I’m baaaaaack! But that’s not to say I am returning empty handed. . . You did notice that I took a nearly 5-month sabbatical from Stockpeer blogging—right? The catalyst was the arrival of my second child, a dangerously sweet little girl who has tipped life into the super busy zone. But a secondary reason for taking a break is that I have been exploring some new types of investment. Though I’m still experimenting, I am ready to share the low-down on what I have been playing with, starting with an overview.
Before I get into what Peer-to-Peer (P2P) lending is, I should explain why I was looking for a new asset class. Although I mostly blog about options trading, I do invest in multiple strategies via my investment overflow plan. I predict that stocks as an asset class are likely to be flat to bearish over the next 3 years—making it tough to achieve a good return via a buy-and-hold strategy—so I have been seeking other asset classes. Enter P2P lending. Companies such as Lending Club and Prosper have built marketplaces that match people looking for personal loans with investors willing to lend money for a return.
I believe the timing for this type of investment is perfect—and I am shooting for a 10 to 15% annual return with this strategy. Main street is doing great: employment is on the rise and in the foreseeable future I anticipate that the stock market will be more affected by international issues than domestic, meaning that downturns should not have a major effect on borrowers’ ability to pay back their loans. More details on P2P lending in a future post, but for now here are two great resources to check out: LendingMemo and an episode of the Option Alpha Podcast.
Trading Weekly Put Credit Spreads
As many of you know, I like to day trade the SPY and have been developing a way to backtest the strategy so I can automate trading. What I have figured out is that drawing on my judgment—that is, my personal experience combined with a steady flow of information via CNBC—elevates day trading to profitability. And this truth is problematic for me because I hate allowing emotion to enter into trading: I prefer using backtested systems that control when to buy and sell.
And so, in an effort to cut back on day trading I turned to trading weekly options on the SPY. The basic tenets are the same as those for my monthly put credit spread trading activities but within a much narrower timeframe. I sell a put credit spread on a Friday or a Monday and I let it expire the following Friday, keeping the credit. This strategy involves risk, but it can be predictable and returns as much as my SPY day trading. Tons more on this topic soon.
Investing in Real Estate With Crowdfunding
My friend Eduardo Pinheiro turned me on to crowdfunding real estate investments through Realtyshares. The basic concept is very similar to P2P lending: an operator raises money via equity or debt for a real estate investment and passive investors cover a portion in hopes of reaping an annual return around 15%. Realtyshares is a marketplace for connecting operators with investors. I will have much more to say on this topic in the future, but in the meantime check out Dr. Pinheiros’ blog posts:
Is the Stock Picker Dead? Should I Spray and Pray?
In my nearly 15 years of investing a certain trend has become more pronounced each year: namely, the extra alpha your portfolio can return by your being a wise stock picker is decreasing. Stocks move as a herd. The market as a whole controls the value of stocks, and in general everything goes up on good news and down on bad news.
A concurrent trend is “spray and pray,” a strategy I first encountered in the venture capital world. The idea is to invest a little money in every startup out there based on the assumption that 33% will wither and die, 33% will yield small returns, and 33% will cha-ching. Spray and pray investors strip judgment, emotion, and expensive due diligence out of investment—they are simply playing probabilities, utilizing an approach similar to my credit spread trading.
Given the demise of the stock picker and the rise of spray and pray, why bother doing tons of research on a company? Why spend time poring over quarterly reports? Why not manage 100 stocks rather than 15? How is spray and pray different from an index fund? Stay tuned because these are questions I am exploring.
I wrote this post to assure you that I am still alive and so is the Stockpeer blog. And to give you a preview of the investments I plan to cover in depth in posts to come. If you have any interest in or experience with these topics, message me—I would love to chat.