Sunday, August 06, 2006 as an act of voyuerism...or why it'll be hard to kick the habit & possible change in lending strategy

Moom just posted a very interesting comment here regarding prosper as a fixed income asset class - in essence he recommended several alternative bond investments - either CEFs or ETFs.

Although I haven't researched his recommendations, it's very possible - if not probably - that there are fixed income opportunities that exceed the return of prosper without the diffult underwriting work entailed by social investing.

Just a few minutes ago I placed two new bids on different loans.

The first is for a new orleans educational kitchen trying to grow. The interest rate is a bit low for what I look for in a B rate loan, but I'll play with it - also I really need to expand my loan base if the one loan I have that is one month late actually defaults.

The second loan is a much lower credit rated loan - a D - to pay off a credit card, though it does have a fairly high interest rate. I recently looked at an analysis of risk adjusted loans and D seems to be the most profitable at a risk adjusted rate of about 12%.

One thing I noticed is that I truely enjoyed reading about people's needs and seeing if I could help them out. There is a sense of voyuerism and even altruism (let's be clear charity begins at home - I like helping others - but I invest for profit - I give lots of money to charity through other channels - not through investing).

I don't know if I'd be willing to give up the social aspect of peer to peer lending easily - is it addictive? One thing I did notice - one unrated borrower - expiring soon - had multiple pictures of herself and a description of her business and plight. I found myself drawn into the story and carefully examining the pictures (OK she was cute - but more importantly to examine her character and the story). Ultimately I was not comfortable funding her - her credit was very tarnished - I'm not comfortable with that much risk - but it was interesting and absorbing.

What do you think / feel when you invest in prosper?

Have a great day,

1 comment:

Anonymous said...

I think it's somewhat dangerous to lend money to businesses as opposed to individuals. These are no-collateral personal loans and , as such, businesses may not have any incentive to pay these off. With individuals, there is incentive since the credit rating will be affected. I wonder whether there are any statistics of default rates on Prosper for businesses as opposed to individuals.