Thursday, July 26, 2012

Guest Post: Attraction to Lending Club

Today's post is once again from Mrs. RT. She is making sure that I continue to maintain the consistency of posting twice a week at least. Due to work spilling after-hours and other commitments, I didn't have a chance to make much progress on my analysis this week.

Attraction to Lending Club
by Mrs. RT

Mr. RT and I have been doing Lending Club night for a few months now. He’s very excited and proudly reports me the earnings time to time… actually almost every night! The gains are very small, so far.

Compared to the earnings that we've been receiving through our traditional investment vehicles, the gains from Lending Club are not comparable; a few digits are off. Still, we rarely check those investment accounts. Even if we did and found out we had gained much more than expected in one quarter, the excitement is not comparable to a fraction of gains through Lending Club about which Mr. RT is excited. I also started to get excited about that small amount of gain as well. Joy is contagious, you know? But, I wonder why?

Boring Investments

As for the traditional investment, we have mutual funds and ETFs and most of them are index based. We used to pick and choose actively managed funds, but we got rid of most of them and now stick to the index. We still do re-allocation time to time.

We also buy individual stocks hoping we may be able to beat the index. But we don’t buy and sell; we buy and hold the stocks with a long-term vision. We rejoice when the stock goes down, so that we can buy more. Our portfolio typically gains and loses more or less according to the market.

We check this portfolio time to time and find returns are 10% gain, 3% loss, etc. But not so much emotion is attached to it. Because these results are beyond our control. Tons of elements impact the market and it goes up and down. Not only the government’s reports and policies, the conditions of housing market and job market, but also every single major incident in the world is considered to be critical ingredients to the direction of the market. Even smartest economists cannot figure out why the market moves this way that way. There’s no crystal ball, as they say.

Unpredictability of Market and Life

What can you control in the traditional market? The market is too big, so, let’s narrow down to an individual company. We think we have analyzed one company in and out, we know some litigation issue is going on, its products are selling, etc. Yet, it’s very difficult to take that much effort to analyze one company and make decision as part-time investor like us. Moreover, we should not put eggs in only one basket. Investment is so uncontrollable and it’s not our wisdom that decides the return most of the time, but God of the market seems to decide the return. It doesn't do us any good to become sad or happy when focusing on something we cannot control.

Come to think of it, life is full of unpredictability and surprises, both small and large scale… I thought you would cook tonight, but you didn't and now I’m hungry! I thought you would be back home by now, where are you? There was restructure of my company and laid off our team, what should I do now? etc., etc., etc. Then, if there’s no change, we complain life is boring. Human beings are complicated things.

Sense of Control

Anyhow, why is Mr. RT so excited about small return through Lending Club? Because he can control. He picks up loans (with help from me, of course) and can get the return as it’s promised. It’s like science experiment we used to do it as a kid. Wow! I can make a fire through a magnifier! Remember those days? Mr. RT is just behaving like a kid as he does all the time.

This excitement may wear off as he gets used to this or he starts to see default loans later as loans age. But for now, as I see him, he’s a happy camper and so am I.

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