I was unlucky with automated investing selections

Using the new measure of return rate measured by the amount paid back thus far divided by the investment amount I can finally get some insight on the role luck played in the poor performance of my Lending Club account. I do have some notes that I specifically purchased on Lending Club and the secondary market, Folio Investments. I’m ignoring these and focusing only on the notes selected by automated investing in Lending Club.

There were 3,467 of these notes with varying terms and grade levels. I decided to compare the performance of these to all comparable notes issued by Lending Club. I built a match code for each note consisting of the month and year issued, the loan grade, and the term (36 or 60). For each match code, I counted the number of notes, the amount loaned, the amount paid back (thus far), and finally computed the return rate. I built a table of the results. There were 1345 combinations, but I was only interested in those in 2015 and 2016 (when I had automated investing turned on).

For each note that automated investing selected for me I build the same match code and picked off the return rate from to table of all similar notes. I could then compute how much I should have received in payments from random notes that matched. Here is a table of a few of them.

Match	Amount Invested	Paymnts Rcvd	Status	Exp Rate	Exp Paid	Diff
15_07E36	$25.00	$1.76	Charged Off	85	$21.25	-$19.49
15_12A36	$25.00	$12.79	Current	67	$16.75	-$3.96
16_10A36	$25.00	$12.28	Current	31	$7.75	$4.53
16_04G60	$25.00	$32.24	Fully Paid	46	$11.50	$20.74

The 1^st loan was a grade E, 3-year, issued in July 2015. The average loan just like that has paid back 85% of the investment by the end of the 1st quarter of 2017. This one was charged off early with only a few payments made. I lost $19.49 on this unlucky pick. The 2^nd and 3^rd loan are still being paid. On average loans like the 2^nd one has paid $16.75 thus far, but mine is $3.96 behind that. The 3^rd is ahead of the average by $4.53. The 4^th loan was a high interest grade G loan and it was paid off early gaining me an extra $20.74. That was a lucky selection.

The 3,467 notes selected for me are a net of minus $1,764. If I add that to my current balance, my return rate in the past 52 weeks becomes 2.92%. Interestingly, Lending Club shows a “Adjusted Net Annualized Return” for my current notes of 2.86%. It would appear as though I was extremely unlucky in the notes selected by automated investing for me.

But both return rates are below the anticipated rates shown in a Lending Club table discussing automated investing.  I have seen some concern expressed about the quality of notes issued beginning in 2015. Coincidently that is when I began investing. Next, I’ll have to look to see if that was an unusually bad period, or the beginning of a trend. Follow me on Twitter, @billlanke, to see when more thoughts are available.