registerme
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Post by registerme on Jun 17, 2017 22:47:05 GMT
I'm curious to find out how you react partly because I suspect that their are things I can learn, partly because because it will serve as a "level set" for how I react, and partly because I think the discussion might be generally useful and interesting  . I happened to read Super-Forecasting: The art and science of prediction immediately before I started on p2p. I found it interesting because of the rigour it encourages you to apply to decisions (aka forecasts). I haven't done this for every loan (or, indeed, any loan) but I recorded my "stance" when it came to new platforms, new products, new markets, exiting markets, things like Brexit, things like country or industry asset allocation etc. I have a sheet where I record the decisions I've taken, the dates I took those decisions on, the rationale, and then a score (most of which have yet to be scored....). That's how I would like to approach all of this. Rigorous, quantitative (with a very small q), honest, recorded etc. But that is not how I react, at least immediately, when I take a loss. My immediate, emotional, reaction is one of doubt. I doubt my thinking, I doubt my overall approach. I worry about my overall position. This lasts for... a few minutes, but might recur, lessening as it goes, for a few hours. Then I start to think more critically about things - why did I chose to invest? Did I miss anything? Could I have avoided it? Should I have avoided it? Should I change my stance on any other investments I might have? What did I miss? What did I miss? What should I look for....? I'm not sure that this is healthy. The best analogy I can come up with is that in Texas Hold'em you can go all in on a good hand and loose. Even if you had the right outs, the right pot odds, and the right hand, against a player you know, you can still lose. It doesn't mean you played badly. But you can still go "on tilt". I'm not exiting p2p . In the two and a half years I've been investing in this "sector" (hardly, but labels are labels) I've had the sum total of what I would consider to be two losses. One was 100% the platform's fault, one was 50% the platform's fault 50% my fault (but where I expect 100% recovery). At the moment I have a couple of other loans (on different platforms) which I am concerned about, but not concerned enough about them, yet, to consider them losses. And one of them, if it does default, will be 100% platform's fault. So all in all everything is fine. But I am curious. How do you react to losses? What's your emotional state when you take a loss? How do you look at what you do, learn from it, and change it? |
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Post by wiseclerk on Jun 18, 2017 6:26:56 GMT
Are you talking about indiviudal defaulted loans? If yes, then I have had hundreds. It is inevitable if you include platforms with consumer loans and my experience is that it taught me fast to get used to it and accept that it is just part of p2p lending. Sure, on my first platform with my first loans, I just went through the emotions you describe. While I am an analytical type, recording every decision would be overdoing it for me. For me it is important that returns are good on a platform level (not an individual loan level). There is only one platform (MYC4) so far, where I ended up with a small overall loss and I still see that as a positive learning experience. So actually the only thing I do is calculate my IRR on a platform level periocially (every few month). And a lot of reading of course 
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r00lish67
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Post by r00lish67 on Jun 18, 2017 6:28:47 GMT
Interesting question. I suppose my reactions are: 1) A brief bit of generalised upset, of course. 2) A close look at the investment's characteristics in particular to answer questions that spring to mind, like: a) were there danger signs from the start? b) Was I just unfortunate? c) Could i have seen this coming mid-loan and exited? d) Did I ignore danger signs due to greed? (usually cashback ) e) Would I invest in the same sort of proposal again? 3) Then strategy - do I feel differently about the platform due to the handling of the issue? did I overexpose myself to the borrower? Should i perhaps not try to churn D/E's on FC any more etc etc. I don't particularly document any of this, it's just what runs through my mind. I suppose if I/we all start having a really bad month with a few big and unpleasant defaults cropping up against a worsening economic backdrop, then paranoia will kick in - should I exit P2P entirely? I shudder to think! |
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JamesFrance
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Port Grimaud 1974
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Post by JamesFrance on Jun 18, 2017 7:36:09 GMT
If I was being paid less than 10% by a platform to invest in their loans then losses would make me very angry. If the rates are higher then a few losses would not bother me at all as I spread the money around so that no one loss is important.
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Post by corriefan on Jun 18, 2017 9:14:59 GMT
I suppose my reaction is mild irritation. After all, it was my decision to put money into P2P and I knew the risks. I have made only tiny losses. But they have shown me that I don't have the appetite for bigger ones. So my current reaction is to exit from P2P completely. It was good while it lasted!
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locutus
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Post by locutus on Jun 18, 2017 9:36:43 GMT
There have been some good experiments conducted around loss aversion. en.wikipedia.org/wiki/Loss_aversionUnfortunately, even with knowledge of how it works, it seems we're hard wired to react a certain way. |
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Post by Butch Cassidy on Jun 18, 2017 9:48:16 GMT
My own approach varies depending on the type of platform; consumer lending such as Bondora (RS, Zopa although I don't use them) it is an inevitable part of investing so my strategy focuses on portfolio diversity & keeping these losses below an acceptable level & the consequent return above an arbitrary target - individual losses are largely irrelevant.
SME lending & property based platforms require a different approach; I try to minimise defaults & consequent losses through DD & risk based assessment of each & every proposal, rejecting far more than accepting maybe 90:10 or higher. Defaults & possible losses are best avoided BEFORE INVESTMENT IMO & often better to sell out at the first sign of trouble (if platform structure allows) than to hold on for possible recovery, as this often takes far longer than expected & even rock solid looking valuations can prove fragile in real world sale situations. Certain platforms AC & FC have proven successful track records with recovery whilst others LC & Rebs have lamentable records so this also forms part of my overall assessment.
Pawn, cars & other assets are often lower value, easily saleable items so platforms like MT & Col whose loans structures I like & trust get less DD & larger investments as I rate the risk of loss much lower than SME or property categories.
When trialling a new platform I like to give it a small test portfolio for a period to get a feel of it's operation, on Rebs I got a watch retailer that defaulted before the first payment (probably 100% loss) that wiped 20% of my test portfolio out but was a strong lesson on the importance of DD & that not all loan pitches are totally truthful! However I stuck with the platform & am now showing a healthy profit & have one of my single largest investments there, paying 20%pa.
Whilst losses are never welcome I think that they provide an anchor of reality for investors, that double digit returns are not given away easily & come with significant risk to your capital, they act as reminders of the importance of DD both individual & collective which can be overlooked, especially in benign economic conditions.
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stevio
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Post by stevio on Jun 18, 2017 17:18:49 GMT
Learn, adapt, percivere
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Post by oldnick on Jun 18, 2017 17:44:21 GMT
To continue the Camelot theme I'll add Laughalot as a companion to Sir Percivere. 
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jonah
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Post by jonah on Jun 18, 2017 19:12:55 GMT
There have been some good experiments conducted around loss aversion. en.wikipedia.org/wiki/Loss_aversionUnfortunately, even with knowledge of how it works, it seems we're hard wired to react a certain way. This is why (can't find link, probably a BBC radio report) self employed people hate taxes more than those on PAYE. For the self employed, they see the money as 'theirs' and are losing it, whilst PAYE don't ever have it and as such aren't as unhappy about it, even if the numbers are the same.
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Post by bracknellboy on Jun 18, 2017 20:55:51 GMT
That BBC reporter clearly didn't interview me as part of that report then........and particularly not after I've just completed a tax return suggesting I need to hand over EVEN MORE than I already have. Not that I would advise anyone to interview me immediately after I've just completed a tax return....
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gibmike
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What is a cynic? A man who knows the price of everything and the value of nothing.
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Post by gibmike on Jun 18, 2017 21:18:58 GMT
I approach every platform in the same way which is to spread my loans over such a volume of loans that the loss is covered within a month.
This way I see each platform as a 11 month return and this ignore the ins and outs of defaults. In my eyes this is the concern of the platform, not me.
So far I have had many, many defaults but as yet £0 loss. Yes, I suppose I am lucky but I am also one who spreads my loans around.
Mike
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littleoldlady
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Running down all platforms due to age
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Post by littleoldlady on Jun 18, 2017 21:35:07 GMT
I do get annoyed when information comes to light after the default which shows that the platform was lending my money recklessly. These are on FS: the Boatyard, the Turbine and the SW property, and Abl: the containers. My reaction is to discontinue investing on those platforms.
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registerme
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Post by registerme on Jun 18, 2017 21:58:09 GMT
Are you talking about indiviudal defaulted loans? Yes, I am, and in doing so am excluding any "hands off" products like Zopa, RS or AC QAA / GBBA where I am (/should be, hopefully) abstracted from individual losses. Anyway, fair point, and thanks for asking me to clarify. Also thanks to everybody who's contributed to this thread so far. The intersect between psychology, risk / return, discipline and rigour, finance, maths and etc interests me. I suspect we could all learn something from thinking about where we lie within that intersect, and how we might improve our approach to investing.
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r00lish67
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Post by r00lish67 on Jun 19, 2017 7:48:00 GMT
One other psychological trick/comfort blanket that I use which I've just remembered - I total up my returns monthly, and work on the basis of expecting to receive about the monthly equivalent of 6%p.a.
In months where I exceed this, I then siphon off excess profit into a little 'defaults fund' and don't count it as my money. When defaults do occur, I don't have to dive into 'my' profit.
Obviously, this is all just optics and I was fortunate to start off well to be able to build up a little fund, but it definitely helps me feel less pain over losses.
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. I happened to read Super-Forecasting: The art and science of prediction immediately before I started on p2p. I found it interesting because of the rigour it encourages you to apply to decisions (aka forecasts). I haven't done this for every loan (or, indeed, any loan) but I recorded my "stance" when it came to new platforms, new products, new markets, exiting markets, things like Brexit, things like country or industry asset allocation etc. I have a sheet where I record the decisions I've taken, the dates I took those decisions on, the rationale, and then a score (most of which have yet to be scored....).
