Niall’s virtual diary archives – Sunday 08 November 2020

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Sunday 8 November 2020: 23:52. In yesterday’s entry on my summer holiday in Tenerife, I mentioned that I was a little surprised to realise that I hadn’t posted a thing on #mintos since April, so here are my annualised monthly earnings since then:

MonthAnnualised return for each month, totalNon-earning capitalAnnualised return for earning capital
March 202074.02%0%unaffected
April 2020-55.45%0%unaffected
May 202010.44%0%unaffected
June 202012.10%0%unaffected
July 20203.81%9.8%4.22%
August 202010.36%9.7%11.47%
September 202011.09%9.6%12.26%
October 202010.86%9.5%12%

As described in earlier posts, I morally refuse to invest in short term or payday loans, despite that those pay much better interest rates and have much lower risk, so the above returns are for long term, safest possible (>= A or >= 8 rating), subprime debt on Mintos.

As mentioned in my April entry, in March I scalped all the people fleeing Mintos and made an enormous profit. I then used that profit to exchange all my riskier loans for very safe ones backed by assets (mostly Mogo, the Eastern European car lending giant). As everybody was fleeing Mintos at the time, the spread was only a few percent between riskiest and safest, so the loss in April was less than the profit in March. In short, I rebalanced my investments into safety across March-April, and made a slight profit.

Unfortunately, as the column marked ‘Non-earning capital’ would suggest, I was not out of the woods yet. In July one of the loan orginators I had invested in, Capital Service, went bust which was something I had anticipated in my last post. I hadn’t seen that particular loan originator going bust coming, to be honest, they had been relatively highly ranked but what happened was that their customers paid their loan installments in shops weekly when they bought food etc. Normally that’s a great, reliable, revenue stream but thanks to Covid, all that literally vanished overnight. On top of all that, the Polish government gave a loan payment holiday to everybody in the country, and naturally most of the kind of less wealthy client which Capital Service had (i.e. ones who paid their installments in shops, not by standing order from a bank account) took the holiday. Hence, bye bye lender.

About 10% of my investment was tied up in Capital Service, and I hadn’t been able to get out of it because trading their loans had been suspended very early on, though interest payments continued. We had been expecting the Polish government to bail them out, to be honest, as much of the ruling political party’s support are the sort to have loans from Capital Service, so I hadn’t been particularly worried up until suddenly they announced they weren’t going to pay interest on my loans with them any more. So that portion immediately started non-performing which has hurt monthly returns ever since. If you subtract out the non-earning capital, returns are about normal, despite all the covid lockdown disruption and ever rising unemployment rates in Eastern Europe. I expect to get most of the investment in Capital Service back eventually after wind up, but it’ll be many months out, and I won’t get all of it. Still, it could be far, far worse.

Capital Service no longer paying interest was not the cause of the poor July return, however. The hefty dip in July was because of Mogo car loans rebuying almost all the loans I had with them. Mogo had, for a short while right at the start of covid, been selling loans at 16% but no longer was, so I had been hoovering those up on the secondary market when people sold them. Alas, I was paying a small premium to grab them on the basis it would pay out over the many years of holding them, and they were amongst the safest loan originators on Mintos. And, of course, what happened then was that Mogo repaid in full all loans above 12%, which they are allowed to do at any time on Mintos, and indeed this is one of the big ways you can lose money easily on Mintos (their website prints a big warning when you buy loans off others at a premium). Mogo did this because they knew full well that we’d all buy back all those exact same loans at 11.5%, and they’d no longer need to pay out 16%. If I hadn’t paid a premium to buy those loans, I’d not have lost money, I’d just have earned less in the future than I expected. But I had paid those premiums, so I took a hit. Still, this also could have been far, far worse, I lost about three weeks’ earnings.

Up until end of October I had become 92% invested in Mogo. This was a bit uncomfortable, so many eggs in one basket, but there isn’t much choice for high yielding maximum safety loans on Mintos. Then, Mintos changed how they rank riskiness of loan originators to rank each division of Mogo individually and bam!, now a quarter of my Mogo loans are no longer the very safest loan originators. I took that as an opportunity to diversify out, selling my 6 and 7 rated Mogo loans with lower interest rate in favour of 8 rated higher interest rate non-Mogo loans. As everybody else is doing exactly the same, progress is dribs and drabs, but it’s getting there, and I’m in no rush as Mogo has a group guarantee. I expect by the end of this month to become about 50% invested in Mogo, 45% invested in DelfinGroup, and the rest a smattering of risky near-finished legacy loans which ought to get fully repaid due to buyback guarantee before Christmas (one of my scalp strategies was to buy loans with less than a month of term remaining at hefty discounts by fleeing Mintos investors. The vast bulk paid out, earning me around 100-200% annualised, but this long tail is for a few where the borrower extended the loan repayment by a month six times, and six times is the maximum. So in December the loan originator must repay the capital under the buyback guarantee. Even then, I will have easily made over 10% annualised on this long tail).

Periodically reading the blog commentary on all of this has been interesting. They were once keen on Capital Service, and indeed, if not for face to face covid shutdowns it did look like a good sustainable lending model for reaching less wealthy up-and-coming Eastern Europeans. Lots of people like myself have thus ended up with capital trapped in the Capital Service unwind. Such is life and risk – anybody who had read my guide on Mintos here would know all these is subprime debt, it’s risky.

Interestingly, ExploreP2P’s latest loan originator rankings are similar to Mintos’, except they dislike Mikro Kapital and AgroCredit a lot, whilst Mintos doesn’t care for their favourites luteCredit, Creditstar and Wowwo. As I always did before all this, I choose the common subset of the two rankings, so Placet Group, DelfinGroup and Mogo are the only loan originators with maximum safety ranking on both lists. There I shall stay until the pandemic clears, and hope for the best in the subsequent economic rebound.

You may be reading all of the above and thinking that I did not do well. Yes I did lose a good chunk of my Mintos earnings preceding this, about 4% of capital invested, leaving me with a +8% gain. And I wouldn’t be surprised to lose 10-20% of my Capital Service stake, which would be a further 1-2% of capital invested. +6% return in a year might look rather poor compared to the +12% it could have been.

But you must remember I’m not investing for returns, I am investing to negate inflation on a larger cash pile. On that basis, I am currently almost bang on 1% return, which was almost exactly the average rate of inflation in 2019 in Ireland. Obviously, after income tax on the Mintos earnings, that’s more like 0.5%, so I lost 0.5% of my cash’s purchasing power last year. However, thanks to covid, inflation will be negative in 2020 in Ireland, so as much as covid has hurt my Mintos earnings, there is a corresponding hit to inflation as well. They’ll easily cancel each other out and then some, so I think my 0.5% loss last year should get undone this year.

You should also bear in mind all the calamnities I successfully avoided. I had been heavily invested into ExpressCredit loans from Botswana. I divested completely last year due to getting scared by an ExploreP2P report, in which I lost a bit of income due to inexperience. Had I remained invested in them, I’d have lost everything, as they went down quick and early from covid. I also successfully got myself free of Finko, despite at one time having half my money in them due to me not watching the auto investment bot closely enough. That cost me money to get clear of them, and again, had I not done so I’d have lost half my money since. Lots of loan originators on Mintos went bust, I successfully predicted in advance and avoided almost all of the carnage. I just got caught out by Capital Service because I didn’t expect the Polish government to footgun its financial industry like it did by giving loan repayment holidays to everybody, and then not supporting the lenders. Oh well, you can’t get everything right all the time.

Anyway, I expect more loan originators on Mintos to go bust in the next six months. With a bit of luck, it won’t be Mogo nor DelfinGroup. Thereafter we should economically rebound as lockdowns stop and vaccines start, and I might then start thinking about taking on a bit more risk on Mintos again, especially if Mogo or DelfinGroup repay in full all the higher interest loans they currently are selling in order to drive down their debt costs in a less risky market.

#mintos #p2p-lending

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