littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,045
Likes: 1,862
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Post by littleoldlady on May 8, 2016 12:37:14 GMT
This is my (feeble?) effort but I am sure some of you clever guys can do better.
Assumptions:
An investment programme covers 5 years.
All loans are for the same amount, at 12%
Loans repaying are immediately reinvested, creating streams of lending.
A stream ends either with a default or when the last loan repays which is assumed to be at the end of year 5.
For simplicity, all loans which default do so at the same time after 30 months, and 50% of capital is recovered at the end of year 5.
No allowance has been made for any payments from the Provision Fund.
According to my calculations:
Streams which do not end in a default will return 76%
Streams which end in a default will return a loss of 10%
So the rate of return for various levels of defaulting streams are:
A B (see note)
80% defaults return 7% after 5 years or 1.3%pa 13% 27%
70% 16% 3% 13% 22%
60% 24% 4.4% 9% 17%
50% 33% 5.9% 7% 13%
40% 42% 7.3% 5% 10%
30% 50% 8.4% 4% 7%
20% 60% 9.9% 2% 4%
10% 67% 10.8% 1% 2%
Notes
The default rate is the percentage of streams, not loans, defaulting. The number of loans failing at each level depends on the mix of loan terms. For example Col A shows the proportion of loans failing if they were all 6 months and col B if they were all 12 months.
There are obviously a lot of deficiencies in this model. One is that because SS deduct the interest from the loan up front and no payment is expected from the borrower until the end of the term it is most unlikely that a loan will default before the end of the term. This means that in practice it is not possible to have a neat 5 year programme and there will be a tail of recoveries. However as the objective is to try and get a handle on the return after losses, in a range of default scenarios, I don't think this matters.
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Post by reeknralf on May 8, 2016 19:39:21 GMT
I'm not convinced that trying to estimate expected return is especially useful. @solicitorus also, has made extensive use of the RAND() function in excel to similar ends. The fact that such analyses yield such rosy predictions should, IMO, set alarm bells ringing as to what is wrong.
Loan defaults are likely to be highly correlated. This means that timing is everything. If it all goes pear-shaped in the near future, the platform will likely fold, and on top of high defaults, you can then add recalcitrant borrowers, poor recovery, plus generous legal and administrator fees. The outcome being a nasty hit. If the climate says balmy for a few years we may well enjoy 12% for some time, and the platform might then be resilient enough to weather a storm.
We either make a killing or lose an arm and a leg. It's perfectly possible to calculate the average of the two, it just doesn't mean very much.
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Post by earthbound on May 8, 2016 19:49:06 GMT
i would have thought it hard to calculate being as no one has any losses on the SS sight.well not in 2yrs+ ive been here... or have i missed something.
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ben
Posts: 2,020 
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Post by ben on May 8, 2016 19:53:51 GMT
I think they are trying to work out predicted loses, but at moment no one has lost anything
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cooling_dude
Bye Bye's for the PPI
Posts: 2,853
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Post by cooling_dude on May 8, 2016 20:03:29 GMT
i would have thought it hard to calculate being as no one has any losses on the SS sight.well not in 2yrs+ ive been here... or have i missed something. You haven't. Nobody has ever lost a penny investing on SS, and the PF has never been used. There has been a single default, but that was resolved by successfully selling the security held. The problem is SS is expanding; the loan book is growing and the loans are getting larger. A large loan defaulting is inevitable, but the platform and the PF has never been stress tested in such a situation. As such trying to predict the outcome of such situations is not pointless, but it is very hard. What we need is a larger sample, but the irony is we need to wait for the platform to carry on in its current state for at least 12 months.
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Post by earthbound on May 8, 2016 20:05:48 GMT
ben no probs with that, but surely, run a calculation of this sort on the.. say.. FS site, where losses HAVE been incurred, and there are historical figures to work with, the calculations are totally irrelevant as there is no past default/losses on the SS site so no accurate info to compare .(yes default but no loss) It seems like every week on one or other of the SS threads, someone has to run a theoretical calculation based on how much we will/can/might/may all lose if , there's a downturn, tornado, earthquake, stock market crash, invasion of green men from mars, etc etc , its worrying enough investing in the P2P sector without all and sundry constantly predicting doom and gloom. sorry to be straight to the point, but i am fed up of reading it, why does no one ever come on here and praise the success of SS. EDIT... sight to site...twice.. sorry about my spelling if it upsets anyone.
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Post by earthbound on May 8, 2016 20:10:20 GMT
i would have thought it hard to calculate being as no one has any losses on the SS sight.well not in 2yrs+ ive been here... or have i missed something. The problem is SS is expanding; Sorry dude, this is not a problem.
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ben
Posts: 2,020
Likes: 589
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Post by ben on May 8, 2016 20:10:33 GMT
if you do not like the calculations just ignore them, i think a lot on here are fans of SS and have quite a bit invested so they are obviously doing something right
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cooling_dude
Bye Bye's for the PPI
Posts: 2,853
Likes: 4,298
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Post by cooling_dude on May 8, 2016 20:14:03 GMT
The problem is SS is expanding; Sorry dude, this is not a problem. I'm not saying that SS expanding is a problem for the platform. I'm saying that the problem in trying to predict future default, loses gains etc, etc is that the platform is expanding, so it's hard to predict as no pattern has been set.
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Post by scoobydoo on May 8, 2016 20:16:53 GMT
ben no probs with that, but surely, run a calculation of this sort on the.. say.. FS sight, where losses HAVE been incurred, and there are historical figures to work with, the calculations are totally irrelevant as there is no past default/losses on the SS sight so no accurate info to compare .(yes default but no loss) It seems like every week on one or other of the SS threads, someone has to run a theoretical calculation based on how much we will/can/might/may all lose if , there's a downturn, tornado, earthquake, stock market crash, invasion of green men from mars, etc etc , its worrying enough investing in the P2P sector without all and sundry constantly predicting doom and gloom. sorry to be straight to the point, but i am fed up of reading it, why does no one ever come on here and praise the success of SS. I don't normally correct spelling/grammar errors, but yours gives a totally different meaning. It's site not sight
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Post by earthbound on May 8, 2016 20:20:09 GMT
if you do not like the calculations just ignore them, i think a lot on here are fans of SS and have quite a bit invested so they are obviously doing something right .. again i cannot fault what you say, you are right, why don't i just ignore it, to be honest, i have no choice, its way over my head, its the rhetoric that i find hard to ignore. If you run a calculation based on your predicted losses within a certain investment platform, then surely you should have previous loss figures to compare to. Dont get me wrong, this thread is fine in the chat or general section, but in my opinion not on the SS thread. (edit) the title of the thread will not instil confidence in anyone browsing the forum and seeing only the thread title.
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Post by earthbound on May 8, 2016 20:21:35 GMT
ben no probs with that, but surely, run a calculation of this sort on the.. say.. FS sight, where losses HAVE been incurred, and there are historical figures to work with, the calculations are totally irrelevant as there is no past default/losses on the SS sight so no accurate info to compare .(yes default but no loss) It seems like every week on one or other of the SS threads, someone has to run a theoretical calculation based on how much we will/can/might/may all lose if , there's a downturn, tornado, earthquake, stock market crash, invasion of green men from mars, etc etc , its worrying enough investing in the P2P sector without all and sundry constantly predicting doom and gloom. sorry to be straight to the point, but i am fed up of reading it, why does no one ever come on here and praise the success of SS. I don't normally correct spelling/grammar errors, but yours gives a totally different meaning. It's site not sight Thanks for your valuable imput scoobydoo edit.. to get to your meaning it would have been 'cite'
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Post by earthbound on May 8, 2016 20:42:18 GMT
Sorry dude, this is not a problem. I'm not saying that SS expanding is a problem for the platform. I'm saying that the problem in trying to predict future default, loses gains etc, etc is that the platform is expanding, so it's hard to predict as no pattern has been set. Hi dude. correct, 'the problem is trying to predict future default, losses etc'... so why... every other week do we have to read someone trying to do this on the SS thread... Its my opinion, and mine only, there are no losses on the SS platform, and i cannot see why posters keep posting predictions of future losses.
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Post by scoobydoo on May 8, 2016 20:47:01 GMT
edit.. to get to your meaning it would have been 'cite' what do you mean?
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Post by earthbound on May 8, 2016 20:51:12 GMT
edit.. to get to your meaning it would have been 'cite' what do you mean? Do you have anything meaningful to add other than my spelling?
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