I decided to invest in P2P platforms for the risk adjusted returns but also for a pure passive income cashflow: after the auto-lending set up, I dedicate few minutes per month to each investment pot. I think my (spare) time is better invested somewhere else, I control the risk by limiting the amount I invest in each platform and withdrawing regularly part of the gains. I could extract more gains but I am happy with this trade-off. I read a lot and in the p2p space I have now some sources that I trust (as far as you can trust an internet blog, obv): for example, I leave to them the due diligence process of a platform, not so much for platform I invest in but for the one I can comfortably discard from the start, like a negative screen. In his latest update, I found that Sterling offers a few interesting ideas on how to profitably use platform’s secondary markets; when other investors rush to the door and offer you the possibility to to buy the same loans you would take on the primary market at a 10% discount, you can improve your returns at almost the same level of risk. For me, this is the textbook example of something that is quite obvious after you read it but I would have never discovered by myself, at least not with the time I dedicate to each platform.
In the last two months I was more concentrated on what was happening on the stock market, given that most of my savings are invested there. The drop and the bounce back were fast, therefore I did only some small rebalancing in my Strategic Asset Allocation. I committed a lot of time to study and research what was going on, a big mistake now would be to let myself abandon to the urge to act and capitalise on the time invested, even if there are not a lot of bargains out there (small cap value?). It is hard to spend time to study something and then admit to yourself it would maybe be useful only in the future, if ever.
What about P2P Platforms?
Funding Circle
FC has been a continuous disappointment since I joined three years ago. Returns have never been in line with their projection…and their best case scenario, 5%, was already a lousy one to begin with; I had big hopes on the back that the company is listed, so more scrutiny from institutional investors and more transparency, but when you get less than 4% is not even worth the time. Six months ago I wanted to sell part of my investment and their secondary market was not deep enough to even cover half of my order in that time frame; when my order expired half filled, they told me I could sell the rest if I wanted to pay a fee. Then the virus arrived and now I am barred even to invest. So here you have a platform where you cannot buy and cannot sell…just wait that your investments mature and move on. Great.
DoFinance
One month ago I received an email stating that starting from the 12th of March Assignors have discontinued the use of repurchase rights. What does it mean? In practice, your Auto Invest completion date becomes irrelevant and investors will receive funds once the underlying loans mature. It is not great but is not the end of the world neither, provided you did not invest funds that you really need at a certain date. There is always the possibility that once the crisis is passed, they will re-instate the old rules, if not we just have to wait, like on other platforms. At least we do not have (yet?) another Kuetzal and I am still confident reinvesting my gains on the platform.
EstateGuru
EstateGuru is currently raising funds on Seedrs. Reading the pitch, is stunning to realise the good work the platform did since was funded in 2014; is also interesting how sometimes they ‘massage’ their data, it is not clearly mentioned that some loans are very late (I have one that is more than two years late) and the historical return does not take into accounts the loss of returns from those loans. The company is already profitable and they are raising at a valuation that is 10x 2019 revenues, not cheap but reasonable. They were already over-funded the first day the campaign was launched, so by the time I would publish this, it would be too late for you to jump in.
Given that in multiple countries construction works were stopped as part of the lock-down, the platform is doing quite well, some loans got prolonged by six months but I got also some partial and full repayments in the last two months. Overall I am very pleased by EG, returns close to 10% for secured loans are great; I do not use the auto-invest feature here, lately they are issuing multiple-tranches loans and it has become quite hard to follow where you want to invest, avoiding to have a too big exposure to the same project.
LinkedFinance
LF is my suspect number 1 to be the most virus-impacted platform I invest in: they lend to small and medium business in Ireland, the category that is suffering the most under lock-down. The reason why I invest in LF is because I wanted THAT type of exposure, for diversification reasons: I can accept their under-performance now because I expect them to outperform under a different type of stress scenario (like Russia invading the Baltic countries and wiping out my investments in EstateGuru, a scenario that I considered more probable that a global pandemic). Right now, 50% of my loans are paying on time and 50% are in ‘payment break’, is the glass half full or half empty? Read my musings about Resulting in my previous post. Since inception, the platform generated a 25% gain: I will incur in a loss if more than 25% of loans I am invested in defaults with a 0% recovery rate, a possible outcome at this stage of this crisis.
Mintos
The positive aspect of the current crisis is that investors got scared, there is less competition for loans so interest rates went up and cash drag is non-existent. The same is happening at Twino and Viventor. I managed to reduce my allocation to Invest&Access to zero, which I was forced to use because it has priority access to new loans. Some loans originators got downgraded and others suspended but my diversification protected me so far.
There are some loan originators that are launching buybacks on their loans on the secondary market, the latest one being Mozipo Group. You should aggressively buy loans that qualifies for their bb at discounts higher than their threshold (even at lower levels, but I do not think you will find any). They are screaming confidence about their loan book and you should follow accordingly. It is like the FED announcing they are going to buy High Yield ETFs: even if they do not buy a single share, the announcement alone brings confidence to the market…and a floor in case you will need to sell later. Mozipo sees an opportunity, investors are (irrationally, based on the information they have) dumping loans that they will have to buyback at face value anyway if the borrower defaults, and prefer to do it at a discount. It is a big confidence move because they have to use their cash reserve now, in the mid of a storm, to do so: in the public/listed corporate world is a very hard stunt to do, rating agencies will kill you if they see cash levels go down and the balance sheet become more levered, even if the company has the means (and the strategic vision) to do it. Management typically sells debt, instead of buying it back, during recessions because this protects their jobs, not because it is optimal for the company they manage (but are not big shareholder of).
Michael Lewis is Back!
ML is one of my favourite authors ever. Last year he started a podcast series called Against The Rules and this week he published Episode 1 of Season 2. I strongly suggest you to read and listen everything he does, but this episode in particular is interesting because is about financial coaches. Investing your savings is important but having your personal financial life in order is importanter. Listen to it and give me your opinion.
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