Anyone Tried Prosper?

[Geo]

This isn't exactly real estate but I put it here because this seems like the best fit of our forum choices for general investment postings...

Has anyone invested with Proser (prosper.com)???

I started doing a year and a half ago and was hot and heavy with it and then totally forgot about it...

It is pretty cool-

you can lend people money there (or borrow)...

Let's say Jane wants to borrow $5000. She opens a prosper account and submits her loan to all Prosper's lender community. Jane submits that she will pay up to 13% for the loan. When a lender wants part of the action they can lend as little as $50 to Jane and specify the minimum interest rate they would take for this loan. Once enough lenders have jumped in to equal the total of $5000 the loan is then funded. Each month Jane pays on her loan to Prosper and Prosper distributes the funds...

The more stellar a loan applicant is, the lower the risk and the lower the return. The lower a borrower's credit rating and higher their debt to income ratio is, the higher the risk and the higher the return...

What's cool about it is you can diversify money across loans and you can set up "Standing Orders" so that the system automatically funds loans based on preset criteria you establish in whatever $ increments you specify...

Check it out... Let me know your thoughts/experiences...

I'm told that math professors and statisticians are making a killing on this site. I have just been experimenting with lending based on my gut...

Let me know if anyone is interested in starting a Prosper lenders group.

Cheers, GW

[SHELLY]

Just put your extra money here:


http://www.hat.net/album/north_america/canada/british_columbia/burnaby/0000991225_my_home/my_toilet.jpg

[Geo]

Normally I can count on Shelly to post something intelligent, witty or both. Shel, I'm doing my best to not feel personally slighted by your post...

Would you mind telling me why you feel the way you do about Prosper? This isn't some MLM scam. It's a neat concept and I am genuinely asking for your (well thought out/supported) opinion...

Cheers.

[SHELLY]

For starters....fully explain the risks associated with this investment.


.

[elgordoboy]

Normally I can count on Shelly to post something intelligent, witty or both. Shel, I'm doing my best to not feel personally slighted by your post...

Would you mind telling me why you feel the way you do about Prosper? This isn't some MLM scam. It's a neat concept and I am genuinely asking for your (well thought out/supported) opinion...

Cheers.
I remember being intrigued with the idea academically after an article I read a year and a half or so ago. I went to the site and looked it over and interest faded fairly quickly after reading in some of the forums. Now I am intrigued again though...academically. I'm gonna go look again. I don't know why someone would have an advantage beng a mathematician or statitician. I'd be more concerned with those who can game the system. There were a few back when I was reading that seemed to be very proficient at that. I wouldn't take Shelly's comment personally- it was kind of witty and well thought out--since it wasn't directed at anything I said. :lol:

[Geo]

For starters....fully explain the risks associated with this investment.
.


First, let me say I am not trying to convince anyone that this is a good or bad idea for them. I am not trying to convince anyone to lend or borrow money at Prosper. My post was to solicit the thoughts, opinions and experiences of others...

That said, the short answer to Shelly's question is-

The risk is that folks to whom you lend your cash will default on the loan and you will lose money. See the site for the detailed long answer-

They disclose performance data which includes default rates by credit rating and by loan amount. In addition, they show the same risk percentages that banks and credit card companies use to calculate their own risk when deciding to lend. So I am intrigued because if you can crack the math like the credit card companies have then there is potential to do well. In other words, lend to more winners than losers and hedge your bets when you take a chance going for the high rate of return that exposes more liklihood of risk...

Like I said, I heard folks who are great at math are able to tell within statistical certainty what their risk is and then it is just a scalable game...

GW

[elgordoboy]

Quants

[SHELLY]

1. The credit card companies aren't doing too good a job at "cracking the math" ....case in point: "Citigroup, one of the largest banking and credit-card firms in the United States, has announced that it is now building its loan-loss reserves in anticipation of a possible unraveling of auto loan and credit card debt. At the same time the bank is tightening credit card lending standards."

2. The loan pay-back time is 3 years. The lender's money waiting for the loan bidding process, and interest/principle paid back from the borrower, is held in an non-interest bearing account....well, not exactly, the lenders have to pay Prosper a yearly fee to maintain these accounts.

3. Lenders must bid for the loans stating how much interest they will accept from the borrower; the bids are lined in ascending order and those with the lowest interest rates get chosen over those who've bid higher rates. The borrowers with the highest credit ratings, of course, get the lowest interest rates...so the borrowers who will give you the highest return for your "investment" --say 18%+--are the same dirtbags who will take your money and disappear. Do you seriously think they care about another phone call from a bill collector??

4. Seriously...stop and think for a moment....these people are in debt for a reason, most have tapped out every source of cash, from mom to payday lenders (some are even asking for money to pay off payday lenders)....and what's more, we're in a recession, so money is going to be even harder to come by for these folks down the line.

5. I wouldn't recommend this route for "investment" for anyone who still has any kind of debt they're paying off (credit cards, car loans, mortgage, friends & family you owe money to); hasn't fully funded their retirement accounts; hasn't got a 6-12 month emergency fund; and hasn't fully funded a family vacation/outing. Even then, I think a better "investment" for this EXCESS money would be to hand it over (as a gift, not a loan) to a close friend, neighbor or charity you know could use a little help to get by--because you are truly well off.

It's true that there are people out there who may be making some money on Prosper (the owners of Prosper seem to leap to mind) and may be making above market returns (interest income that is taxed at the investor's marginal tax rate) on their EXCESS money--there are also those who have lost their money due to defaults and have made dismal returns or lost all their "investment." This is not "investment," it is a purely speculative play due to its risk and have returns that drag out over a period of 3 long years (the TVM [look it up] is not on your side).

You know of the rewards, here's the risk side: http://www.lendingstats.com/loanPerformance?lenderId=&lenderId=&keyword=&dtiLow=0&dtiHigh=-1&loanAmountLow=0&loanAmountHigh=25000&locationFilter=&_ros=4&_ros=5&_ros=6&_ros=7&_ros=8&_ros=9&_ros=10&_ros=11&startDate=2005-11-01&endDate=2008-01-26&accountVerified=&homeOwner=&automaticFunding=&submit=Generate

By the way, geo, you mentioned that you were "hot and heavy" into Prosper a year-and-a-half ago, and then "totally forgot" about it.
Can you expand on this statement and relate how much you made?

(P.S. I don't believe you are trying to convince anyone this is a good idea, and the photo wasn't meant as a personal affront to you. Oh, and here's an old saying you might find comes in handy down the road, "There are lies, damn lies and statistics.")

[SHELLY]

Quants

Might I remind everyone that Quants were behind the current CDO/SIV problems plaguing the financial world.

If you have several hours of your life you would like to needlessly throw away, I recommend you read this:


http://imshopping.rediff.com/books/imagechek/books/pixs/03/0471394203.jpg

[Geo]

1. The credit card companies aren't doing too good a job at "cracking the math" ....case in point: "Citigroup, one of the largest banking and credit-card firms in the United States, has announced that it is now building its loan-loss reserves in anticipation of a possible unraveling of auto loan and credit card debt. At the same time the bank is tightening credit card lending standards."

2. The loan pay-back time is 3 years. The lender's money waiting for the loan bidding process, and interest/principle paid back from the borrower, is held in an non-interest bearing account....well, not exactly, the lenders have to pay Prosper a yearly fee to maintain these accounts.

3. Lenders must bid for the loans stating how much interest they will accept from the borrower; the bids are lined in ascending order and those with the lowest interest rates get chosen over those who've bid higher rates. The borrowers with the highest credit ratings, of course, get the lowest interest rates...so the borrowers who will give you the highest return for your "investment" --say 18%+--are the same dirtbags who will take your money and disappear. Do you seriously think they care about another phone call from a bill collector??

4. Seriously...stop and think for a moment....these people are in debt for a reason, most have tapped out every source of cash, from mom to payday lenders (some are even asking for money to pay off payday lenders)....and what's more, we're in a recession, so money is going to be even harder to come by for these folks down the line.

5. I wouldn't recommend this route for "investment" for anyone who still has any kind of debt they're paying off (credit cards, car loans, mortgage, friends & family you owe money to); hasn't fully funded their retirement accounts; hasn't got a 6-12 month emergency fund; and hasn't fully funded a family vacation/outing. Even then, I think a better "investment" for this EXCESS money would be to hand it over (as a gift, not a loan) to a close friend, neighbor or charity you know could use a little help to get by--because you are truly well off.

It's true that there are people out there who may be making some money on Prosper (the owners of Prosper seem to leap to mind) and may be making above market returns (interest income that is taxed at the investor's marginal tax rate) on their EXCESS money--there are also those who have lost their money due to defaults and have made dismal returns or lost all their "investment." This is not "investment," it is a purely speculative play due to its risk and have returns that drag out over a period of 3 long years (the TVM [look it up] is not on your side).

You know of the rewards, here's the risk side: http://www.lendingstats.com/loanPerformance?lenderId=&lenderId=&keyword=&dtiLow=0&dtiHigh=-1&loanAmountLow=0&loanAmountHigh=25000&locationFilter=&_ros=4&_ros=5&_ros=6&_ros=7&_ros=8&_ros=9&_ros=10&_ros=11&startDate=2005-11-01&endDate=2008-01-26&accountVerified=&homeOwner=&automaticFunding=&submit=Generate

By the way, geo, you mentioned that you were "hot and heavy" into Prosper a year-and-a-half ago, and then "totally forgot" about it.
Can you expand on this statement and relate how much you made?

(P.S. I don't believe you are trying to convince anyone this is a good idea, and the photo wasn't meant as a personal affront to you. Oh, and here's an old saying you might find comes in handy down the road, "There are lies, damn lies and statistics.")

Hi Shelly,

Thx for the reply. I respect your knowledge and your opinion. To answer your question-

When I said I was "hot and heavy" I meant that I spent a lot of time at the site browsing through loan apps, lurking on their message boards and trying to develop a strategy for lending for a solid return...

In the spirit of full disclosure- In total I have under $1000 loaned out to a diverse mix of borrowers. Interestingly enough, every loan I made to an AA or A borrower is being paid back beautifully and I am enjoying a return of around 13% on these types of loans. And of those couple of gambles that I made to high risk borrowers- the majority of them have defaulted and/or are in bankruptcy status- go figure. Last I did the math I was around 6% ahead for my first year. If I (woulda, coulda, shoulda) stuck with only my AA and A loans my returns would be pretty solid and I would be singing Prosper's praises...

I was hoping with all the savvy folks on sowal that I might get lucky enough to find someone who has cracked the code on Prosper and was willing to share. Hence the feelers I threw out for anyone interested in a lenders group...

I will take your advice to heart as always and again, thx for the response...

cheers!

[Geo]

Might I remind everyone that Quants were behind the current CDO/SIV problems plaguing the financial world.

If you have several hours of your life you would like to needlessly throw away, I recommend you read this:


http://imshopping.rediff.com/books/imagechek/books/pixs/03/0471394203.jpg


Shel,

Sarcasm is turned off. This is a genuine request-

For those of us who don't have several hours of our lives to throw away learning what NOT to invest in (e.g. Prosper, SoWal real estate, quants/stats as the means of getting rich, etc.), could someone who clearly seems to know what they are talking about express an opinion on what a 34 year old SHOULD be investing in???

G
:idontno:

[elgordoboy]

I have some friends who have been very successful at trading. They are very reluctant to give specific advice due to human nature. Like the fact that I'll be mad at them when I lose money. Maybe I'll lose the money because I couldn't stay in the trade because I didn't have deep enough pockets but the trade for them ultimatey becomes profitable. Whatever the reason anything other than very general advice is usually not given. Shelly may feel differently but I am putting this out there in case he doesn't feel differently and won't have to say it himself and come off like a d**k.

[SHELLY]

Shel,

Sarcasm is turned off. This is a genuine request-

For those of us who don't have several hours of our lives to throw away learning what NOT to invest in (e.g. Prosper, SoWal real estate, quants/stats as the means of getting rich, etc.), could someone who clearly seems to know what they are talking about express an opinion on what a 34 year old SHOULD be investing in???

G
:idontno:

It's very important that you have a good solid foundation for your retirement investment money and that you have the proper asset allocation to match your investment goals and risk tolerance.

Since the tech bubble and again during the RE bubble, there's too much emphasis on going after the fast and easy money--we all see how that turns out.

I just finished a excellent easy read written by Jack Bogle. I suggest you buy it, or check it out of the library...http://valueblogreview.blogspot.com/2007/03/book-review-john-bogles-little-book-of.html Reading this book is an excellent beginning. You're a bit younger than I, so given the future of Social Security and pensions, it is terribly important that you get a handle on your retirement savings plan, well....like....yesterday.

Once you get a comfortable nest egg in place, you can then blow any "extra money" speculating in some of these hair-brained get-rich-quick schemes....I prefer spending mine on vacations and enjoyable evenings of food & wine with family & friends--your mileage may vary.

.
[Disclaimer: I don't give personal investment advice or portfolio management services. For me to give individual investment advice on the message board (privately or publicly) would be unethical, illegal or both.]

.

[SHELLY]

I have some friends who have been very successful at trading. They are very reluctant to give specific advice due to human nature. Like the fact that I'll be mad at them when I lose money. Maybe I'll lose the money because I couldn't stay in the trade because I didn't have deep enough pockets but the trade for them ultimatey becomes profitable. Whatever the reason anything other than very general advice is usually not given. Shelly may feel differently but I am putting this out there in case he doesn't feel differently and won't have to say it himself and come off like a d**k.

I knew several "day traders," most of them had a nervous tick; they had bottles of Tums on their desk, in their car and on every flat surface in their homes; they splurged on buying you dinner one night, and asked you for lunch money three days later; and those that are still alive are charter members of the Hair Club for Men.

.

[Smiling JOe]

geowickey, You write, "In total I have under $1000 loaned out to a diverse mix of borrowers."

I am curious to know what types of reasons are people giving to need to borrow amounts of less than $1000? I think that someone needing to borrow $100 and does so by going online to post credit info and a summary of why they need the cash, would be smart enough to do something productive to get the money. Wash a few friend's cars or rake some lawns. Just sounds shady to me. I have never been to prosper.com.

[elgordoboy]

I knew several "day traders," most of them had a nervous tick; they had bottles of Tums on their desk, in their car and on every flat surface in their homes; they splurged on buying you dinner one night, and asked you for lunch money three days later; and those that are still alive are charter members of the Hair Club for Men.

.
lol..no doubt
The guy in particular I am thinkng of does risk arbitrage. A few trades a year no refresh button every 30secs. He is the most disciplined and deliberate person I know. This seems to have filtered down into all parts of his life. He is bright but I would say the discipline is the reason for his success.

[Geo]

geowickey, You write, "In total I have under $1000 loaned out to a diverse mix of borrowers."

I am curious to know what types of reasons are people giving to need to borrow amounts of less than $1000? I think that someone needing to borrow $100 and does so by going online to post credit info and a summary of why they need the cash, would be smart enough to do something productive to get the money. Wash a few friend's cars or rake some lawns. Just sounds shady to me. I have never been to prosper.com.

Hi SJ. You've misunderstood (through no fault of your own). Check out the site and it'll make more sense. But the short of it is that people don't really borrow only $1000. The "under $1000" that I have out there is in increments of $50. So my money is spread out across many loans to people varying in their amount borrowed, their reasons for borrowing, their credit score and their Debt to Income ratios...

The idea for me was to diversify to minimize risk. This is why I think the site is such a neat concept because the Prosper folks will give Jane one loan check for the $5000 she borrowed and Jane will write one check each month for repayment. But that one $5000 loan could have come from 100 people and each month those 100 people get PI payments...

Hope this helps...

G

[Smiling JOe]

Thanks for the explanation. That makes better sense. Are you able to see how much more is needed to completely fund each loan? I wonder if there is any momentum lending.

[Geo]

I knew several "day traders," most of them had a nervous tick; they had bottles of Tums on their desk, in their car and on every flat surface in their homes; they splurged on buying you dinner one night, and asked you for lunch money three days later; and those that are still alive are charter members of the Hair Club for Men.

.

OK Shelly. No get rich quick schemes. No speculating. No trying to beat the market with mutual funds that have costly fees. Just go with an Index so that over time I am guaranteed to do as well as the market which historically for any long period of time will get anyone rich. I recognize that you are not giving me any advice here. :clap:

So a few questions-

If I wanted to regularly put money into an index which ones are highly regarded? What is the best way to go about it? Who would I call? What website can I go to to make it happen?

[Smiling JOe]

Because of its low fees, Vanguard S&P index fund is highly regarded. (I don't own it.) Vanguard has a website, and you can do it all online.

[Geo]

Because of its low fees, Vanguard S&P index fund is highly regarded. (I don't own it.) Vanguard has a website, and you can do it all online.

Thank you thank you. Anyone else recommend an Index?

[Smiling JOe]

You can also buy Spyders (S&P Depository Receipts), aka -SPY on the American Exchange and other market indexes without paying any management fees. Both Spyders and the S&P500 Index, are designed to mimic the S&P 500. You can set up a brokerage account with a brokerage company, like Ameritrade, and pay $15 per trade. You can continually add to your position with monthly deposits and buys, or maybe you do so quarterly, or annually. I'm sure if you google Spyders, you will have more reading that you want. Fool.com is a good source for general and specific info on stocks.

If you are more interesting in the NASDAQ stocks, you might try the NASDAQ 100, aka - QQQQ. One share gives you a small ownership in each of the top 100 companies on the NASDAQ board. Again, you can purchase through brokers such as Ameritrade, and buy on a regular basis, dollar cost averaging.

[Geo]

You can also buy Spyders (S&P Depository Receipts), aka -SPY on the American Exchange and other market indexes without paying any management fees. Both Spyders and the S&P500 Index, are designed to mimic the S&P 500. You can set up a brokerage account with a brokerage company, like Ameritrade, and pay $15 per trade. You can continually add to your position with monthly deposits and buys, or maybe you do so quarterly, or annually. I'm sure if you google Spyders, you will have more reading that you want. Fool.com is a good source for general and specific info on stocks.

If you are more interesting in the NASDAQ stocks, you might try the NASDAQ 100, aka - QQQQ. One share gives you a small ownership in each of the top 100 companies on the NASDAQ board. Again, you can purchase through brokers such as Ameritrade, and buy on a regular basis, dollar cost averaging.

Dumb question-

If I was wanting to put aside something for my son- say $200 a month in a Spyder. If it costs me $15 per trade then I am paying 7.5% each month. Yes??? Am I supposed to do something with my taxes to get this money back? If this is just how it is then wouldn't I just be better off with my 5% online savings account???

Thx for the help.

G

[Smiling JOe]

You are correct about the $15 cost per trade being 7.5% of the $200. That is why I pointed out that one might want to save up monthly, depositing less frequently, like quarterly or annually, thereby decreasing the costs. $200 per month for six months = $1200. $15 cost on that amount is now 1.25%. Save it for 12 months, and the cost for buying is now only .625%. I will note that there are advantages of purchasing 4 times a year compared to one time per year, the biggest being dollar cost averaging. You may pay $15 per trade four times a year compared to only one time, but you may also be making up the difference of the $45 by buying in at lower market prices when you buy more frequently, such as quarterly. What if you decided to save the $45 by buying only once per year, after you have been holding the money for 12 months? You are not allowing that money to work for you, and you might purchase on the day the market was at it highest. By spreading out the investments into quarterly or semi-annually purchases, you may be able to get in at more of an average price for the stock. I'm not sure how old your kid is, but the earlier you start, the more the value should appreciate.

As for your question of whether you are better off with a %5 savings account, it all depends, but over time, the stock market has averaged returns of somewhere around 10% per year. Compare that to your 5%. Also calculate in the taxes you will pay on the interest earned in your savings account. With the QQQ or SPY, you pay taxes on the growth when you sell the stock, thereby giving you the ability to use the growth to compound, rather than letting the gov't reap the benefits of compounding interest in the way of taxes.

Sounds like you would be a good candidate for hiring a CFP (Certified Financial Planner), who charges a flat fee for services. If they try to charge a percentage of your portfolio, RUN, do not walk, to the closest exit.

[SHELLY]

OK Shelly. No get rich quick schemes. No speculating. No trying to beat the market with mutual funds that have costly fees. Just go with an Index so that over time I am guaranteed to do as well as the market which historically for any long period of time will get anyone rich. I recognize that you are not giving me any advice here. :clap:

So a few questions-

If I wanted to regularly put money into an index which ones are highly regarded? What is the best way to go about it? Who would I call? What website can I go to to make it happen?

Read the book...no shortcuts. I swear it is short and easy to read with no big words.


.

[SHELLY]

Thanks for the explanation. That makes better sense. Are you able to see how much more is needed to completely fund each loan? I wonder if there is any momentum lending.
SJ,
Here's a link to the stories of the folks wanting loans: http://www.prosper.com/lend/?cg=HR&ena=False&enf=False&eng=False&enh=False&gc=-1&gr=0%2c1%2c2%2c3%2c4%2c5&hd=True&lq=&m=1&nc=True&pg=2&sf=8&tg=1

Some of the most interesting ones are the folks begging for cash to start or expand their businesses. Usually folks looking to get small business loans from a reputable source (read: bank) must actually do some homework and come prepared with a business plan that includes data on marketing, cashflow, profit, expenses, etc. On Prosper, some have only come up with a one paragraph plea--that sometimes doesn't even explain the product or service they are selling. Amazing.

.

.

[Geo]

Read the book...no shortcuts. I swear it is short and easy to read with no big words.
.

While you might think I am dumb for playing with Prosper, I'm actually a fairly bright guy and am not afraid of books with big words.
:lol:

Admittedly, I was going to try to skip the read if you told me that I nailed its theme in one or another of my previous posts. But alas, I will take your advice and read it.

Cheers and thx again. I am going to let this one die now...

GW

[Busta Hustle]

Old Man Potter, please report to the white courtesy phone.

[SHELLY]

While you might think I am dumb for playing with Prosper, I'm actually a fairly bright guy and am not afraid of books with big words.
:lol:

Admittedly, I was going to try to skip the read if you told me that I nailed its theme in one or another of my previous posts. But alas, I will take your advice and read it.

Cheers and thx again. I am going to let this one die now...

GW

I don't think you are dumb....but I can guarantee that you will be a heck of a lot smarter after you read the book.

I'll be interested in hearing from you after you've read it. If you tell me that you think it was just rubbish and a waste of your time--I'll donate the cost of the book to a charity of your choosing.


.

[Smiling JOe]

OMG, Shelly. That was a funny page of loan requests. I especially liked this one (http://www.prosper.com/lend/listing.aspx?listingID=270401), wanting $11,000 with 20.47APR interest for 3 years. Why does he want the loan? Because he wants to get rid of his credit card, which has high interest. I thought my credit card interest of around 11% was high, but damn -- if he is willing to pay 19%, I'd hate to see what his credit card company charges.

[SHELLY]

OMG, Shelly. That was a funny page of loan requests. I especially liked this one (http://www.prosper.com/lend/listing.aspx?listingID=270401), wanting $11,000 with 20.47APR interest for 3 years. Why does he want the loan? Because he wants to get rid of his credit card, which has high interest. I thought my credit card interest of around 11% was high, but damn -- if he is willing to pay 19%, I'd hate to see what his credit card company charges.

But wait! That's not all! This same guy got approved for a $4,000 loan in April '07 so he could......wait for it.......pay off credit card debt: http://www.prosper.com/groups/member_home.aspx?screen_name=hardworkindad&display_mode=3

Don't you love the snapshot of him in the Aloha shirt holding the golf club?

There was another sad story of a guy begging for bucks to pay off the credit cards which included a photo of him with his son riding their Skidoo.

If I was going to lend these folks money I'd be looking for an ad that included a photo of the guy cutting up all his credit cards and another of him working a second job as a school night janitor.

.




.

[spinDrAtl]

Thank you thank you. Anyone else recommend an Index?

If you opt for an index fund, say the sp500, then theoretically they should all return the same rate as the sp500 and you should go with the fund that has the lowest expenses/fees.

Most companies will not charge you any transaction fee if you are on an automatic monthly deduction from a checking account. That is usually true even if you are buying a no-load managed fund as opposed to an index fund. You can still research management fees for those funds but on no-load funds, the management fees are reflected in the share price and not deducted from your investment.

[egrp]

i will just put in my 2 cents quickly...

i have looked into prosper as way to invest in a vehicle that has little correlation with the overall stock mkt, in this research i found that many of the lenders where very dissapointed by proper's collection process...prosper makes money by lending but it really has little incentive to collect since it is basically a loan broker and doesnt take the credit risk...i think this is an inherrient weakness in the model.

although academically it is interesting...not for serious investors who want to place decent sums of money imho.