 GMT
The pictures of the accommodation rooms on the borrowers' websites were lovely. Strange that none of the building has actually been refurbished yet, so where did those photos come from? I did google some of them a couple of days ago but couldn't find any matching except on the borrowers' sites or connected marketing. There were external images up for the second Burnley project which could more or less pass for photographs, but which I'm pretty sure were "artist's impressions". CAD seems to be getting quite photorealistic.
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am
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Post by am on Aug 8, 2017 13:34:45 GMT
Kicking the tyres on a loan is something I'd want us to continue to do. But there are a couple of problems with the social dynamics of the process. 1) In the gap between an issue being identified and being resolved, people can take counsel from their fears, and a positive feedback loop occur leading to what might be described as a panic. 2) What might be called the McBride effect - en.wikipedia.org/wiki/William_McBride_(doctor) - positive social feedback (encouragement) for identifying a problem with one loan might encourage leaping to negative conclusions about another loan. These problems can be partly addressed by the platforms. Getting all their ducks in a row about loan details before release short circuits the potential problems. Quick responses to issues raised would also help, but that has the potential downside that responding too quickly might make things worse by introducing errors. But what can we do on the lender side to avoid taking counsel of our collective fears while still identifying problematical loans?
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am
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Post by am on Aug 8, 2017 13:10:04 GMT
I thought I'd read that the website had been changed to show you holdings in the GBBA/GLIA/etc., so that you don't have to download and manipulated a large CSV file to work them out, but I'm failing to find a means of accessing this on the web site. Am I missing something? Click on the menu button for that account (three lines) and there should be an option to view your holdings Thanks. I'd missed the buttons.
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