pikestaff
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Post by pikestaff on Nov 7, 2016 8:36:30 GMT
Yes, I know they provide liquidity. But apart from that it seems to me that they:
(1) enable "in the know" lenders to get out quick at the expense of the inexperienced or unlucky;
(2) encourage strategies like "sell before the nth payment" which may well work, but again at the expense of the inexperienced;
(3) in some markets (eg FC) enable bots/flippers to profit at the expense of everyone else;
(4) provide lenders with a false sense of security, because if the sh*t really hits the fan the liquidity won't be there.
I'd actually be happier if direct lending without a provision fund was all done to term, with no SM, leaving the SM for provision-fund backed packaged accounts. Am I mad?
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ben
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Post by ben on Nov 7, 2016 8:49:21 GMT
I personally very rarely use the secondary market and think ones like SS has the potential to be very dangerous to some investors.
In the good times like now when the liquidity is good there is no issue, but it is unlikely this will last for ever. When the secondary market clogs up there is going to be a lot of panicking people who have invested more then they intended to with the intention of just selling. Personally I would prefer a secondary market to have a charge so people would only use it if they actually wanted the money out rather then as a strategy.
Personally never understood why you would invest without the intention of holding for the duration.
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Post by wiseclerk on Nov 7, 2016 8:51:27 GMT
For me availability of a secondary market is a main criteria, when I decide to invest on a new marketplace (except in invoice financing with the very short term loans).
As far as I can tell most investors feel the same and it is one reason why so many German investors look abroad, as none of the German marketplaces currently feature a secondary market.
While your arguments have some merit, nobody is forced to buy or sell on the secondary market. Some marketplaces publish trading stats for their secondary market and only a fraction of investors use it. Usually around one third of investors, though on some marketplace where it is tightly integrated and fee-free like on SS and MT I suspect the engagement to be much higher.
Counter to you argument one, I would say that - depending on the marketplace - "in the know" lenders can make a better selection of loans and achieve higher yields on the primary market already, therefore applying this argument to the secondary market seems weak.
Re 3: If you hold thousands of loan parts, monitoring and selling them manually becomes a pain; therefore I appreciate tools and the introduction of APIs. And yes these tools and APIs can be used to automate trading (bots/flippers).
Regarding 4: you might argue the same for provision funds.
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adrianc
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Post by adrianc on Nov 7, 2016 10:20:23 GMT
Yes, I know they provide liquidity. But apart from that it seems to me that they: (1) enable "in the know" lenders to get out quick at the expense of the inexperienced or unlucky; (2) encourage strategies like "sell before the nth payment" which may well work, but again at the expense of the inexperienced; (3) in some markets (eg FC) enable bots/flippers to profit at the expense of everyone else; (4) provide lenders with a false sense of security, because if the sh*t really hits the fan the liquidity won't be there. I'd actually be happier if direct lending without a provision fund was all done to term, with no SM, leaving the SM for provision-fund backed packaged accounts. Am I mad? Mad? No. But that's only half the story. What happens when you toe-dip in a new platform, but quickly decide it doesn't fit initial promise? (Yes, LC, I'm thinking of you!) What happens when a platform change their strategy, leaving you disillusioned with their current offerings? (Yes, FC, I'm thinking of you! And you needn't look smug just yet, SS...) Should I be stuck having relative micropayments drip-fed back to me for the next four years? Without an SM, how do people get diversified on a platform with a slow pipeline? And just look at the regular howls of protest at the "high cost" of getting out of the longer RS markets...
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Post by tybalt on Nov 7, 2016 10:31:52 GMT
I agree with most of the sentiments but how do you deal with the unexpected call for funds which can impact us all without a SM?
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pikestaff
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Post by pikestaff on Nov 7, 2016 10:34:07 GMT
I agree with most of the sentiments but how do you deal with the unexpected call for funds which can impact us all without a SM? Put your rainy day money somewhere else?!
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Post by tybalt on Nov 7, 2016 10:38:35 GMT
My rainy day money is somewhere else it is my Tsunami money I am concerned about.
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SteveT
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Post by SteveT on Nov 7, 2016 10:42:18 GMT
IMO, SMs play an important role in keeping P2P platforms on their toes when originating loans and changing policies. Poor platform performance / decision-making will inevitably lead to a highly visible overhang of lenders trying to exit via the SM, with immediate consequences for confidence in PM lending..,
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Post by reeknralf on Nov 7, 2016 10:48:56 GMT
It's true to observe that markets allow more knowledgeable people to make better returns than less knowledgeable people. However, if we were to follow your logic, no markets would exist: shares, gilts, cars, houses.
Unless you want free markets to be removed, it's not sufficient to observe that markets favour the strong, you need to justify why you're prepared to accept markets in shares and second-hand cars, but not in loans.
This is basically just a microcosm of a socialist statist model of society, vs a liberal capitalist model. So we probably won't resolve it here.
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jo
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Post by jo on Nov 7, 2016 13:33:17 GMT
It's true to observe that markets allow more knowledgeable people to make better returns than less knowledgeable people. However, if we were to follow your logic, no markets would exist: shares, gilts, cars, houses. Unless you want free markets to be removed, it's not sufficient to observe that markets favour the strong, you need to justify why you're prepared to accept markets in shares and second-hand cars, but not in loans. This is basically just a microcosm of a socialist statist model of society, vs a liberal capitalist model. So we probably won't resolve it here. Nicely put.
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james
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Post by james on Nov 7, 2016 20:13:29 GMT
A secondary market with sensible pricing is very important to me in platform selection. I particularly want to see adjustable pricing with protection against short term flipping.*
*things like limiting portfolio turnover and minimum holding times can do this by increasing the working capital requirement to a level that reduces the potential profit
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TitoPuente
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Post by TitoPuente on Nov 7, 2016 21:40:20 GMT
It's true to observe that markets allow more knowledgeable people to make better returns than less knowledgeable people. However, if we were to follow your logic, no markets would exist: shares, gilts, cars, houses. Unless you want free markets to be removed, it's not sufficient to observe that markets favour the strong, you need to justify why you're prepared to accept markets in shares and second-hand cars, but not in loans. This is basically just a microcosm of a socialist statist model of society, vs a liberal capitalist model. So we probably won't resolve it here. Exactly. Imagine that you buy a new build house and you can never sell it, or a car which you need to own until it is written off. Secondary markets are a natural occurrence, not a creation.
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Post by Financial Thing on Nov 7, 2016 23:22:19 GMT
I see your point Pikestaff but I see no negatives to basic secondary markets. I do see some really badly designed secondary markets that don't provide liquidity (FS etc.). I think markups should be eliminated. The SM's that work the best have no markups.
I would imagine many lenders would be completely turned off by a platform if it didn't offer an exit.
I would also say that p2p in general provides a false sense of security, not so much the SM itself.
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ablender
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Post by ablender on Nov 7, 2016 23:56:44 GMT
I agree with most of the sentiments but how do you deal with the unexpected call for funds which can impact us all without a SM? Put your rainy day money somewhere else?! I think I have a right do decide where I want to put my money - rainy day or not.
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Post by dudave on Nov 9, 2016 22:02:17 GMT
High liquidity is what makes some of the P2P platforms so attractive in my eyes and although you are correct regarding the false sense of security regarding the liquidity if something goes bad, it's still there most of the time. another great advantage of a fee free super liquid SM is the opportunity to invest a large amount of money and start earning pretty much on the same day (by putting all your money in 1-2 loans to start with), then slowly selling small portions of your loans in order to diversify your portfolio as much as possible, without it SS and MT would be totally different platforms and probably not as popular as well.
The only one standing out of this rule for me is FS, which has 2-3 new loans every day, all of them 6 months and under with great interest rates. they do have a secondary market but it is pretty much irrelevant for most investors. you can still use it to liquidate your money in case you really need it though, which is a bonus i guess.
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