It has been a while since I wrote about my p2p investments. Nothing relevant happened, just few good and bad news here and there. The main disappointment is that initially, p2p was meant to ‘democratise’ an asset class that was not available to retail investors; while it is still mostly the case, more and more platforms are raising their minimum investment size. A €100 per investment might not seem such a big deal but if you consider that you want enough diversification within the same platform (100 loans) and diversification between platforms (at least 10), you realise that either you have to allocate a big part of your savings to p2p (stupid) or you have to bear more risk (less diversification).
I still do not believe in the theory that with enough due diligence you can pick and choose the best platforms and avoid the bad ones (that I would not necessarily call scams). p2pmillionaire (sadly he seems to have moved to other stuff since he is not publishing any update for a long time) was a great example for me of someone who really did a deep dive into each platform and yet he got some misses. The biggest eye-opener for me in this sense has been Viventor. I do not know, and probably never will, if the platform catastrophe is related to the change of ownership or it was already there and the founder simply nailed the timing to sell. Did the COVID crisis represent the low tide that exposed who was swimming naked or the good five years prior were due to a really good management by the previous ownership?
The are so many moving parts and regime changes that I do not think it is possible to go ‘all-in confidence’ in one/few platforms. There are two opposite forces at play here:
- time in the market is more important than timing the market; if you want to compound your returns, you have to stay invested
- the more you stay invested, they higher the chance you will have exposure to a platform that goes under
Twino navigated 2020 in a very successful way; in a normal situation, I would consider this a sign of confidence: I really believe that what does not kill you makes you stronger in the investment world. But can this logic be valid for p2p platforms? In the lending world, even your prior success can be the starting point of your future failure: what if now all investors get super-confident with Twino and inundate them with cash? Will they be responsible with their loan book or start to collect fees when they have the opportunity? Will they lower their yield to a point that is not attractive anymore?
I believe, even more than before, that diversification is the way to play the p2p game. Obviously not ‘blind’ diversification: my previous posts about Kuetzal, Envestio, Crowdestor etc. etc. are there to show you that dodging some bullets is possible. Now the updates.
Bondora
How would you report below performace?
Out of six year, 2020 was the only year that saw a small increase…so definitely deserve the prominence! (If you think that the above are small figures, consider that they are monthly variations. A 0.3% loss might seem small but if you do it for years, it does not take long to have your entire loan portfolio to register losses). Bondora is the joke that keeps on giving, if you want to learn how to be creative their blog is a goldmine. Always said that marketing is the best aspect of Bondora and they never cease to impress me. I wrote so many posts on them that I do not want to waste any additional time, unfortunately things did not change there: Go&Grow will be a massive blowout, for investors and for the whole industry as well.
Viventor
The only (partial) good news is that there are still some loan originators on the platform that pay regularly. Twinero, Monify and Atlantis Financiers are all in a limbo: Viventor sent some emails saying they are trying to restructure loans originated by those companies. If this is true, and I say “if” because with these platforms everything is up in the air until you see cash on your account, we have to see how big the discount to face value will be. For a couple of months AF still paid interest and late fees, then it stopped all sort of payments. As I wrote in the introduction, Viventor is a big disappointment…honestly I do not know what word to use here, obviously if you lose money the least you can feel is disappointment, but after five years of a productive (?) relationship it hurts more…I guess? At least in the past I took out more than a quarter of my initial investment, even at a 50% discount on those 3 LO I will end up with a profit.
DoFinance
DF recently tried to ‘re-start’, launching new products after the COVID fiasco; according to p2p-banking, surprisingly they manage to put together 1m of new funding in April. Trying to understand the current situation of loans backing your investments is an impossible exercise, at least for me. The majority of current cashflows seems to be generated from Indonesian loans, while Polish ones are stuck in a recovery process. So far I managed to recover 20% of my initial investment; COVID numbers out of Poland are showing some meaningful improvements, so there is a small hope that the recovery process will speed up soon.
Bondora, Viventor and DoFinance are the concerning parts on my p2p investment portfolio. It will take time to assess the final amount of losses but I can already list some valuable lessons:
- Do not invest money that you might need in the short to medium term. Even if p2p loans are supposed to generate liquidity on a regular basis, there can be events that mess up the original payment plan. If you are able to wait, you might recover more than a rushed secondary market sale and you will definitely spend that time in a less stressed position. Please do not consider any p2p investment, however they are marketed, as an alternative of current account.
- Hope for the best, expect the worst. Even when things were going in the right direction, I was withdrawing 50% of the gains from Viventor. I am still doing it with Twino even if I never had an issue in six years (other than some cash drag). This strategy is not optimal from a compounding point of view but it helps in case…Viventor happens.
- Cut your losses and let your gains grow. You need to have a risk management framework; my risk strategy might be different to yours but you cannot have none. Main issue with p2p investments is that the feedback loop is quite long, it takes time to understand if what you are doing is really profitable; I would probably never go ‘all-in’ on any platform because you have to test them under different regimes (bull and bear markets, local recessions, high interest rates (If ever)). The only way to manage risk in this space is diversification (or being an insider ;)).
I had to reconfigure my Bondora strategy multiple times (from Portfolio Manager to Pro to only using the secondary market to completely giving up) but this allowed me to at least have a small profit instead of a loss. I made a mistake in my first DoFinance investment because I locked my money for 5 years…yep, that’s why I was unable to withdraw a small balance so far. The combination of partial gain withdrawing and diversification allows me to avoid pressing the panic button: I could try to close all my DoFinance investments but I’d give up four years of interests. I did not dump my loans on Viventor secondary market, I bought loans at 40%+ discount and I might even profit out of them. While I was dealing with the above disasters, below platforms were bringing in some gains.
Twino
All fine here. They introduced Twino Ventures, a sort of real estate product: I tried it not a long time ago so it is too early to formulate any opinion; so far they originated only few projects, at this pace I am not sure it would ever be a viable alternative to EstateGuru. Despite loans were repaid as usual even at the height of the COVID crisis, I believe some investors left, easing the cash drag problem. This allowed me to move away from what I consider their worst product: loans with currency exposure. I decided to give it a try when my cash was sitting unused on their account but it would have been a better choice to simply withdraw the funds and invest elsewhere; the increased margin for currency loans is not enough to compensate RUB volatility. Loans with Payment Guarantee are not optimal as well but unfortunately you cannot avoid them without experiencing a massive cash drag.
Viainvest
All good…even to the point that is too good? The platform is experiencing cash drag since some months now; looks like they were the perceived winner in the post COVID world and a big number of investors poured their money in. Because I love making the same mistakes over and over, I started to invest in their business loans as I did with currency-loans on Twino. I know it is a sub-obtimal choice because they come without a buyback guarantee and yet…here, take 30% of my balance. On the other side, I must admit, that buyback guarantee is not a real guarantee anyway. I also withdrew extra cash due to the drag, so my exposure is not that big anyway.
FinBee
Another platform victim of its success. A couple of years ago it was easy to find investment opportunities that were yielding more than 20% while now the best you can get is maybe around 16%. Recently they introduced consumer loans with maturities up to 80 months…and they even thought to sell it as a positive thing for investors! (the excuse is that now you can ‘lock in’ high rates for an even longer period of time compared to the old loans….oooook, I guess professional bond traders would have a different opinion). So far the platform is still delivering but as I said above, it will take time to see the impact of these changes. Since a couple of years there is also a new owner, let’s hope it is not a Viventor 2.0 (the original founder went on to create Heavy Finance).
Linked Finance
Positive news is that they navigated COVID in a spectacular way, if you consider that you lend to small businesses in Ireland. They were quite proactive in re-negotiating terms to keep their borrowers afloat and the strategy paid dividends interests: after the lockdowns, there have been only a few defaults. The negative news is that they introduced a rather big withdrawal fee of €5, that you can avoid only if you take out more than €250 but only once a month. According to my risk management strategy, in the past I was withdrawing €100 per year, so now either I take more risk, either I suck up this stupid tax…I cannot understand why they do not allow at least one transfer PER YEAR for free…I hate paying fees. After Q1-20 they originated c30% of the previous year loan volume and the average interest rate also declined: the world is hungry for yield and even these small corners of the market have been discovered now.
Fellow Finance
This platform requires a way higher initial investment to allow proper loan diversification than what I allocated, but even with that, returns does not seem to be spectacular. I am probably keeping it more as a case study/curiosity than anything else at this point. Their ‘experiment’ into Danish, Polish and Swedish consumer loan markets is not bearing a lot of fruits, if you want to try them just stick to the Finnish Business Loan category.
Iuvo
I joined Iuvo not a long after investing in Mintos and I set up the auto-invest feature thinking that the platform would diversify between Loan Originators like Mintos does…rookie mistake. One year later, 30% of my portfolio was invested in loans originated by CBC and guess who defaulted in 2020? Bingo. Now my Iuvo friends are (hopefully) queuing in Polish tribunals along my DoFinance friends. Thanks god Poland is not governed by a deranged populist party…wait a minute. If you want to use Iuvo, you have to create a different auto-invest rule for each of the loan originators you want to have exposure to, do not repeat my error 😉
That’s all folks. Mintos and EstateGuru are going fairly well, as my more recent experiments into EvoEstate and Kuflink.
What I am reading now:
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