Your guide to peer to peer lending

Another Look at the Top P2P Investors on Prosper

by Peter Renton on November 21, 2011

Back in May I did an analysis of the top 50 p2p investors on Prosper based on Prosper 2.0 loans. A couple of weeks before that I had taken a look at another investor who was earning over 20% (all data according to Lendstats). Around seven months have passed since then so I thought it would be interesting to go back and see how these investors are doing.

Maintaining a Return Over 20%

The investor flexible-economy2 was the subject of my article on investors earning over 20% on Prosper. Their return has maintained at more than 20% despite the fact that they have had two more defaults and have made no new investments. In fact Lendstats has recorded a slight increase in ROI since April from 20.05% to 20.27%.

The average loan age for the portfolio of flexible-economy2 is now 23.6 months and they have received over 75% of their principal back. So any future defaults will have far less impact as these loans enter their third and final year. I suspect when it is all said and done this investor will have achieved an annual ROI well over 15%. So one has to wonder why on earth they have stopped investing?

Focusing on Repeat Borrowers

The other two borrowers I took note of seven months ago were golffish2 and sweety075. The return of both these investors has declined a little in the last seven months but they are still earning over 18% and they continue to add new money into their Prosper accounts. In fact, golffish2 has gone from $77,000 to $119,000 invested. Sweety075 has almost doubled their investment in the last seven months to around $14,000 today. Both investors have maintained an admirably low default rate, under 1% in the case of golffish2.

One of the things that all three of these investors have in common is their focus on repeat borrowers. Each investor has over 60% of their loan portfolio made up of repeat borrowers and in the case of sweety075 it is 99%. They have all isolated this group, as I have, as being an excellent investment.

Keeping Early Defaults to a Minimum

So what is the secret to a great return on Prosper? Keeping defaults, particular early defaults, to a minimum. These investors did not have a crystal ball, and they may well have been somewhat lucky, but when you look at their portfolios it is clear they have a strategy. In the case of sweety075 from what I can tell they focus not only on repeat borrowers but only certain segments within that group. They look for borrowers that have maintained a decent credit score from their previous loan, passing on most of the repeat borrower loans.

While we would all like a crystal ball to eliminate those investors who are likely to default, we can get some idea by looking at the historical loan performance. While the future may not repeat the past exactly, learning what has worked in the past is a great place to start as an investor. Armed with that knowledge and a little luck maybe one day you can join the ranks of the very top investors on Prosper.

{ 10 comments… read them below or add one }

Michael November 21, 2011 at 6:04 pm

Is the repeat “flag” the same as “Active loans” being one or greater? How do you isolate repeats on Prosper?

Charlie h November 21, 2011 at 6:56 pm

Seems strange to put up 21000 and then stop putting new money to work.

Dan B November 21, 2011 at 11:23 pm

If you look deeper into the goldfish2 numbers you’ll see something else of note & that is that despite adding substantially to their account, despite their excellent performance, their $110k account size, & despite their well diversified 1400+ note portfolio etc. ………..that they’ve actually been steadily decreasing the amount that they’re allocating per note. This person is now investing on average just around $31 per note as compared to over $76 previously.

What possible reasoning/explanations can we suggest from such behavior? Do we think that this investor anticipates higher or lower returns in the future? Do we believe that this investor sees higher or lower risks with his Prosper investments going forward?

Peter Renton November 22, 2011 at 10:26 am

@Michael, I am not sure how it is represented on the Prosper download but on Lendstats I isolate repeat borrowers with the Previous loans set to a minimum of 1. The same result happens when you select Previous payments to a minimum of 1. On Prosper’s site there is a Previous Prosper Loans selection but not sure if that made it to the download.

@Charlie, Who knows what their situation is but I know if I was successfully earning 20% interest I would continue to reinvest.

@Dan, One can only guess as to why this is the case – it could be because they see Prosper as higher risk with potentially lower returns. Or it could be that they find so many great loans on the platform that they don’t want to miss out on any of them so they have dropped their average investment. The fact that golffish2 has added another $42,000 in the last seven months indicates to me that they are very bullish on the returns they can get.

Ryan November 22, 2011 at 11:56 am

Great article! Shows that I still have a lot of work to do!

If I remember correctly, Prosper lowered their rates for repeat borrowers. I would expect their returns may come down a little if they continue along the same strategy (but still be very good).

Peter Renton November 22, 2011 at 1:41 pm

@Ryan, That is a good point. With the focus on repeat borrowers and the recent interest rate reduction their returns will likely go down at least a couple of percentage points going forward.

Tim November 22, 2011 at 3:48 pm

Cool Article. It gives us all something to shoot for. I assume Lending Club doesn’t give out individual lender statistics like Prosper does right? Can you maybe do a post on the biggest losers? I’m confused how some people could do so poorly…

Roy S November 22, 2011 at 6:18 pm

@Dan/Peter, I would agree with Peter. goldfish2 is still adding money to his portfolio, which would indicate that he has faith in the platform and p2p lending. The reason for the decline in the average amount invested per note could be due to efforts at diversification and having a much larger pool of potential borrowers from which to choose. Dan, I do not know his criteria for picking borrowers, so I cannot postulate in whether his returns will increase or decrease, but they will most likely regress to the mean of the population that falls within his criteria–hope that helps!

Dan B November 23, 2011 at 1:13 am

Actually, upon further review, the accounts in question are not nearly as large as has been suggested. Goldfish2′s portfolio of notes is currently around $76,000 & sweety075 is at about $9800. An understandable error, but an error nevertheless.

Peter Renton November 23, 2011 at 8:48 pm

@Roy, That is a valid point. With such a large diversification of loans his performance will likely return closer to the average – but with an average Prosper rating of D that mean could be still quite high. According to Lendstats the average return for D loans focused on previous borrowers is around 15.4%. A few notches down from where he currently is but still an excellent return.

@Dan, Yes, that is true the outstanding principal on these loans is what you stated. I was pointing out the total amount invested. But if you want to focus just on current outstanding principal then golffish2 has increased from $55,000 to $76,000 and sweety075 has increased from $5,100 to $9,600. Any way you slice it these investors are increasing their Prosper investments.

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