r00lish67
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Post by r00lish67 on Aug 9, 2017 11:05:29 GMT
I have mixed feelings about diversification. It was probably what I saw as the highest priority when I set out, but after a few months it became apparent that unlike stocks and shares, you can to some extent pick losers and winners in P2P, especially the losers. I'm not advocating ignoring it, but if you have the opportunity/time/interest to, I'd still say it's worth a critical look at the proposals and/or this forum. This will happen naturally anyway, as when you hit your first bad eggs, it's human nature to want to find out what went wrong and whether it was foreseeable. I have about 70-80 loans going currently aside from the 'blind' platforms - I'd love to take on more and diversify further, but not at the cost of taking on loans I perceive to be more risk then their offered rate. So, newbiealert , I would wager that many (possibly most?) people who have been using P2P for a couple of years or more find that quality rather than quantity counts and are less focused that you might expect on driving the pure number of loans upwards and upwards. I'm sure some would disagree though. However, early on, I think you're wise to make that a starting point to lessen the blows of any early possible mistakes. If you prefer not to have to put the time/effort to building all of this up at this stage, then there are plenty of P2P sites that offer auto-diversification - e.g. Zopa, Assetz, Ratesetter, Bondmason, Growth Street. All have their own pros and cons of course, very well documented in their respective threads  You can pick winners in stocks and shares as well. There is an argument for concentrated stock portfolios - there's less benefit to picking a 10-bagger if it's only 0.5% of your portfolio. With stocks and shares one 10-bagger outweighs 5 wipeouts. This isn't the case for P2P, where there's an upwards cap on returns, but you can still lose the lot. Because of this I think (depending on your appetite for risk) diversifying away abnormal returns is more important for P2P. I've got a few hundred loans going across several platforms (I managed to reach 200 at FC after several years), as well as autodiversification via P2P Global, RS, GEIA (AC) and GBBA (AC). which I think is a small number compared to some people. I try to restrict myself to "quality" loans, for reasons relating to comfort and investment ethics, but the diversification is there is case I get it wrong, and a loan turns out to be a disaster. (I traded out of some of the bad loans at Lendy for cash flow management reasons, but if I had foreseen the problems I wouldn't have been in them in the first place.) As the purpose of diversification is to suppress abnormal returns, and as loans are not wholly independent, I think that you should be looking at diversifying across several axes (borrower, platform, asset class, possibly even duration). Investing in the ITs adds discount risk; investing in non-sterling loans add exchange rate risks. You have to make a decision whether the extra diversification outweighs the idiosyncratic risks. Possibly we might agree - don't take on any old dross just to increase diversity, but try to keep a moderately diverse portfolio of decent assets. Exactly. Perhaps I came across as a little disparaging of diversification, but I really just meant that it's not the be all and end all when building up a P2P portfolio. For example, I'd like to increase my exposure to MT at the moment, but I'm not going to invest in their latest loan just because it's there to diversify to. Probably verging into the stock market chat thread territory, but I'd be interested to hear your theory/practice about picking stock market winners. If you're talking about 10-baggers I assume you're more interested in very small and rapidly growing firms rather than large cap well known ones? I admit both my reading and personal experience has really put me off trying anything remotely active in that space.
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Post by nellerdk on Aug 9, 2017 11:59:40 GMT
One tip for diversification:
On one P2P platform, I opted for large diversification. Overall, 30% of all loans on the platform are issued by "company A". Since I diversify so much, and only buy with auto-invest, I actually only have 20% of my loans from this "company A" provider. I know not all auto-invest functions work the same way, but I thought this was rather interesting.
However, the figure might change to 40% in a year... I will have to monitor the development.
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am
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Post by am on Aug 9, 2017 12:35:48 GMT
You can pick winners in stocks and shares as well. There is an argument for concentrated stock portfolios - there's less benefit to picking a 10-bagger if it's only 0.5% of your portfolio. With stocks and shares one 10-bagger outweighs 5 wipeouts. This isn't the case for P2P, where there's an upwards cap on returns, but you can still lose the lot. Because of this I think (depending on your appetite for risk) diversifying away abnormal returns is more important for P2P. I've got a few hundred loans going across several platforms (I managed to reach 200 at FC after several years), as well as autodiversification via P2P Global, RS, GEIA (AC) and GBBA (AC). which I think is a small number compared to some people. I try to restrict myself to "quality" loans, for reasons relating to comfort and investment ethics, but the diversification is there is case I get it wrong, and a loan turns out to be a disaster. (I traded out of some of the bad loans at Lendy for cash flow management reasons, but if I had foreseen the problems I wouldn't have been in them in the first place.) As the purpose of diversification is to suppress abnormal returns, and as loans are not wholly independent, I think that you should be looking at diversifying across several axes (borrower, platform, asset class, possibly even duration). Investing in the ITs adds discount risk; investing in non-sterling loans add exchange rate risks. You have to make a decision whether the extra diversification outweighs the idiosyncratic risks. Possibly we might agree - don't take on any old dross just to increase diversity, but try to keep a moderately diverse portfolio of decent assets. Exactly. Perhaps I came across as a little disparaging of diversification, but I really just meant that it's not the be all and end all when building up a P2P portfolio. For example, I'd like to increase my exposure to MT at the moment, but I'm not going to invest in their latest loan just because it's there to diversify to. Probably verging into the stock market chat thread territory, but I'd be interested to hear your theory/practice about picking stock market winners. If you're talking about 10-baggers I assume you're more interested in very small and rapidly growing firms rather than large cap well known ones? I admit both my reading and personal experience has really put me off trying anything remotely active in that space. I mentioned 10-baggers more to emphasise the uncapped upside on shares, rather than to suggest that you should be actively pursuing them. But my 10-baggers are ARM, Persimmon, and The Biotech Growth Trust, all of which took some time to get there; Shire was also a 10-bagger at its peak, but it's fallen off a lot since them. This shows that you don't have to go for microcaps - Persimmon would have been a large cap when I bought it, and ARM and Shire midcaps. Persimmon has also produced large dividends over the duration - the last dividend was well over 50% of my initial investment. I've got some bad losses to show the counterside - Skye Pharma, Filtronic, Volex, Torotrak, Marconi. You can't pick winners reliably on the stock market any more than you can pick safe loans reliably in P2P (but I've an annual bad debt rate of under 0.5% at FC, with recoveries still outstanding); you just have to be right often enough. As the stock market is expected to produce a positive return, and as there's a random element, it's easy to mistake luck for judgement. I've got to an age and wealth where capital retention is more important than growth, so now I'm looking for value and income rather than growth (and I always kept a large cash balance). But I've still got legacy investments in biotech and tech funds, which I'm retaining for portfolio balance, and I would still consider small investments in more speculative growth stocks (I'm currently mulling over Sirius Minerals - already a midcap). In theory you're paid a premium (excess returns) for taking on risk, but in practice the great achievers have been value investors such as Graham, Buffett and Bolton. I presume that the problem is people buying blue sky shares in the hope of getting rich quick - the stock market equivalent of buying a lottery ticket - and inflating the share price thereby. With blue sky stocks you're liable to lose out to failure, or dilution, so if you're chasing them I'd consider diversification to be important. I bought Beazer in 1999 and Persimmon in 2000 (and Persimmon promptly took over Beazer giving me an unwanted CGT liability). At the time they had a p/e of under 10, good yields and capitalisations well below the NAV. Buying was just a case of taking advantage of the market inefficiency, when everyone was piling into tech, telecoms and biotech. (There was clearly a bubble by the end of 1999; companies expressing an intention to invest in internet startups were valued at 10 times their cash assets, which was equivalent to the assumption that they could buy internet companies at a tenth of their true value, when it was fairly clear that the targets were already overpriced. My problem was I underestimated the magnitude of the bubble; cashing in would have exposed me to a hefty CGT bill, but in hindsight I would have been better taking that hit and redeploying into builders and banks and electricity generators and other boring old economy businesses. If the bubble had lasted another month, into the next tax year and another CGT allowance, I probably would have done so.)
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littleoldlady
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Running down all platforms due to age
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Post by littleoldlady on Aug 9, 2017 18:51:39 GMT
The problem with shares is that if they go down you obviously have a problem, but if they go up you have a different sort of problem - sell or hold? If you sell then you have yet another problem - what to do with the cash. If you hold, well then you have only made a profit on paper and it may not turn into cash.
My own solution is to sell 10% of my holding once (when and if) the price has risen 10%. So the problem of what to do with the proceeds is reduced by 90%, and if the shares continue to rise I am still making money (on paper at least) whilst if they crash I have 10% to offset.
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macq
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Post by macq on Aug 9, 2017 19:06:03 GMT
The problem with shares is that if they go down you obviously have a problem, but if they go up you have a different sort of problem - sell or hold? If you sell then you have yet another problem - what to do with the cash. If you hold, well then you have only made a profit on paper and it may not turn into cash. My own solution is to sell 10% of my holding once (when and if) the price has risen 10%. So the problem of what to do with the proceeds is reduced by 90%, and if the shares continue to rise I am still making money (on paper at least) whilst if they crash I have 10% to offset. Ah the problem of making money guess you already have stocks in an ISA
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justme
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Post by justme on Aug 11, 2017 10:11:41 GMT
Going back to p2p - I am concerned I may fall into not enough diversification loss making group on Ablrate and MT. I have about a dozen loans on each of them. I started on them 6 months ago. Further diversification would mean going for even lower rates. And even then there would be not much of it.
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registerme
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Post by registerme on Aug 11, 2017 12:06:57 GMT
Going back to p2p - I am concerned I may fall into not enough diversification loss making group on Ablrate and MT. I have about a dozen loans on each of them. I started on them 6 months ago. Further diversification would mean going for even lower rates. And even then there would be not much of it. When you start investing I suspect that patience is more important than diversification. Over time you can diversify across platforms, loans and asset classes. If you try and get all of your sum X invested in one go you are inevitably going to end up over paying, buying what might be riskier assets than you anticipate, or ending up in one asset class eg property backed lending.
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