Why I am Liquidating my Lending Club Account

After giving my Lending Club Fail post some further thought, I have decided to cash out my position in Lending Club notes. This decision did not come easily, and I have rolled this idea around for a while now.

I will exit my position by not-reinvesting any of the cashflow from the notes and then periodically pulling out the cash. I have about 5K in Lending Club, so this could take a while. I have several reasons for doing this, and I’m going to use this blog post to rationalize the decision. Also, I bought some shares of Lending Club stock so I have a few thoughts on that below.

img-lending-club-dashboard

The Return is Not that Impressive (given the risk)

When I initially decided to fund a Lending Club account, my goal was to chase double digit returns. This may sound stupid, but I’m young and stupid so what can I say. After a year and a half of so of investing with LC I am right around a 6.5% return. Nothing to sneeze at, but a far cry from what I was originally gunning for. Plus, I think these Lending Club notes are pretty risky, so I am not sure if a 6.5% return is justifiable.

I will admit that part of the poor returns are due to an over-aggressive and poor strategy on my part. And as an aside, my goal here isn’t to bash Lending Club notes. I am just calling this as I see it, and as it applies to me. Some people with Lending Club accounts are seeing double digit returns, and I think that’s awesome. Personally, I’m looking to scale back my position and seek out a greater return.

I’d Rather Invest in an Asset Backed Security

One of my biggest problems with Lending Club is the fact that the notes are unsecured, and I think I can find less risky debt to buy that will yield a similar or better return. I’m not sure what lengths LC goes to in order to ensure the note perform (eg, what their collection process is like if the borrowers don’t perform). I can speak from anecdotal experience that there are significant chargeoffs on these loans (especially if you invest in the riskiest) and I don’t see any reports of LC collecting on any of this bad debt. If they are, that money sure as hell isn’t finding it’s way back into my account. Since LC takes their cut off the top, it’s not really clear to me what Lending Club’s incentive is to make sure these notes continue to peform to their maximum potential.

Sure LC claims to have measures in place, and I’m guessing they sue on some of these notes, but they are probably not as aggressive as a credit card company. Credit card companies sue on their notes. If you don’t believe me, take a trip to your local Courthouse on small claims court day. 75% of the people there have been sued by debt collectors.

So with all of that in mind, there seem to be a lot of internet crowdfunding start ups in the real estate space. The nice thing about this is there is an asset to levy upon if the shit hits the fan. Sure that asset may fluctuate in value, but I doubt we will see the categorical clusterfuck that we saw during the great recession. If the loan to value ratio is appropriate you mitigate your downside and have some collateral.

I’d Rather Invest in Something that Runs Counter-Cyclical to the Stock Market

Lending Club advertises itself as an investment that runs counter-cyclical to the stock market, conjuring visions and safety and stable returns. On the surface that may be true. Lending Club notes don’t seem to have the gyrations of a stock. However, on a more macro level I am not sure if this is accurate. I will be very curious to learn what happens to a Lending Club portfolio if the economy tanks for an extended period if time.

img-lending-club-vs-stock

This is uncharted territory, as Lending Club hasn’t been around through a recession yet. Who knows, maybe these notes will hold up fine. Or maybe we will see a massive default rate. It’s anyone’s guess and at this point given the somewhat soporific returns of my note portfolio, I’d rather have some liquidity to potentially invest in something that I know runs counter to stocks.

Lending Club Stock

OK, I’ve spoken enough about liquidating my LC portfolio. And I don’t know if I will completely liquidate it, but I want to at least cash out half of it and pare back my position. My guess is this could take a while, although I already withdrew $75 after the first week of turning off auto-reinvest.

What I want to do now is talk about Lending Club Stock. LC stock has floundered since it’s IPO, and it recently took a beating after all the controversy with the CEO.

I have a small portion of my portfolio that I use to play around with individual stocks, and I have decided to go long on LC and picked up $2,000 worth of shares at $4.20/share. Right now it’s trading a little below $5. I have no idea where it will go (hopefully up, obviously), but knew that the price was approaching book value, and despite my personal misgivings with LC, I still think the business model has legs. I don’t know how long I will hold this stock – this is pure speculation. Akin to going to Vegas and putting 2K on black.

If it goes up much higher I’ll probably just sell and invest the proceeds in index funds (where the majority of my money is). But I thought this could be a cool opportunity to pick the stock up at a discount so lets see what happens. I’ll probably win the Darwin Award for personal finance blogging. As always, this is certainly not investment advice.

I’ll let you know what happens. My goal with the blog is to share my successes and failures, and if this fails like my original Lending Club experiment did, then I’ll let you know.

Republic Wireless – A 1.5 Year Review and Thoughts on Smart Phones

I made the switch to Republic Wireless in late 2014. I was paying something like $110 a month for an iPhone through Sprint, and cut that bill down to $30 by trading in my iPhone for an Android device. 1.5 years later and I don’t regret the decision at all.

For some people, the transition from a brand name cell service to Republic Wireless might sound kind of scary. Smart phones have become a huge part of our lives, and you get what you pay for, right? I am not so sure, but frankly I may also not be the best person to ask. I was never one of those people glued to their smart phones. That bullshit always bothered me. I’d rather be present and in the moment, than have my head up my ass smartphone.

So the decision to switch to a low cost provider was probably easier for me than most normal people. I don’t use the phone all that much. Maybe a couple dozen text messages a week (half of which say “I am on my way home”), a handful of phone calls, and no apps besides banking apps.

For a while there I was on Instagram for my income producing website, but I found myself getting sucked into Instagram. It was the first thing I looked at when I woke up. I began checking it compulsively when I had a minute. It was a complete waste of time, a mental crutch, and a bad habit that I decided to kick like cigarettes or video games.

I also decided not to put work email on my new Republic Wireless phone. Again, when I had work email on my phone, I found myself compulsively checking and responding to emails – emails that weren’t even time sensitive or particularly important. I have always been good about getting back to people. My work computer is a laptop, and I take it home with me at night. Invariably, I find myself checking email on my laptop every time I am on the computer; whether it’s in the evenings or on the weekends (don’t tell my clients). So I feel like I check my email too much as it is. I never put work email on my phone and haven’t regretted it.

I did have my personal email on my phone for over a year, and decided relatively recently to uninstall it from my phone because, once again, I was compulsively checking my regular email. And 9.5 times out of 10 there were no cool emails in my inbox. The vast majority of my personal emails are spam, bill notifications, website/social media notifications, etc. Occasionally I’ll get a nice email from a friend or family member, but most of the time it’s just a bunch of crap. Yet I found myself instinctively checking my email on my phone every time I went to the bathroom. After a while I had to ask myself “Why?” What does having email on your phone do for your quality of life? And how does it impact your present state? Your ability to concentrate or appreciate the people and things around you? For me, the answer was clear – regular email had to go.

Despite my reluctance to use any kind of app on my cell phone, I still find having a smart phone handy. The maps feature has gotten me out of a bind plenty of times, and it’s nice to have access to the web for quick searches, light browsing, etc. Even the calculator gets some use.

But I don’t listen to music on my phone, watch TV, constantly feel the need to be in communication with people via text or social media, etc. I think that makes me something of an exception to the rule, but I also think that is a good thing. To have uncommon results you need to do uncommon things. Only dead fish swim with the current, and I feel that so many of us are just swimming with the current because it is the path of instant gratification and the least resistance. This is the antithesis of everything I am trying to accomplish in life.

The Review

So I guess this is my way of saying that if you are one of those people who really care about smart phones, use them for work, etc., then this is going to be a pretty shitty review. I use my smart phone less than most people. For work I have a landline that doesn’t even have caller ID. That phone is my lifeline to employment. Thousands of dollars pour through that phone every week in the form of current and prospective clients, adverse parties, etc.

Ok, with all of that out of the way, lets talk about my experiences with Republic Wireless. Republic Wireless is a low cost provider that claims to keep the cost down by encouraging it’s customer base to use their phones through WiFi when they can, and only use cell service when they need to. If that sounds reasonable, then they can offer you phone service at a fraction of the cost of a household name like Sprint, AT&T, etc.

This proposition sounds damn reasonable to me. First of all, I don’t really use my phone (so why pay for a fancy service if you are hardly going to use it?). But when I do, most of my time is spent at home (where there is Wifi) and at my office (where there is wifi). Whenever I have needed to send a text message or make a phone call outside of my home or office, Republic Wireless has worked fine for my purposes. To be completely honest I was never that impressed with Sprint, and would say the cell coverage of Republic Wireless in my area seems to be comparable to Sprint.

Of course, this is the big variable, as the United States is a massive country and Republic Wireless may have better reception some places than others. I was lucky to get pretty good reception where I live, and I represent a single data point.

I have noticed that the Republic Wireless 3G internet is usually pretty slow. I try not to use it much, but I distinctly remember getting frustrated with the phone when trying to do a basic search and not being on WiFi. This is probably not the best choice if you are constantly searching stuff on Google and don’t have WiFi handy. When tapped into my home or work WiFi, the phone works wonderfully.

Also I think it’s important to talk about the cost of the phone. I ended up buying an Android equipped Motorola “G” phone through Republic Wireless for $180 when I signed up for the service. I bought an Otter Box for an additional $30. This was my first Android phone and I’m (obviously) not a big phone geek, but I have no complaints about the phone. The operating system is responsive, the screen is big and bright. It does everything I need it to and a lot more. Paying cash for a cheaper phone is preferable to paying for a $600 iPhone. Whether you buy the iPhone outright or whether it comes “free” with your plan, you pay for it regardless.

Republic Wireless – Final Thoughts

All said I am really happy with my decision to switch to Republic Wireless. Assuming I paid $100/month for Sprint and $30/month for RW, I save almost $1,000 a year with this service. For most people that is a significant money. Even if you make $100k a year, $1,000 represents almost 1% of your gross annual income – for a single stupid cell phone. I’m very happy to slash that bill down to $350 a year.

If you run a business that is heavily reliant on cell phones, then I would not recommend this service. In that case I think it makes sense to pay for a more consistent and reliable offering. If I didn’t have a landline for work, I’d probably have a $100+/month cell phone bill. But for most people I think this will work out fine. And if you are one of those people glued to your cell phone then I would encourage you to not only reduce your cell phone bill by switching to Republic Wireless, but to also reduce your cell phone use. It’s a big world out there – try being present for a change rather than obsessing over Facebook statuses and non-time sensitive communications.

If you have trouble weaning yourself off of your cell phone one tip is to simply turn off the ringer / notifications. I’m talking about making the phone completely silent (and no vibrations either). Like Pavlov’s dogs, we have begun trained to respond to sound and vibration. The best way to rid yourself this affliction is to turn it off. Another tip is to uninstall time wasting email and social media apps. I used to be as into this stuff as the next guy, and I can tell you with confidence that I don’t miss it. I also don’t miss my ~100/month cell phone bill either.

Bicycles: God’s Gift to Transportation

One thing I have always enjoyed about MMM’s blog is his appreciation for bicycles. I grew up riding bikes. I remember spending a lot of time on my Costco mountain bike, riding around to various creeks in my neighborhood, fishing for bass and generally getting into trouble. It was my first taste of freedom as a child.

That fell to the wayside somewhat in high school, but when I went to college I really grew to appreciate the bike, and it was there that I determined this was a superior means of transportation. I had a car, but in the middle of my junior and senior year it blew a head gasket on the way to work one summer, and for my final year of school I was stuck peddling my way to class. I really enjoyed this and loved riding around the city of New Orleans; whether it was riding to the grocery store or sweating out a hangover. New Orleans is a visual feast, and no 2 streets are the same. One moment you are in a charming part of town with beautifully maintained historic homes, the next you are dodging potholes and riding by dilapidated shacks. After Katrina the shacks might be literally piles of rubble. Razed buildings or shells of what once was.

And there are so many little sections of New Orleans to explore. What is so great about a bike is that you don’t “need” to go anywhere – you simply need to have a desire to explore. I recall turning on to streets because the mood struck me, riding for hours only to stumble on some interesting park or graveyard, or an old abandoned factory. Without a doubt

And in law school I also rode around quite a bit. By that time I had bought a new vehicle (an old beat to hell diesel pickup truck). The nice thing about pickup trucks is that there is plenty of room to throw a bike in the back. Gainesville is a small quiet town, where it is easy to get around on a bike if you pick your routes carefully and don’t mind arriving at your destination covered in sweat. At first this was a problem for me, but I quickly got over myself, as a student no one really cares – especially when the uniform was shorts and a t-shirt.

Compared with New Orleans, Gainesville is a pretty boring place, but still I recall many lazy afternoons spent peddling around the quiet tree lined streets. Really the entire town simply circles the university, and it’s one big trap to collect all of the student money. Restaurants, bars, head shops, convenience stores; the staples of a student. Still, Gainesville had its charms sorta, and riding beats driving… and it sure as hell beat walking.

I decided to buy an old road bike when I arrived in Gainesville. I bought an old Schwinn World Sport off Craigslist for $75. I took it to a bike shop to buy a light, and the old man behind my counter told me I shouldn’t waste my money on an old bike like that. I still have that bike, but he was probably right. I spent a lot of time (and a little bit of money) fixing that bike up. It immediately got a flat, so I bought kevlar tires for the bike (which cost as much as the bike itself did). And other pieces slowly broke or fell out of tune. I recently bought a nicer road bike (again, used on Craigslist – only this time I spent $350 instead of $75). This new bike is much better, and I’ll likely try and sell the World Sport sometime soon.

I never really thought of bikes as a means to save money. I enjoyed riding them and appreciated both the exercise and the connection to the place I was riding. I think bikes are the best way to get a know a town. Some might argue that running is the best way, but I never liked running, and always liked riding, so for me riding is the way to go if you want to explore a city, cover some ground, and have fun doing it.

But the monetary benefits of riding are undeniable. There is no fuel spent, insurance, or monthly payments. When a bike breaks it’s typically cheap to fix (unless you have a real fancy bike, I suppose). And there is a sense of accomplishment and adventure in riding somewhere that your friends will only drive to that’s tough to beat. For example, I think I was the only person to ride a bicycle to the bar exam when I sat for the exam. The exam was held in Tampa, and as usual I was a little late in securing hotel accommodations. There are plenty of hotels right by the convention center where the exam is held, and I am sure people pay top dollar for the rooms.

I ended up staying at a hotel a few miles away. Too far to walk (and too time consuming). Driving to the exam would be too expensive. Parking was hard to find and cost prohibitive. There was a shuttle service, but that would involve riding with other people. Plus, I hate buses. I like to be the captain of my own ship, and riding a bike was the perfect solution. I didn’t see anyone else ride when I got to the exam, and a few people thought I was nuts, but it all worked out and I (thankfully) passed on my first try.

These days I mostly ride recreationally and to run errands after work and on the weekends. I live a good 15 miles from work, and need to make court appearances, meet with clients, etc. Plus I’m an Italian in South Florida; I sweat just thinking about the commute. One day I’d love to live within biking distance of my office, but for now the bike is more of an evenings and weekends for of transportation. But as I think about frugality and lifestyle design I realize that I would like to have more and more cycling in my life. More peddling, less time idling in traffic.

Yes bicycles are my favorite form of transportation. God’s gift to transportation.

I look forward to writing more granularly about bicycles in the future. How to buy them and maybe even a little on how to fix them.

Bumfuzzle – Just Out Looking For Pirates – Review and Thoughts

I stumbled across the website Bumfuzzle a few weeks ago. This is a blog about a young couple who saved up their money and now do a lot of slow travel. They have traveled around the world in cars, small RVs, etc. I vaguely recall seeing this blog before, but decided to dive deeper into their series on circumnavigating the globe in a sailboat.

This is a topic that is somewhat near to my heart, as my father has had a lifelong interest in boats, even going so far as to purchase a sailboat 10 or 15 years ago with the goal of eventually circumnavigating the globe (or at least taking an extended voyage).

Unfortunately, like most sailboat owners, the voyage never happened, and the most he would take the boat out for is an afternoon. After years of screwing around with this sailboat, he eventually sold it.

I recall a time when we lived approximately 1 hour away from the coast, and we would travel down to the boat on the weekends, mostly to do things like varnish the wood finishes and wax the hull. Boats, especially salt water going boats, are a constant uphill battle against the elements. They sit in the sun and salt and essentially rot to death 24/7. They require thousands of dollars and hundreds of hours of time to upkeep. Occasionally (very occasionally), we would spend several hours preparing the boat, we would take the boat out of the marina (which is arguably the most difficult aspect of piloting a boat), motor it out into the gulf, tack around for an hour or two, pilot it back into the marina, spend several hours cleaning the boat, and then drive home exhausted.

As a kid, I recall the entire process being a tremendous pain in the ass. I don’t see myself ever owning a boat, which is probably a good thing for my financial aspirations and my mental health.

Anyhow, I still love the ocean (and fishing), the idea of going on a voyage, and have read several stories about voyages and circumnavigations over the years, including the excellent Kon-Tiki and Desperate Voyage (a book about a guy who decides to sail a boat from Panama to Sydney to see his wife, that is essentially a comedy of errors culminating in the guy almost dying).

I was also hugely fortunate to take a week long trip on a sailboat in boy scouts. We were in the Florida keys and this was an awesome experience.

So this modern and detailed account of a circumnavigation in blog format intrigued me. Especially since this was an account of a young couple who sold everything and decided to do this on a whim with absolutely no experience sailing – very cool.

At first I really enjoyed the blog version of the account. This is quirky reading, and the blog is detailed and includes a lot of pictures, but by the time they got to Australia it seemed to drag quite a bit (especially regarding excursions on land, which didn’t interest me as much), so I ended up downloading their free book Bumfuzzle – Just Looking Out for Pirates. The book is a condensed and edited version of the blog, with less ramblings and more concise account of the circumnavigation.

The book has a theme, and that theme is how they did the circumnavigation their way. Cruising apparently has its core tenets revolving around safety, and I guess the people who typically go on extended voyages like this are typically pretty type A, and appear to be more of a retirement activity than something 30 somethings do on a whim. This makes sense because sailing like this is expensive. Most 30 year olds don’t have their student loans paid off, let alone enough cash salted away to buy a $100K+ catamaran, take off work for years, and sail around the world (hats off to those that do).

And it looks like they met a lot of resistance with their live account of their voyage, and how they basically gave the middle finger to a lot of the cruising tropes and the cruising community, which according to the Bumfuzzle account, is basically a bunch of sheep to afraid to get out there and sail like they did.

It’s a great story, spoiled slightly by the tremendous chip the author has on his shoulder regarding “cruisers” and cooking. The author and his wife seemed to subsist entirely off canned and frozen food on their voyage supplemented by the occasional fish they caught and plenty of cheeseburgers and beer at their various ports of call. I love cheeseburgers and beer as much as the next guy, but for a couple who had the ability to literally sail boat around the entire fucking world and revel in their independence, you would think that they could learn how to do slightly better than surviving off Doritos and canned tuna (especially in light of how much time they had on their hands – they could have easily learned some basic cooking techniques). It comes off as slightly ironic. Then again, I can cook but have never sailed around the world – so who I am to cast stones?

The author also spends a lot of time bemoaning cruisers: how because they were so young no one would immediately guess they were cruisers, how cruising, like many things in life, appears to be one big dick measuring contest (“How long have you been out?”), how cruisers spend too much time focusing on safety and worrying about insignificant risks like pirates, how cruisers seem to stick together which flies in the face of the visions of independence that sailing around the world on a boat conjures up. Again, I’m not a cruiser myself so I don’t have a dog in this fight, but found this was a big part of the book, and will likely turn a lot of people off.

I have a bit of a chip on my shoulder as well, so I can relate on some levels, but this undercurrent of negativity surrounding the author’s inability to cook and distaste for other sailors was something of a bummer; although on the flip side I do appreciate the very candid account. No sense in bullshitting us. It makes for a polarizing book.

Ultimately I am glad I read the book. It was certainly worth the price ($0) and it’s a great illustration of living life on your own terms.

I rated it 3 out of 5 stars on Goodreads. It was interesting, and not a bad book, but light reading and not something I would necessarily recommend unless you had an interest in reading about a modern and jaded account of sailing around the world. Read Kon-Tiki or Desperate Voyage first.

Student Loans: The Home Stretch

For whatever reason I haven’t felt compelled to write much recently. I won’t try to rationalize it – things have been going on in my personal life, and my mind has been in other places. But my finances click along and my various businesses wend their way through 2016. There have been bumps in the road but I am trying to roll with the punches and use them as opportunities to grow.

On the personal finance side I have continued to diligently pay down my student loans (lobbing an extra $2k a month at them). This is despite a desire to “build a war chest” (which is actually the title of a draft post that is still lingering as a draft). And in some ways I have succeeded in building a small war chest. I am sitting on 10k or so in my checking account. My student loan liability is a little over 11k at this point – so the end is near, I almost have enough liquidity to cover the entire loan (although admittedly it would clean me out). If I wanted to I could fire of a check to cut that liability to the bone, and finish the entire mess off within a few months.

But as I look at the home stretch I stop and wonder. When my loans were at 6.8% interest it made perfect sense to pay those down aggressively. Since refinancing my loans to a sub 4% interest rate, the rational person would (in theory) make minimum payments and then shuttle the rest off into purchasing assets that presumably would make more than 4% interest. The net effect would be greater. Yet I feel irrational about these loans. For the past 2 or 3 years my biggest financial goal has been to pay them off. Now I feel like a cat toying with a cockroach, and I wonder if I should slowly play this out or double down and aggressively pay them off.

I suppose in the long term it doesn’t matter at this point. The amount is trivial and in the grande scheme of things there will not be a tremendous net effect. And again, I have been irrational towards this debt. For some reason the idea of an unsecured debt hanging over me really leaves me uneasy. It festers and boils in the back of my mind and I haven’t been able to compartmentalize it away like my mortgage or car payment. Instead, whenever I see the balance I just want to make it smaller and smaller. To obliterate it from my balance sheet with the flick of my middle finger.

However, I like the idea of having a little cash on hand. Obviously we don’t know where the market is going, but if it takes another turn downward it would be great to have some funds to deploy. I’ll probably just continue to throw $2k a month at it for a little while longer and pay this sucker off in under 6 months. If anything, it will be satisfying to reach my goal – and then I can let the cash pile back up (in places earning interest).

Beyond that, the most interesting thing going on is a little electronic product business I started maybe a year ago. I created a digital product (it’s a series of PDFs) and am using GumRoad to sell it. I ascribed to my perfect is the enemy of good strategy, got a minimum viable product up, and then more or less let it sit on the back burner as I focused on other things.

The product is priced just shy of $75, and I have sold maybe 10 copies since it’s inception (maybe a year or so ago). Nothing incredible. In the first quarter of 2016 it averaged about 1 sale a month. I am pleased that it is at least generating some revenue, and have decided to pay a little more attention to it. Search traffic is slowly growing to the product’s website, and I recently hired a graphic designer to come up with a banner for the product, and have spent some time working on the copy and adding a little content to the blog. Traffic has trended upwards and I actually made 2 sales in the past 30 days (whereas before I was probably one sale every 30-45 days).

So that is pretty cool and I would like to try and refine this business further and see if I can get traffic and conversions up. In reflecting on my affiliate websites (and thinking about the goals of this very blog) I realize that there is just a shit ton of noise and competition out there in the affiliate space (and in the personal finance space, for that matter). All things equal it’s best to move up the value chain towards creating your own products. So that is what I have done. I am not sure how big my market is. The product is very niche and geographically specific, but it was an idea that I had and I wanted to bring it to fruition.

My goal with the business currently is to obtain 1 sale a week. I’ll let you know how it goes.