littleoldlady
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Running down all platforms due to age
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Post by littleoldlady on Jul 31, 2016 17:07:21 GMT
I just did a rough calculation on the back of an envelope (literally) and according to this then in a well diversified and balanced portfolio provided less that half of loans default with proceeds <70% of valuation AND the average proceeds from those defaulting loans is over 50% then one would not lose any money.
Somebody care to check?
And come up with a more scientific analysis of the risk?
Edit: For simplicity I have assumed that all loans are for 12 months.
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boble
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Post by boble on Jul 31, 2016 19:15:38 GMT
I just did a rough calculation on the back of an envelope (literally) and according to this then in a well diversified and balanced portfolio provided less that half of loans default with proceeds <70% of valuation AND the average proceeds from those defaulting loans is over 50% then one would not lose any money. Somebody care to check? And come up with a more scientific analysis of the risk? Edit: For simplicity I have assumed that all loans are for 12 months. It is possible to arrive at a formula which virtually illiminates risk under realistic market conditions. Add to this your own gut feeling about particular loans and you should experience little to no loss.
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goopy
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Post by goopy on Jul 31, 2016 19:20:03 GMT
It is possible to arrive at a formula which virtually illiminates risk under realistic market conditions. Add to this your own gut feeling about particular loans and you should experience little to no loss. Any chance you could share that formula? 
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registerme
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Post by registerme on Jul 31, 2016 19:23:02 GMT
It is possible to arrive at a formula which virtually illiminates risk under realistic market conditions. Add to this your own gut feeling about particular loans and you should experience little to no loss. That's so wonderfully balanced between illuminates and eliminates that I can't work out which you meant  .
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boble
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Post by boble on Jul 31, 2016 20:14:29 GMT
It is possible to arrive at a formula which virtually illiminates risk under realistic market conditions. Add to this your own gut feeling about particular loans and you should experience little to no loss. That's so wonderfully balanced between illuminates and eliminates that I can't work out which you meant . Oh yes, so it does. I had intended illiminates.
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Post by brokenbiscuits on Jul 31, 2016 20:29:10 GMT
Surely if you come up with a formula that you consider involves no risk and involves putting equal amounts on ALL loans, then if you start removing certain loans based on gut feeling, then the alternative outcome of no losses would be some losses when your gut let's you down.
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boble
Posts: 150
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Post by boble on Jul 31, 2016 20:35:41 GMT
It is possible to arrive at a formula which virtually illiminates risk under realistic market conditions. Add to this your own gut feeling about particular loans and you should experience little to no loss. Any chance you could share that formula? What I can can say it that it wouldn't permit me to put 120k in 93.
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Post by harvey on Jul 31, 2016 21:37:30 GMT
To me the biggest risk is total platform failure and that situation would be a nightmare and leave a lot of people missing their money for a long time and probably everyone facing substantial losses.
I'm far from an expert in financial matters but I advise taking the common sense viewpoint and that is to look at the 12% return you are getting and take a step back and think for a minute. It's the old basic formula of high return = high risk and low return = low risk.
You always get people who think they can beat the system and get high Returns for low risk but nine times out of ten in the long term they get their fingers burnt badly and are proved wrong.
I take advantage of saving stream while I can but I really don't see it as a long-term thing. I will be quite surprised if saving stream is still going in 10 years time in anything like the existing form. And that goes for many of the peer to peer lenders that have sprung up since the 2008 financial crash.
For What It's Worth my personal formula for reducing risk to the best level I can is to try and not have more than 2 months worth of Interest invested in any one loan. Therefore if I were to suffer a total loss in one of my loans I should still be getting about 10% per annum interest. Of course real-life situations will be different to that and the more likely scenario is several default loans but far less than total loss in any of them.
However my comfort zone is a look at my monthly interest payment then double it and then say I don't want more than that or much more than that in any single loan. I will admit I haven't yet quite met my own criteria but owing to some selling recently and activity on the secondary market and important diversification I have bolstered my holdings in some of the rarer loans and offloaded in some of the others and I maintain my strategy of not allowing anything to go beyond 40 days or so to run. Despite that I have got still a few loan parts up for sale that have been up for sale for 2 weeks or more now and I am still not close to selling and that is why it seems I may have to review my selling timing upwards to 60 days expired on the official term.
I would say that buyers on the secondary market are becoming much more discerning and the good stuff still gets snapped up quick but the less good stuff hangs around for a long time now. In the old days it didn't matter what old rubbish you put up for sale someone would snap it up in seconds or rather some Autobot would.
I say good luck to everybody with their Investments but I also say to everyone please don't think you are so smart you can eliminate risk with a clever strategy. Believe me you can't and you are getting 12% because you are accepting quite a high level of risk.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Aug 1, 2016 8:21:55 GMT
I just did a rough calculation on the back of an envelope (literally) and according to this then in a well diversified and balanced portfolio provided less that half of loans default with proceeds <70% of valuation AND the average proceeds from those defaulting loans is over 50% then one would not lose any money. Somebody care to check? And come up with a more scientific analysis of the risk? Edit: For simplicity I have assumed that all loans are for 12 months. Here's a couple of return grids for a 1-year loan assuming various default probabilities and recovery rates Note 1: I don't relate recovery rate to LTV since I'm well beyond the point of believing that a RICs valuation is worth the paper it's written on. Note 2: I don't know which column and row is most likely. Your guess is as good as mine. It might even be off the grid completely ... Your figures are much the same as mine after making allowance for your note 1. If you really don't think that a RICs valuation is worth the paper it's written on maybe you should not be investing here at all. The generally accepted variance in valuation is 15%. It can be greater if one of the valuer's assumption proves wrong, or there is a major property crash or due to fraud. There is an entire multi billion pound industry involving valuers, developers and banks depending on these valuations so I would value them a bit more than the cost of the paper myself.
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Post by doorway on Aug 1, 2016 12:44:22 GMT
I agree with Harvey, that the biggest risk we face in P2P lending is platform failure.
Our best insurance is the proprietors making a profit by keeping the show on the road.
It looks as if SS are winning here, but smaller fry, like PM that I would like to succeed, well ...?
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Post by goldservice on Aug 1, 2016 13:20:44 GMT
That's so wonderfully balanced between illuminates and eliminates that I can't work out which you meant . Oh yes, so it does. I had intended illiminates. "There you go again ..."
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Post by dualinvestor on Aug 1, 2016 16:59:28 GMT
To answer the thread title (or rather not) we don't know, there is both financial and regulatory risk.
To answer the OP, on the assumptions therein there would not be a loss of capital, although there might be interest forgone in the event of default due to length of time to realise the security. Whilst I have, some, faith in RICS standard valuations, in at least one case they were not present, and the more fundamental question is, what is a valuation? Is it "the price someone is willing to pay," £1.5 million in the case of PBL20 or a letter from a non RICS, but specialist, valuer some months earlier of £2.4million? If it is the practise of the platform, or any other, to use the latter as a norm, then capital is at risk.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Aug 2, 2016 7:28:38 GMT
To answer the thread title (or rather not) we don't know, there is both financial and regulatory risk. To answer the OP, on the assumptions therein there would not be a loss of capital, although there might be interest forgone in the event of default due to length of time to realise the security. Whilst I have, some, faith in RICS standard valuations, in at least one case they were not present, and the more fundamental question is, what is a valuation? Is it "the price someone is willing to pay," £1.5 million in the case of PBL20 or a letter from a non RICS, but specialist, valuer some months earlier of £2.4million? If it is the practise of the platform, or any other, to use the latter as a norm, then capital is at risk. I suppose a value is what someone is prepared to pay and a valuation is a professional expert's guess as to the value. Unless a property is already under offer we all have to rely on the valuation. In my OP I should have made it clear that I was ignoring platform risk. I was drawing attention to the surprising (to me) power of the high rate of interest to compensate for any likely level of losses.
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Post by p2plender on Aug 2, 2016 8:53:11 GMT
Mega risky if you were to read the Somerset thread!
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Post by dualinvestor on Aug 2, 2016 9:16:20 GMT
To answer the thread title (or rather not) we don't know, there is both financial and regulatory risk. To answer the OP, on the assumptions therein there would not be a loss of capital, although there might be interest forgone in the event of default due to length of time to realise the security. Whilst I have, some, faith in RICS standard valuations, in at least one case they were not present, and the more fundamental question is, what is a valuation? Is it "the price someone is willing to pay," £1.5 million in the case of PBL20 or a letter from a non RICS, but specialist, valuer some months earlier of £2.4million? If it is the practise of the platform, or any other, to use the latter as a norm, then capital is at risk. . Unless a property is already under offer we all have to rely on the valuation. In my OP I should have made it clear that I was ignoring platform risk. I was drawing attention to the surprising (to me) power of the high rate of interest to compensate for any likely level of losses. But if the latter predates the former is it, in your opinion, invalidated by events? In my opinion it is and if it is common practise of SS or any other platform to rely on valuations that have been superceded by later, lower, sale prices then capital is at risk.
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