Wednesday, 13 February 2019

TruePillars Strategy Learnings


Now that I’ve been investing for about six months, I’ve learnt a few things while applying my initial TruePillars peer to peer investment strategy.  From those learnings I’ve started to adjust a little to accommodate and utilise this new found knowledge.  Sharing these, I want to cover off on three of the learnings I’ve experienced and how I’ve applied it to my investing style.  The three areas are selling a “bad” loan, loan potion sizes and investing in new loans.

Selling a “Bad” Loan

It was my strategy from the start to not buy existing loans with a late payment history and to sell any of the loans I own that have late payments.  While it made sense to me in theory and remains my philosophy in practice, there were a few things I learnt.  Firstly and most importantly is that you can’t sell a loan directly after there is a late payment. Originally I thought you could (offload the risk as soon as possible) as I had seen loans with overdue payment history up for purchase.  However, you can only sell the loan portion the after the next on time payment is made.  There is a risk the potential the business never recovers with on time repayment frequency and you are left with the bad debt.  To date I’ve had three loans with late payments, all I’ve managed to sell when on time payments were made. 

While I’ve not adjusted my current approach to selecting loans, it is in the back of my mind something I may adjust in the future depending on my ability to continue to sell out of potentially risky loans.

Loan Portion Sizes

I started out with a set figure in mind when I was first buying into new or existing loans.  As it has progressed, however, I’ve come to realise maybe I set it a little high and have started reducing the amounts I’ve invested in each loan.  Part of the driver was a bit of FOMO, fear that the availability of loans wouldn’t be able to keep up with my rate of desired investing. However I have not found this to be the case in reality, and there have been sufficient new and existing loans to buy into along the way to allow me to relax into the process. I’ve also found I’ve not been able to buy into every new loan or purchase all the existing loans that have come up for sale that I would have liked to.  The key here is to be patient while you are creating your diversification, I believe your portfolio will benefit in the long run. 

Investing in New Loans

When it has come to investing in new loans, my intent has been to invest at the highest interest rate available, I found myself in a couple of cases where I was outbid (due to placing bids late in the auction).  I subsequently started placing secondary bids at lower rates to ensure I won a piece of the loan.  While I don’t believe there is anything wrong with this, I’ve observed over the last few months that a surprising number of people sell out their loan portions after owning the loan a single month.  This means I could actually by a purchase a portion of the loan at the highest interest rate of the loan rather than accepting a 0.5% interest rate discount for the life of the same loan.

I think part of the issue stems from trying to keep as much of my available funds invested as possible.  Thus newly listed loans are waiting for funds to become available from my existing loan repayments or new funds added.  While I won’t be changing the strategy to keep as much money as I can invested, I will be holding off bidding on loans at less than the maximum available rate and take the gamble I’ll be able to purchase when/if it becomes available on the secondary market.

These are just a couple of the learnings I’ve experienced over my short time investing and hope they are of value to you wherever you are on your Peer to Peer investment Journey. I’ve found the last six months entering into the realm of Peer to Peer lending investing to be an enjoyable experience.  As always interested to hear from other investors and their experiences.

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