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Hey everyone, Kirk here again at optionalpha.com. Welcome back to the daily call. On today’s call, I want to do something a little bit different. I recently got a question from somebody who had listened to our original podcast, podcast show number 24 which was a long time ago, a couple of years now, maybe three years ago that we actually released this show and we talked about what I was doing in peer to peer lending, specifically with my lending club account which is where I had done a lot of peer to peer, P2P investing activity. I wanted to do a podcast where we did an update on this. I think it’d be important to talk about because I think I’ve made some changes to the way that I do things and I think that might be helpful. The original show like I said was number 24, so if you want to go back and listen to it, you can. I’m going to cover just the highlight of where things were at the time. But at the time that we did the show, we were generating after adjusted for losses on notes which if you’re not familiar with P2P, just really quickly, it's where we are an investor in small peer to peer lending activities where we invest $25 in person A and B and C, etcetera and many other investors also invest $25 at a time or $50 at a time, whatever it is until that person has an account funded to pay off some debt and consolidate or to buy a car or go to school or whatever the case is. There’s lots of different things that you can do with peer to peer investing and lending. What I have done is I put some money in there because I think it's very synonymous with the way that we trade options. It’s basically just a big game of math and we know that we can do small position size, control our risk. There’s pretty standard metrics on how often a loan will go bad and what the return rate is if it does go bad or if it does go to default, etcetera. Ultimately, it’s just a big game of options trading as well. You’re just doing it in a different arena. I've been doing this now for a while and originally in that show, number 24, our return at the time and we’ve only been doing it at that point for about two years or so. Our return at the time was at 11.28% adjusted for losses. In the lending club platform, you have the ability to adjust or toggle and adjust your account to show what your return should be, assuming that a certain percentage of the loans that are late or in grace period or late by 30 days or 100 days, like what percentage they roughly calculate average people pay once they’re late 30 days versus 60 days, etcetera. Our return was probably higher than that, maybe 14%, 15% on a top line basis, but once we adjusted for bad loans, bad bosses, then our return at the time was 11.28%. Now, what I had said at the time of the podcast was I fully expected this number to go down because at that time, we had about 1600 notes that we were trading which is a significant amount of notes and at that time, we expected that to go down significantly because the more we trade, the more we’d average into what the historical returns should’ve been. At that time because I have a screenshot on the original show notes I’m looking at, the historical returns averaged around… like their range that they had given for where our portfolio would end it up would end up around 6.5%. Again, we don’t have a lot of cash deployed there, but the whole idea was to have something else working in the background, have these multiple streams of income which I’ll continue to talk about here on this podcast because I think it’s important too. The lending club system at the time had said, “6.5% is where you ideally should be.” At that time, we had about 1600 notes outstanding. Well, fast forward now, a couple of years ago and I'm literally logged into my account right now, our net adjusted return after bad losses is 5.25% right now. We’re still running a little bit lower of their expectation that they had published back then, but things have changed obviously and I know the markets are maybe different now and interest rates are still pretty low, so it might gravitate towards that lower end of the spectrum. Now, we’ve got 5400 notes outstanding, so for me particularly, the risk is spread across many more securities obviously. I still do $25 per security. I haven’t significantly added to this account in probably a year and a half to two years though, so for me, the whole growth in this account has just been reinvesting the same money. It’s grown at a decent clip every year. It’s not losing money by any stretch. I just don't know if I want to still commit cash to this because I think there's probably other avenues that could be better served. I’m not shying away from a very simple 5% return, but I’m definitely not adding cash to it. I'm just letting the cash that’s in there start to continue to compound and add on top of itself. That’s really where I’m at with this. We'll talk about maybe in another day or two here just what we’re doing with other activities if you're interested in hearing what I do outside of options trading. By no means though, like options trading for us is where the vast majority of our accounts and wealth is focused, is in options trading. I think that's the best avenue. But I don't shy away from the fact that I want other streams of income eventually and I want to diversify my income. I don’t always want it to come from one stream and neither should you. I think options trading could be 90% of what you do and you could do a little bit of investing outside of there just to smooth out your returns. That’s what you want and that’s ultimately what we’re after. I think for me though, with lending club, what I’ve seen for sure is I’ve seen a number of things change in the platform not only on the front end, but on the back end. There’s lots of news out there about lending club, so you can obviously search it. But I still think the platform is good. I think the concept is good. Like I said, I haven’t added money to it for no other reason other than I think there’s better opportunities to either invest in trading or to invest someplace else, to generate higher than a 5% return. But I want to see where it’s going to go and I want to leave some cash in there and leave some capital in there to continue to grow. I think what I have seen though is I think I’ve seen the default rates definitely start to creep up on my account with lots of notes. I don’t know if that's just because we’re getting further into payment cycles now on original notes that were maybe 60, 72 months. We’re now starting to get into that time period where people are just paying these things for a long time and they just choose not to pay them for some reason and choose to let them go to default. That’s all still factored into the way that they run their algorithm and figure out how often people are going to totally default and charge off the amounts. But I think that we are seeing more defaults. I think they’ve recognized that they’re seeing more default rates and they’ve adjusted their interest rates to reflect that, so they’re charging more interest upfront to compensate for the fact that people are defaulting maybe to a higher pace later on. I think it’s going to be interesting though just to see how this plays out as we start to really near the latter terms of most of the original notes that I got into, is wondering at what point do people say, “Forget it. Let that that small amount that I still have to pay off go into default.” Or do they just pay it off? I think there’s this interesting dynamic where at the latter term of a note or a loan that you borrow, you either make a decision that you just want to pay it off and get it done with early just to remove the weight on your shoulders if you’re a borrower or you say, “Forget it. I’ve paid on this forever. I’m never going to pay it off.” They forget it. In either case, I think it’s all factored into it. We’ve definitely generated money with it which is good. We’re not growing at an insane clip, but it's been steady and very consistent which is still good for me. But yet, like I said, we’re still not adding to it. I just still want to just let it grow organically from this point and I think there’s better opportunities elsewhere. Hopefully you guys enjoyed this. I did get an email from somebody that just said like, “Hey, what’s going on with that?” That’s really where this show came from today. I know it’s not a typical show, but that’s why we do this podcast. That’s why I do this daily call because I can add some of these things in here that might otherwise not be totally 100% options focused for the moment, but I think ultimately serves you very well. If you are investing in lending club or investing in any of the other peer to peer platforms, I’d love to know what you guys are doing there. Shoot me an email, add a forum post, let us know on Facebook. I’d love to know what you’re seeing as well and definitely start a discussion around that. As always, hopefully you guys enjoy these and until next time, happy trading!