vamsi7
New Member
Posts: 4 
Likes: 1
|
Post by vamsi7 on Jan 18, 2018 6:31:06 GMT
Hi guys.
I was wondering if there is a way to mathematically calculate Diversification in P2P loans.
As there are a lot of platforms out there, I am looking for a way to merge all of them and figure out ways to calculate and improve my diversification.
Thanks
|
|
poppyland
Member of DD Central
Posts: 237
Likes: 243
|
Post by poppyland on Jan 18, 2018 8:41:12 GMT
Don't diversify just for the sake of it. Develop some criteria and use them to make decisions about what to invest in/not to invest in. For example some people avoid non-residential buildings, and others don't like development loans. Some people avoid pawn-shop type loans on jewellery etc, while other people like them. I personally avoid loans that are not secured on tangible assets of some kind. In particular, I would never lend money on unsecured loans to businesses, but some people do.
Also, have a maximum sum that you will put in any one loan, and stick with this. We made the mistake early on of putting a large sum into something that advertised itself as a 10 month investment with 10% returns. Two years on, we've only just had our capital back, and are waiting for news of if we will get anything else!
Very high loan interest rates are generally an indicator of risk, but not always. I recently saw one person on here say that he goes for the highest interest loans all the time, because that way he builds up a much fatter cushion against losses. My own past experience has led me to avoid very high rates (14 %, 15%) as they do seem much more likely to default. But conversely, don't assume that low interest means low risk. I've seen 7% loans that seem incredibly risky, and 12% ones that seem ok. I tend to lend within the 10 - 13% window myself, and so far it's worked out ok with the exception of the big loan I mentioned above.
|
|
r00lish67
Member of DD Central
Posts: 2,692
Likes: 4,048
|
Post by r00lish67 on Jan 18, 2018 8:50:34 GMT
Hi vamsi7 . welcome along. I generally agree with poppyland above, but if you're new-ish to P2P you might want to give more weight to diversification at least initially whilst you gain confidence in what makes up a good loan or otherwise. I must admit, that fairly quickly went by the wayside for me too though, as there just aren't enough loans that I perceive as good. Re: calculating, I'm sure others have much fancier ways than I, but I just cobbled together a basic spreadsheet. Sum together your total loan portfolio value at the bottom, and then you can use that value to divide against to calculate how much % of your portfolio that loan represents e.g. £1.5k investment on a £100k portfolio is £1.5k/£100k = 1.5%. |
|
aj
Member of DD Central
Posts: 348
Likes: 465
|
Post by aj on Jan 18, 2018 9:09:35 GMT
Diversification is a complex thing that can't be solved with simple maths alone! A basic measure is:
Largest amount with one borrower/Total assets in P2P=Diversification factor (A lower number=more diversified)
This doesn't take into account many factors though! For instance my P2P portfolio is mostly secured on UK property which leaves it exposed to a possible fall in house prices. To counteract this, I also hold stocks (Which in turn are exposed to the risk of an equities crash).
The best advice I could give is look for common themes across your investments (eg: is it all UK based? Is it mostly property?), figure out the risks associated with your investments, and identify new opportunities with different risks to those you are currently exposed to.
|
|
registerme
Member of DD Central
Posts: 6,624
Likes: 6,437
|
Post by registerme on Jan 18, 2018 11:50:33 GMT
As there are a lot of platforms out there, I am looking for a way to merge all of them and figure out ways to calculate and improve my diversification. Unfortunately (?) the best answer there is to use a spreadsheet, which you are probably doing anyway if you're actively managing and monitoring a p2p portfolio. I track platform totals (effectively monitoring my diversification by platform) daily, and asset class (property development, commercial property, bridging finance, SME, asset backed (to include posh pawn), green energy, consumer, "other) more roughly, weekly. Having a "delta with real totals" value per platform tells me when its material enough to update the figures. What I don't track is exposure by borrower, but I limit that by reference to the platform provided data and discussions here on the P2PIF. Less of an issue is that neither do I track regional diversification. It's not perfect, but it has, for example, helped me manage down my property development exposure from >50% of my portfolio to ~10% as I became increasingly nervous about the approach taken by the various actors in that space.
|
|
p2pclive
Blockchain specialist
Posts: 25
Likes: 9
|
Post by p2pclive on Jan 19, 2018 13:39:34 GMT
You don't really need to with P2P, IMHO the platforms are all essentially the same, so just invest in one and be done with it.
|
|
vamsi7
New Member
Posts: 4
Likes: 1
|
Post by vamsi7 on Jan 19, 2018 13:40:15 GMT
Thanks a lot.
Tracking via excel, yes, I do it to a certain extent. But its very time-consuming.
I am considering building tools for this purpose so that they can do the heavy lifting for me. (I have a programming background)
Still wondering how useful it would be, and how the end product should look like.
Any thoughts on this? What would you prefer to see in a product like this? Or are there any existing p2p analysis tools that I can take a look at?
|
|
|
|
Post by jordan on Jan 19, 2018 13:53:39 GMT
Thanks a lot. Tracking via excel, yes, I do it to a certain extent. But its very time-consuming. I am considering building tools for this purpose so that they can do the heavy lifting for me. (I have a programming background) Still wondering how useful it would be, and how the end product should look like. Any thoughts on this? What would you prefer to see in a product like this? Or are there any existing p2p analysis tools that I can take a look at? Hi, I read this with intrigue as we are launching a diversified P2P portfolio very soon. It enables investors to gain exposure to multiple major platforms and monitor their portfolio performance from their own personal dashboard - Orca retrieves platform data and updates the dashboard regularly. We're aware no one size fits all, but if diversification is a principal factor it may be worth checking out. Details included on our website, just hit the 'Find Out More' button on the Home Page banner. Similarly, we have a free research service which you can sign up to and we'll be retaining once the Orca Investment Platform launches. www.orcamoney.comSelf-indulgent plug aside (...), I agree with what the guys say with respect to ensuring you spread exposure across sectors - I do believe platform risk should be considered, i.e, using one platform means you're directly exposed to the health of said platform (some platforms are not as established as others).
|
|
Greenwood2
Member of DD Central
Posts: 4,385
Likes: 2,784
|
Post by Greenwood2 on Jan 20, 2018 8:33:43 GMT
Bondmason also diversify your investments across platforms (and apparently to sites not available generally), but give little information about your investments.
|
|
vamsi7
New Member
Posts: 4
Likes: 1
|
Post by vamsi7 on Jan 20, 2018 9:52:18 GMT
Thanks a lot. Tracking via excel, yes, I do it to a certain extent. But its very time-consuming. I am considering building tools for this purpose so that they can do the heavy lifting for me. (I have a programming background) Still wondering how useful it would be, and how the end product should look like. Any thoughts on this? What would you prefer to see in a product like this? Or are there any existing p2p analysis tools that I can take a look at? Hi, I read this with intrigue as we are launching a diversified P2P portfolio very soon. It enables investors to gain exposure to multiple major platforms and monitor their portfolio performance from their own personal dashboard - Orca retrieves platform data and updates the dashboard regularly. We're aware no one size fits all, but if diversification is a principal factor it may be worth checking out. Details included on our website, just hit the 'Find Out More' button on the Home Page banner. Similarly, we have a free research service which you can sign up to and we'll be retaining once the Orca Investment Platform launches. www.orcamoney.comSelf-indulgent plug aside (...), I agree with what the guys say with respect to ensuring you spread exposure across sectors - I do believe platform risk should be considered, i.e, using one platform means you're directly exposed to the health of said platform (some platforms are not as established as others). Hi, Thanks for the link. I took a look at what your website. Its quite interesting. Your dashboard feature is very similar to what I had in mind. Is the portfolio gonna be managed manually? or is it automated? like robo-advisory?
|
|
bigfoot12
Member of DD Central
Posts: 1,817
Likes: 816
|
Post by bigfoot12 on Jan 20, 2018 10:23:21 GMT
You don't really need to with P2P, IMHO the platforms are all essentially the same, so just invest in one and be done with it. A) Some platforms are very different to others, some are lending to prime borrowers secured with low LTV mortgages and others are lending to pay day loan borrowers. Some are lending unsecured to SME businesses and other are secured against land and physical property. B) Even if they are all similar there is a high chance that some will fail. There might be fraud, the investors backing might stop supporting the business, they might misjudge the payback rates, there might be hacking or some other IT failure. Experience in some failures suggests that you should expect big losses if you invest in a failed platform. One shouldn't ignore platform risk.
|
|
poppyland
Member of DD Central
Posts: 237
Likes: 243
|
Post by poppyland on Jan 20, 2018 10:45:19 GMT
With regard to platform risk, it's worth knowing the any FCA approved platform has to have a procedure in place for an orderly wind-down in case of platform failure. Time will tell, of course, how much this protects investors in practice, but still, it's probably worth something.
I was reading the FS stuff about what will happen in certain worst case scenarios the other day, and was quite impressed.
|
|
|
|
Post by jordan on Jan 20, 2018 18:17:00 GMT
Hi, I read this with intrigue as we are launching a diversified P2P portfolio very soon. It enables investors to gain exposure to multiple major platforms and monitor their portfolio performance from their own personal dashboard - Orca retrieves platform data and updates the dashboard regularly. We're aware no one size fits all, but if diversification is a principal factor it may be worth checking out. Details included on our website, just hit the 'Find Out More' button on the Home Page banner. Similarly, we have a free research service which you can sign up to and we'll be retaining once the Orca Investment Platform launches. www.orcamoney.comSelf-indulgent plug aside (...), I agree with what the guys say with respect to ensuring you spread exposure across sectors - I do believe platform risk should be considered, i.e, using one platform means you're directly exposed to the health of said platform (some platforms are not as established as others). Hi, Thanks for the link. I took a look at what your website. Its quite interesting. Your dashboard feature is very similar to what I had in mind. Is the portfolio gonna be managed manually? or is it automated? like robo-advisory? The portfolio will not be managed, but you will be able to monitor the performance from your personal dashboard with Orca. We curate the portfolio - the platforms contained depends on the amount invested and we use our research service to perform due dil on platforms - and then open accounts on your behalf and deposit in line with the asset allocation. Our analytics service also means we can keep an eye on the performance of the platforms, and should there be an obvious issue which will cause turbulence to your portfolio, we will contact you with the option of amending the portfolio - but this is only in extreme circumstances. At launch, it will be a manual process. As the product evolves, we will begin to automate. Also we will be scoping a more active product, but this will be down the line. Hope this helps.
|
|
|
|
Post by jordan on Jan 20, 2018 18:21:34 GMT
You don't really need to with P2P, IMHO the platforms are all essentially the same, so just invest in one and be done with it. A) Some platforms are very different to others, some are lending to prime borrowers secured buy low LTV mortgages and others are lending to pay day loan borrowers. Some are lending unsecured to SME businesses and other are secured against land and physical property. B) Even if they are all similar there is a high chance that some will fail. There might be fraud, the investors backing might stop supporting the business, they might misjudge the payback rates, there might be hacking or some other IT failure. Experience in some failures suggests that you should expect big losses if you invest in a failed platform. One shouldn't ignore platform risk. B) is an excellent point. Fraud, cyber-crime, etc are clear platform risks which should never be over-looked. As several platforms have not run a full economic cycle, or even had their loans run full terms, it's never full-proof measuring the success and stability of a platform until these things happen. Even though platforms are required to have fully funded wind-down plans in place, an investor's investment would certainly suffer should a platform fail.
|
|
stub8535
Member of DD Central
personal opinions only. Not qualified to advise on investment products.
Posts: 1,447
Likes: 945
|
Post by stub8535 on Jan 20, 2018 18:48:19 GMT
In terms of wind down there are several issues. What stops a platform using a co owned business for its wind down? Nothing as there are examples out there atm. Would you trust the same people that got into the mess in the first place to get your portfolio out.
We then come to costs.
What costs would there be? How would they be paid and by whom?
Would this wind down include the late loans, including the ones that are bad debt but fail to be named so by platforms, and ones in recovery?
I think the fca need to spend more time on considering introducing limits and making platforms advise the costs of wind down for an investors portfolio.
Until we see the first platform collapse to the point that run down is needed we can only speculate. Obvious abuse sources though can be mitigated now by action from fca.
|
|
