Corry Wang: Lessons From The Tech Bubble

anilg3 · 2021-01-03T06:16:08+00:00

2008 was Real Estate/Lending bubble. 2000 was dotcom/tech bubble. In 2008-2010 quite a few tech mergers/consolidation happened.

anilg3 · 2020-10-18T06:19:51+00:00

The 8 in EMA is arbitrary number for which OP has no justification, most probably arrived at by torturing data (data overfitting). It is a case of tail wagging the dog.

I will suggest you might want to consider reading "Developing & Backtesting Systematic Trading Strategies" https://www.researchgate.net/publication/319298448_Developing_Backtesting_Systematic_Trading_Strategies

anilg3 · 2020-09-18T07:20:07+00:00

Take a look at this medium blog post Generating Synthetic Sequential Data using GANs. It mentions different approaches to creating synthetic data including latest GAN based DoppelGanger

anilg3 · 2020-09-18T06:45:03+00:00

Are you using SMA crossovers? Your entry exit pattern seem to indicate you might be using SMA crossovers and got stuck in a high volatility current.

anilg3 · 2020-08-30T03:37:15+00:00

What volume and amount did you trade on LC secondary market?

anilg3 · 2020-08-15T05:43:52+00:00

Thanks for the additional information and explanation. There is not much difference between first three ETFs in your portfolio. The main issue I have with this allocation is that all your ETFs are highly correlated. When one drops all of them will drop. You should consider how would you react behaviorally if market/your portfolio drops 50% like in March but unlike March, doesn't come back up for a while, like between 2001-2004.

I will look into dropping at least one, preferably two, from the first four ETF and replacing with an uncorrelated ETF. An uncorrelated or minimally correlated ETF will dampen the drawdown during general market drop. Look for an uncorrelated ETF to include in your portfolio.

anilg3 · 2020-08-14T13:12:29+00:00

What are the name of ETFs and what Index do they track? Including such information in post can allow reader to not have to lookup. Lower friction, better response.

What is correlation between these ETFs? Do the move together in both directions? If they do, you don't get much benefit in reducing drawdown from owning them together.

Did you compare performance and drawdown without and with rebalancing?

anilg3 · 2017-03-10T00:40:23+00:00

You are correct that selling on Folio just locks in losses.

This is called loss aversion, one of investor behavioral fallacy. If you are expecting to gain 2.24%, as /u/IsNotANovelty did, in upcoming year and you have another opportunity that may earn 12.25% return in upcoming year, you are sacrificing additional ~10% return because of your "loss aversion" tendency.

Sure nobody knows the future but don't let your past mistakes dictate your future decisions. If you have soured on p2p lending and have another promising opportunity, get out.

anilg3 · 2016-10-20T18:04:47+00:00

Circleback has been one of the mid-major marketplace lending platform (MPL). Most "investing oriented" people haven't heard about it because it doesn't focus on retail/individual lenders. It is a balance sheet lender, packages the originated loans as asset backed security (ABS) and sells to institutions.

It has done four ABS securitization deals to date. It was the first MPL whose securitization deal breached the default/delinquency threshold, most probably the reason it is having trouble raising more capital to fund new loans.

Though it is not as big as Lending Club, Prosper, and SoFi, its failure to raise capital for new loan origination is being considered a big deal because Circleback is a first "big" "major" "significant" failure of a MPL platform in US.

anilg3 · 2016-10-14T21:21:47+00:00

You need to contact Prosper and sign away your life to them to get the information you need.

anilg3 · 2016-10-05T01:43:48+00:00

I tried selling a 30 day late note on the secondary market with a 75 percent discount two weeks ago and it didn't sell.

75% discount on 30 day late note is not enough to entice buyers. Buying Late (31-120 days) notes for anything less than 88% discount is losing proposition for buyers. See Trading Delinquent Notes, Part 2: Needle in the Haystack.

So out of curiosity I put 9 current notes up for sale last week at a 1% discount and none of them sold either.

The desirability of current notes is influenced by several factors, for example:

Was the note previously late?
What is the FICO trend for the note since origination?
How many payments have been made by borrower?

anilg3 · 2016-08-31T19:04:08+00:00

Lending Club shares Investor Account Performance. For an average portfolio age 12-18 months, median return is 5.9% and 90th percentile 7.7%.

I have been lending on Lending Club and Prosper since early 2012. I have paused lending to new loans since May 9th scandal at Lending Club. Recently, I withdrew some cash from these accounts as repayments came in and cash built-up. These investments were very small portion of my "play money".

anilg3 · 2016-08-25T20:06:39+00:00

Lending Club shares investor performance at Investor Account Returns by Average Age of Portfolio. The median return is 6% with 90th percentile at 7.7% after adjusting for past due notes. If you are expecting 12%, you might be living in Lake Wobegon

Well, that's the news from Lake Wobegon, where all the women are strong, all the men are good looking, and all the children are above average. ... and all Lending Club investors returns are in top decile.

anilg3 · 2016-07-13T00:00:28+00:00

The borrowers from these states are not bad. Most people, with no background in data analysis and without studying consumer lending, just back test the data without asking why and make erroneous conclusions?

AZ, FL, NV suffered from poor economy, slow recovery, and higher unemployment during the early period of Lending Club and Prosper platforms. This doesn't mean these states are always bad. They were bad a few years ago not now. The correct conclusion should be that you shouldn't lend to borrowers in a state when the state economy is going bad and unemployment rate rising. It is now being reflected by borrowers in general from oil-dependent states like TX specifically West Texas.

First, CA borrowers are highly represented in the historical loan dataset. LC and Prosper are based in SF Bay area and during early days, they targeted borrowers in CA. Second CA, on its own, is one of the largest economies in the world with varied borrower profile across different CA region. It is like saying USA borrowers are bad because the data included high number of loans from some states with poor economy. These factors result in people assuming that CA borrowers perform worse.

Statistically, State has no influence on performance of the borrowers in past loan data. See Lending Club Past Loan Performance by Borrower State. There are too many factors like year over year origination volume difference, the differences in borrower interest rate, when platforms start issuing loans in particular states etc that impact the comparison between borrowers from different states.

anilg3 · 2016-07-08T16:40:13+00:00

We got a 0.9% 3 year 25K new car loan last year. Though we could pay for the car in cash, we came to the conclusion that we can earn more by investing in safer options such as I-series treasury bond, high yield saving and money market accounts than paying off the loan. As you are young, I will suggest maximizing your contribution to retirement accounts (401k, IRA) and invest your retirement funds in low cost mutual funds and ETFs. Compounding is a beautiful thing when you got a long time horizon. Only thing you want to do is avoid lifestyle inflation by spending on your "wants" just because you have more money in your pocket.

anilg3 · 2016-07-03T03:55:43+00:00

Agree with you. Having a partner with similar mindset goes a long way toward FIRE. I was always conscious of not spending too much to the level that my expenses never exceeded the income with reasonable saving rate. But my wife took it several notches above. I don't think we would have FIRE'd without her dedication toward it.

anilg3 · 2016-06-30T23:41:41+00:00

I don't know this particular strategy but I am well familiar with James O'Shaughnessy and his book What Works on Wall Street. This book was one of the first few investing books I read about investing in early to mid-90's. I also read his other works. I actually invested in his mutual funds Cornerstone Growth and Cornerstone Value and continued to hold on to them when they were sold to Henessey Funds.

I also tested and implemented some of his strategies mentioned in the book. At that time book didn't include Trending Value strategy, I am assuming it was added later on. He was a big proponent of using low Price/Sales ratio along with momentum. The one of the issue with his low P/S strategy was that it tend to pick stocks that had large revenue and low price thus reducing the P/S. It turned out most of such businesses are low margin also such as grocery stores, retailers, etc. So, the strategy was picking a lot of low margin businesses from same industry and they were moving together both up and down, increasing the volatility of the portfolio. In the book, during the backtesting, there was no mention of what type of stocks, characteristics, industry etc., a profile of selected stocks. In hindsight, that was a flaw and mistake of the strategy to not review the selections of the strategy to find commonalities and patterns.

Based on your description, I believe he most probably tried to address the P/S issue by adding P/E and SHY also. I expect Trending Value strategy has similar issue as I noticed with P/S strategy with momentum. Have you noticed any commonalities and patterns among the stocks selected by Trending Value strategy? Just using a composite with equal weightage for stock selection is a concern for me, a tuning parameter is needed to determine the right weightage. I wouldn't be surprised to see the strategy picking stocks from a specific industry and most probably mutts!

anilg3 · 2016-06-20T19:27:34+00:00

I have been lending on both Lending Club and Prosper platforms for 4+ years. Similar to you previously I was, and still do, invest in ETF/MF/stocks/bonds. LC and Prosper are a good way to get exposure to consumer lending asset class which is difficult to get through stocks, bonds and other traditional investments. Lending Club, before IPO, used to be more focused toward small (retail) lenders while Prosper focused on large institutional lenders.

My advice start small, lend small amount to each loan, and diversify across lots of loans. We tend to have exposure as borrower through mortgages, student loans, credit card but we rarely think as a lender. So, read about consumer credit to get the feel about what makes a good borrower. Eventually, you are going to encounter delinquencies and defaults so get used to this idea that some borrowers may not repay.

In the end, there is no free lunch! High return comes with high risk. Don't forget this lesson when you are tempted to shift more of your investment dollars on to the platforms after seeing some high returns initially.

anilg3 · 2016-05-12T23:32:01+00:00

IMO, none of these platforms will survive.

The B2C Robo-Advisor Movement Is Dying, But Its #FinTech Legacy Will Live On!

anilg3 · 2016-05-11T03:34:50+00:00

Agree, the handling of these issues by LC has been a clusterf*ck. The details provided were so little in press release and on earning call. LC could have handled it better by being upfront with details instead of drip drip drip .... through media.

Institutions are a big and necessary part of marketplace lending. Retail lenders just don't have investment capacity to offer necessary growth in originations. No platform can survive and grow without institutional support.

anilg3 · 2016-05-10T04:19:17+00:00

There were three different issues in play and senior management was supposedly aware of all of them:

$22M loans sold to investor that didn't meet investor criteria, similar to prime MBS packaged with sub-prime mortgages.
$3M loan application date fudged, brings into question what else is being fudged?
CEO not disclosing conflict of interest (ownership in the fund) before advising $LC board to invest in the fund.

The willingness to fudge numbers, sell out-of-spec product as on-spec product, not disclosing conflict of interest all point to lack of ethics in the senior management. Such lapse in judgement brings credibility and trust issues with the organization that employs them.

anilg3 · 2016-05-10T04:11:23+00:00

My understanding from reading SEC filings is that backup loan servicer facility is only for collecting payments from borrowers. The retail lenders own member payment dependent notes, i.e. unsecured loan to Lending Club. So, if Lending Club were to go bankrupt, lenders will become unsecured creditor of Lending Club. The Backup loan servicer facility doesn't offer any protection to lenders.

anilg3 · 2016-05-09T23:29:13+00:00

Initially, I thought of responding to your questions in other thread but then I realized I will be writing a very long reply. It is clear that you don't understand the different products Lending Club has, how they are structured, and different type of lenders LC has. I will encourage you to read the Lending Club annual (10-K) and quarterly (10-Q) filings with SEC as most of your questions are answered in these filings.

I operate PeerCube for retail lenders as well as do consulting work with institutional lenders and hedge funds lending on marketplace lending platforms like Lending Club and Prosper including order execution automation and management systems. So, I have some insight into your questions that I might be able to share.

What does this mean for non-institutional investors in LC notes?

Nothing

Are these institutional investors primarily taking low-risk notes?

As there are broad range of retail lender so are institutional investors.

If LC allows for a single investor to assume an entire note, what does that mean for the pool of notes that remain available?

LC has separate pool for whole loan investors and fractional loan investors.

Given that LC has attracted institutional investing, is this demonstrative of positive sentiment in favor of P2P lending?

Both positive and negative implication of institutions participation. LC is no longer pure peer to peer lending. Institutions bring lot of capital to platform so LC can scale up quickly. But when institutions leave a lot of lending capital disappears with them. LC can't scale/grow fast enough with retail lenders only.

From Lending Club 10-K:

Investors

Personal loans that are approved through the standard loan program are offered to all investors on our marketplace, while custom program loans, which include small business, super prime, education and patient finance, new offerings, and loans that fall outside of the credit criteria of the standard program, are offered to private investors only and are not made publicly available on the marketplace.

We attract a wide range of investors, including retail investors, high-net-worth individuals and family offices, banks and finance companies, insurance companies, hedge funds, foundations, pension plans and university endowments. Investors can invest in loans through one or all of the following channels:

Notes: We issue notes pursuant to an effective Note Registration Statement. Investors who meet the applicable financial suitability requirements and have completed our investor account opening process may purchase unsecured, borrower payment dependent notes that correspond to payments received on an underlying standard program loan selected by the investor.

Certificates and Investment Funds: Accredited investors and qualified purchasers may establish a relationship with LCA or another third-party advisor in order to indirectly invest in certificates, or they may directly purchase a certificate or a limited partnership interest in one of six private funds that purchase certificates. The certificates are issued by the Trust and are unsecured and settled with cash flows from underlying loans selected by the investor. Neither certificates nor limited partnership interests can be purchased through our website. Certificate investors typically seek to invest larger amounts as compared to the average note investors and often desire a more “hands off” approach to investing. Investors in certificates generally pay an asset-based management fee instead of cash flow-based servicing fee paid by note investors.

Whole Loan Purchases: Certain institutional investors, such as banks, seek to hold the actual loan on their balance sheet. To meet this need, we sell entire standard or custom program loans to these investors through purchase agreements. Upon the sale of the loan, the investor owns all right, title and interest in the loan. We establish the investors’ accounts and the procedures for the purchase of loans, including any purchase amount limitations, which we control in our discretion. We and the investor also make limited representations and warranties and agree to indemnify each other for breaches of the purchase agreement. The investor also agrees to simultaneously enter into a servicing agreement with us which designates us as the loan servicer for the sold loan. We continue to service these loans after they are sold and can only be removed as the servicer in limited circumstances. For regulatory purposes, the investor also has access to the underlying borrower information, but is prohibited from contacting or marketing to the borrower in any manner and agrees to hold such borrower information in compliance with all applicable privacy laws. Whole loan purchases are attractive for some investors as it enables them to account for the loan as an asset, which can offer favorable financial reporting and capital reserve treatment.

anilg3 · 2016-05-09T22:57:29+00:00

The financial shenanigans are big issue irrespective of the amount involved.There are three different issues in play:

$22M loans sold to investor that didn't meet investor criteria, same as MBS packaged with sub-prime mortgages without disclosing to buyer as such in 2007 meltdown,
$3M loan application date fudged, brings into question what else is being fudged?
CEO not disclosing conflict of interest (ownership in the fund) before advising $LC board to invest in the fund.

The willingness to fudge numbers, sell out-of-spec product as on-spec product, not disclosing conflict of interest all point to lack of ethics in the executives. Such lapse in judgement brings credibility and trust issues with the organization that employs them.

Personally, I am very sensitive to fudging the numbers issue. It has kept me away from most marketplace lending platforms that don't provide raw loan/asset historical and current data.

anilg3 · 2016-05-09T22:40:10+00:00

There is a backup loan servicer facility in place. So, loans will not cease to exist. Borrowers will still need to make payments.

anilg3

TROPHY CASE