Category | Peer to Peer Investing Strategy

In my last post of this series ( Improving Investment Returns Using Default Prediction ) we saw how a very simple strategy (investing in every high interest rate loan) combined with our default prediction algorithm yields pretty good returns. But how does this compare to a more sophisticated strategy crafted through a lot of tuning and back testing? This post will look at one specific example. Used on

As I wrote about in a previous post ( Common Investing Strategies ) there are quite a few investment strategies posted online. All those I found are based on relatively simple filters that select loans based on attributes like interest rate, number inquiries, borrowers home state, total credit lines, etc. The specific values for these attributes arrived at by common sense and running comparisons of ROI on sites like LendStats.

Over the course of investigating Lending Club I discovered several people sharing their personal investment strategies. But there wasn't a single place that pulled this information together to make comparisons easier. This is my attempt. I've tried to represent each one as closely to the original posting as possible. But I did need to make some slight tweaks to get it into the table. Blank cells indicate that this attribute

Diversification is a process of reducing risk by investing in a variety of different assets.  A well diversified portfolio contains assets whose prices move independently. Therefore, the overall portfolio has lower volatility and more predictable returns. Lending Club makes diversifying your loan portfolio easy by allowing investments of as little as $25 per loan. So even a small portfolio can afford to buy a sizable number of loans. With just $5,000 to invest you could construct

Before attempting to develop a strategy for picking loans, I thought it would be worthwhile to see how an uninformed investor would do if they stumbled into Lending Club and invested at random. To see what the return would be, I wrote a simulation that randomly picks 100 loans out of the pool of full term loans described in my post on Lending Club Defaults rate here .