I’ve been lending on Prosper for a bit over 7 months now. I’ve seen quite a few loans move in and out of late status. I suppose some borrowers prefer to “optimize their cash flow” by allowing their loan payments to lapse a few days. This is just fine with me, as long as they eventually make the payments. Unfortunately, I also have some other borrowers that have allowed their payments to lapse more than just a few days and I currently have four loans in collections. Here’s a summary of my earnings on Prosper so far:

• Cash deposited into account: $2,500
• Earnings from referrals: $50
• Principal Loaned: $3,000 (includes reinvested principal received and referral bonuses invested)
• Principal Received: $376.45
• Interest Received: $219.78
• Late Fees Received: $0.70
• Servicing Fees Paid: -$10.23
• Collection Fees Paid: -$0.24
• Net Profit: $210.01

Now of course, there is a high probability that at least one of my four loans in collections is going to default if not all of them. The net principal balance for the four loans in collections is $191.61, so even if all four loans defaulted, taking into account my net profit I’m still ahead of the game by $18.40. That’s about a 0.74% total return so far or about 1.1% annualized. Although EricsCC and LendingStats have my estimated ROI much higher than that, I prefer to take a more conservative approach. Warren Buffett’s first rule of investing (and mine too) is don’t lose money. So far I think I’m doing well in that regard on Prosper.

I still think that Prosper is a good investment vehicle, and a good addition to any investment portfolio. As long as you can outpace your defaults with your average interest rates, you can make money investing in Prosper loans. Here are a few simple rules I try to stick by when I’m investing in prosper loans:

• Don’t invest in charity cases. I’m investing my money not giving it to charity. If you do lend to someone in a charity case, don’t get mad if and when you lose your money.
• Don’t invest in start-ups. Without proven results, investing in a start-up is more of a gamble than an investment.
• Don’t lend for working capital. If someone needs money for working capital it typically means they do not have the positive cash flow necessary to run their operation.
• Invest in those consolidating debt. These are my favorite kinds of loans, particularly if it will improve someone’s cash flow situation.
• Draw a line in the sand as far as your minimum interest rate. For example, if your target rate of return is 7%, then you shouldn’t invest in loans at a rate any lower than 7%.

I haven’t always followed these rules, but it is because I hadn’t yet formulated them in my mind. If ever I do break any of the rules now, I need a very good reason for doing so. If you’re dealing with a small portfolio (less than 100 loans), it’s easy to stick to these rules. If you’re dealing with a larger amount of money and a higher number of loans, you’ll probably want to use a portfolio plan. Either way, you should try to be as consistent as possible with your loan selection in your lending portfolio.

Related Posts:

LendingClub vs. Prosper

The Effects of Free Market on Investing

My First Post on the Official Prosper Blog

A few months ago my neighbor and his dad came over to talk to me for a few minutes. They told me about a great new product to help improve gas mileage. They showed me a small 2-oz. bottle of a product called EnviroMax Plus, which I thought was a sample for me to try out. However, they informed me that the bottle was $10. Being the savvy consumer that I am, I did not want to purchase the product without researching it first. My neighbor also handed me a business card with a website. I immediately knew that he and his father had gotten involved with a multi-level marketing (MLM) business.

What is Multilevel Marketing?

People often equate MLM with pyramid schemes, but believe it or not there is a difference. The mechanics for both are very similar in that there is a hierarchy in which commissions are paid at multiple levels. The difference between multi-level marketing and a pyramid scheme is whether or not an actual product is promoted and delivered. In a pyramid scheme, the bottom level is left holding the bag and has nothing to show for it. A pyramid scheme is a non-sustainable business model. In a proper (and legal) multi level marketing system, some members may not make any money, but they have purchased and received an actual product.

Of course, there are some gray areas in between (which is why the terms are often used synonymously), the darkest of which is when the product does not work as advertised. There is also the lighter gray area when the system promises riches but fails to deliver. However, if a good product is being promoted that provides value to customers and a participant fails to achieve their desired goals, then it is more their own failure than a failure of the marketing system.

Like it or not, multi-level marketing is a very effective method for promoting and delivering a product. Rather than paying a lot of money on traditional advertising, sales, and marketing, the incentives of multilevel marketing make it self promoting. I do not have any problem with multilevel marketing, as long as the product promoted actually works as promised and is worth the price that is paid. I believe that MLM provides an excellent mechanism for companies that choose to use it for promoting their products, and also provides tremendous opportunities to those that participate. The idea of a product that can not only save people money, but help people to make money as well certainly intrigued me. I didn’t even visit the website until a month or two after my neighbor mentioned it to me, but one day my curiosity peaked and I finally decided to check it out.

The EnviroMax Plus Website

Being somewhat lazy, one thing I wanted to find out was if the business could be completely run online. I don’t have the time nor the inclination to call everyone I know and tell them about a great new product I’m selling, only to face more rejection than acceptance. I would rather promote the product online, where potential customers/partners can decide for themselves whether or not they are interested in buying the product and possibly selling it as well. If things go well for me online, then it will make convincing friends and family much easier.

I liked what I saw on the website. I went all the way through the process of ordering (without actually placing the order). They provide two options for someone to buy, either as a “preferred customer” or as a retail customer. The preferred customer option is the option that provides you with the money making opportunity and gets you into the multilevel marketing system. The retail option is for those that are not interested in selling the product but are interested in buying it. On the website and order forms, I saw my neighbor’s name and enroller ID. This is a good thing, as it indicated to me that it indeed was something I could do completely online.

The Regular Monthly Orders

When you sign up to become a preferred customer, you also sign up for a monthly order for which you will automatically be charged. This is somewhat of a double-edged sword. It is good because after you have signed up people under you that stick with the program, you will receive commissions on their monthly orders (in addition to the commission you receive when they purchase their initial order). On the other hand, if months go by and you do not sign up anyone, the monthly orders could result in a lot of extra inventory that will take a while to consume personally.

The monthly order is enough to treat 640 gallons of fuel, which is very likely to be much more than you would consume in a month. This may not be as much of a problem if you have some regular retail customers to which can sell your monthly order. They refer to the 2-oz. bottles as “mission bottles”, because they include sales literature to entice the recipient to join. It is their “mission” to reach 1 million members. So far they have reached around 40,000. The 2-oz. bottles retail for $10, but you could always give them away (as my neighbor did) and consider them to be an advertising expense.

The 12-oz. bottles are probably a bit more than you’d want to give away, so you might want to try selling those. Those are great to sell to people that like the product and want to buy it, but aren’t interested in joining the multi level marketing program. If you sell them for $50, you’ll be able to cover the majority of your monthly order expense (and if you sell the 2-oz. bottles for $10, you’ll make a small profit). Since it is enough to treat 480 gallons of fuel, you would need to have a few regular customers to be able to cycle through that inventory on a regular basis. If the average person uses around 60 gallons of fuel per month, you will need to have 8 customers to buy the 12-oz bottles in order to resell your personal monthly order on a regular basis.

Joining the EnviroMax Plus Multi-Level Marketing Opportunity

There are two options for becoming a preferred customer and enrolling in the rewards program: family member and individual member. The family member enrollment costs a total of $359.90 (that includes shipping and handling), and includes an initial shipment of 3 12-oz. bottles and 24 2-oz. bottles (total of 84 oz.). With a family member enrollment, you will enjoy more lucrative rewards on indirect sales (sales made by people you sign up and further downline). The individual member enrollment costs a total of $124.90 including shipping and handling, and includes an initial shipment of one 12-oz. bottle and 8 2-oz. bottles (total of 28 oz.). The initial shipment with the individual membership is smaller and less expensive, but the downline rewards are lower as well.

Both enrollment options include the initial shipment of product, because otherwise it might be considered a pyramid scheme. Pyramid schemes typically include enrollment fees (from which commissions are paid) and deliver no product, which is why they are not sustainable and illegal. The required initial order is quite large, so you will probably want to sell it off. Like the monthly orders, if you sell the large bottles for $50 and the small bottles for $10, you will make a small profit.

You will receive the same commissions for new preferred customers that purchase the initial order under you, regardless of which membership you have. You earn $75 for when someone joins as a family member and earn $25 when someone joins as an individual member. Whether you decide to join as a family member or an individual member yourself, each month you will receive your shipment of one 12-oz. bottle and two 2-oz. bottles and you will be charged $52.95 + shipping & handling.

Rewards Program?

They have everything set up as a rewards program (you’ll see “Extreme Rewards” plastered all over the site), in that commissions are not paid immediately for sales. Instead, you accrue “reward dollars” which can be used as credit towards your monthly order and you can request that a check be sent to you in the amount of the rewards dollars you have in the account (you can request a check once a month). They have gone to such great lengths to refer to it as a rewards program rather than multilevel marketing. More than likely they are doing this to emphasize the fact that they are selling you an actual product that works. Perhaps they are also trying to get away from the poor reputation that MLM has and it’s close association with pyramid schemes, I’m not sure. Perhaps their legal counsel advised them to set it up in the manner in which they did. Don’t let all of that fool you. Fundamentally speaking it is still a multi-level marketing system that pays you commissions for selling their product.

Any rewards that are used to pay for your monthly order (or additional orders) will not be considered taxable revenue since you will have never received the commission. However, because you didn’t pay for the orders either, I don’t believe that the expense would be tax deductible either, since there really is no expense. The benefit here is negligible, particularly if you are already making a lot of money with the rewards program. You would be using a relatively small percentage of the rewards dollars for personal and monthly orders.

Because they only send you rewards checks when you request them, there are some additional tax benefits. You can pay yourself as much as you want rather than getting paid no matter what. If you are making a lot of money with the system, deferring the payment of your commissions is to your benefit. You could consider it to be like a pre-tax savings account (that earns no interest) that is only taxed when you make withdrawals.

The Neighbor’s Testimonial

After having visited the site and becoming well acquainted with the product and marketing system, I decided to go and talk to my neighbor about his progress with using and promoting the product. He told me that he has been using the product in all his vehicles and his gas mileage has indeed improved. He also said that is making about $400 a month, and his father is making about $1,800 a month.

My neighbor had only signed up three people and most of his income was coming from retail sales. His father had signed up a pastor with his church, and apparently he had been gifted with the divine power of salesmanship. The pastor has been a tremendous salesperson and has helped my neighbor’s father to achieve many bonuses each month. He also told me about a state trooper that tried it out in his patrol car, saw a great improvement, and he was sold. After speaking with my neighbor the second time, I was nearly ready to sign up. He gave me one of the 2-oz. bottles to try out.

The First-Hand Testimonial

I drive a Honda 2000 and as it is, I get pretty good gas mileage on it considering it has over 120,000 miles on it. I most certainly drive more conservatively than the average S2000 owner, and very likely more conservatively than the average driver. To conduct a proper test, I first ran without the fuel catalyst. I travelled 281 miles and purchased 10.41 gallons to refill the tank. So my mileage without using the product was 26.99 mpg. I’m telling you, I drive like a little old woman.

When I was ready to fill up, I wasn’t sure if I had previously used 89 octane or 93. To make sure I would err on the side of conservatism, I filled up with 89 octane and added 1/2 ounce of the fuel additive. I was a few miles down the road when I had realized I forgot to reset the trip odometer. Oops! Well, once again, I will err on the side of conservatism. When I finished the tank and refilled, I had travelled 279.5 miles (actually a few miles more) and purchased 9.61 gallons of fuel. My calculated milage with this revolutionary fuel catalyst was 29.08 mpg!

On the very first tank with Enviromax Plus, I made an improvement of 7.74% (it’s actually a bit higher since I left off a few miles). So let’s do the math. If I hadn’t used the fuel additive on the second tank and achieved the same mileage as the first, to travel 279.5 miles I would have purchased 10.35 gallons of fuel (rounding down). At $4 a gallon (was actually a little higher), that would have cost me $41.40. However, with the improvement in gas mileage I only had to purchase 9.61 gallons at a cost of $38.44. On the first usage, I saved $2.96. Because the dosage I used was actually twice the normal dosage, the dosage would have cost me about $2, so my net savings was about $1.

I was sold! As soon as I got home I placed my order and joined. After my next two fill-ups, I should be able to use only 1/4 oz. of fuel additive for every 10 gallons of gas that I purchase. I anticipate that my gas mileage will only get better as well. Even if it stays the same with the lower dosage, I’ll still be saving $2 for every $1 of EnviroMax Plus that I purchase.

The Numbers

For the first tank of treated gasoline, you should use 1/2 oz. of Enviromax Plus for every 10 gallons. For vehicles that have more than 50,000 miles, you should maintain that dosage for three full tanks. Then you can use the optimum dosage of 1/4 oz. of the fuel additive for every 10 gallons of gas. You should get anywhere from 10% - 30% improvement in fuel economy. A 10% improvement in your gas mileage should save you $4 for every 10 gallons of gas you purchase (with gas @$4 per gallon). At a cost of $1 per dosage, this will net you $3 for every dollar of EnviroMax Plus you purchase.

If you have a family with two cars and purchase about 150 gallons per month, just 3.75 oz. of the fuel catalyst will save you $60 a month in gross savings! The savings you receive on your own improvement in gas mileage will cover the cost of your monthly order. Basically, you’ll be left with a single 12-oz. bottle that you will need to sell. You can even sell it well below retail and still come out ahead. You could try selling it to someone in person for closer to retail value or sell it on eBay for around $15.

Summary

All in all, I think that EnviroMax Plus is great opportunity to make some additional income as well as save on gas, which is why I’m giving it a shot. I figure that if worse comes to worst and I quit, I’ll eventually recoup the money I spent with the money that it saves me on gas. I believe that the pros outweigh the cons and potential rewards are well worth the small risk. Here’s a summary of the bad and the good of EnviroMax Plus as I see it:

Bad

• The refund process is very poor. If you want a refund, you have to return a full order (they won’t accept anything partially used), and even then you only get half of your money back and have to spend money to ship it back. Basically, if you want your money back you can forget about it.
• The required monthly order is enough to treat 640 gallons of fuel, very likely to be much higher than your monthly fuel consumption. You’ll either have to sell the surplus, give it away, or eat it. (Don’t actually eat it, it’s poison!)
• The minimum retail order is 16 oz. and about $60. It would be better if they offered smaller order sizes to allow people to try the product without having to order enough to treat 640 gallons.
• Although the website does have all the pertinent information and allows for online orders, I’m not a big fan of the manner in which the website uses the “Extreme Rewards” brand. I think that all of this can be somewhat confusing to people that visit. I can imagine someone going to the site and saying, “What the hell is extreme rewards? I just want to buy and sell EnviroMax Plus!”
• I’m also not a fan of the domain name they are using. It has nothing about EnviroMax Plus in it or even Extreme Rewards for that matter. I am just using my own domain to market the product and I will display my EnviroMax Plus landing page within a frame.

Good

• The product is competing in a market that everyone constantly talks about. Most people complain about gas prices being high (although I still think that gas in the U.S. is cheap), so you will have plenty of opportunities to talk to people about it.
• The website is very comprehensive. You can just hand a simple business card with the URL and your member ID to anyone complaining about gas prices, and they will have enough information to decide whether or not it is for them. If you do this often, you are bound to have people sign up under you.
• Because the website is comprehensive and everything can be done online, you can also promote it online. It is possible to never talk to anyone in person about it and still make money. This is good if you are not a salesperson (or do not want to become one) or are adverse to rejection.
• If you have a blog and have had success with promoting products with reviews, EnviroMax Plus presents you with another great opportunity.
• There doesn’t appear to be a lot of promoting of this business online quite yet. If you join now, it might be a good opportunity to get in on the ground floor before the ‘Net becomes cluttered with talk about it.
• In terms of a work at home business, $350 in start-up costs and $50 in fixed monthly overhead is minimal. You can claim this as a business expense too on your taxes, so that will help to probably save at least an additional 25% on the start-up cost. There are also a lot of other tax benefits if you treat it as a home business. You may wish to consult a tax professional before you do any of this.
• You don’t need to hire staff. If you’d like to consider the people you bring into the business as contractors, you don’t have to worry about payroll, accounts payable, IRS tax forms, etc. All that is handled by the system.
• There is no need to order, store, and deliver inventory. Once again, everything is handled by the system. The storefront, ordering, and payment is all handled by the system as well.

If it all sounds like something you’re interested in learning even more about or joining, please be sure to visit my Enviromax Plus website. I will be updating the blog with information about my progress with this new stream of alternative income.

Related Posts:

No related posts

I believe that Bush’s proposal to drill offshore is almost as bad as his proposal to increase ethanol content in gasoline. I see two major problems with his proposal:

1. It will not help in the short run
   In the short term, gas prices will remain high. It takes time and tremendous capital investment to get a new oil platform up and running. It will take too long to build the platforms for it to impact gas prices this year.
2. In the long run, increased production will lead to increased consumption
   As a modern industrialized nation, we need to work towards developing and utilizing cleaner sources of energy than petroleum. Just as individuals and corporations poured money into developing the petroleum infrastructure many years ago, this needs to take place with renewable sources of energy. Increasing production to lower the price of oil will delay the evolution of better methods for harvesting energy. As limited resources continue to be consumed, it will need to happen anyway. It is better that this happen sooner than later, otherwise the effects it will have on the global environment could be catastrophic.

Related Posts:

New Peer-to-peer Lender for Student Loans

Having Trouble Refinancing? Borrow from a Rich Friend or Family Member

Building and Rebuilding Good Credit

Well, it’s official. Yahoo! has blown the deal with Microsoft. Yesterday afternoon before the official announcement was made, it was obvious that the cat was already out of the bag. Many stories began to break about the deal falling through, and Yahoo! shares dropped over 10%. The stock value had topped at around $30 in the middle of February. Since then, Jerry Yang and the rest of the Yahoo! leadership have managed to wipe nearly $9 billion in market value, as it became more and more apparent the deal wasn’t going to happen.

I have no doubt that the class action suits will continue and there will most certainly be more to come. Unfortunately, I do not believe anything good can come of them, as the damage has already been done. It may be a very long time before Yahoo! ever reaches $30 again, unless they can actually make good on the promises that were made in March.

Related Posts:

Back Assward Yahoo! Class Action Lawsuits

Time for Microsoft to Go Hostile

Yahoo! Attempts to Increase Market Value with Investor Presentation

The Prosper Days 2008 videos are up on the Prosper website. There is a wealth of information to be gotten from these videos, so be sure to check them out. I was fortunate enough to participate in the Blogger panel. It was an excellent experience and I hope I have the opportunity to be on another such panel some day. All-in-all I think I did pretty well and brought some value to the discussion. There was one moment early on while I was speaking where RateLadder said something that really threw me for a loop. I wasn’t sure if I had misspoken, if he was disagreeing with my statement, if he was tossing in a joke, or what. I recovered as best I could and pressed on.

Related Posts:

The 2008 Prosper Days Blogger Panel

LendingClub vs. Prosper

Prosper Investing Tips and Testimonial

TechCrunch has an article about a new p2p student lending site called GreenNote. In addition to facing many of the same challenges that await Fynanz, GreenNote will have additional obstacles to overcome in order to attract investors. Perhaps the biggest challenge is that the interest rate is not set by lender bidding and is fixed across all loans (currently 6.8%, the rate of a Federal Unsubsidized Stafford Loan). Not only will GreenNote have a hard time competing with Fynanz in terms of the potential returns for investors, but Fynanz also provides some protection against defaults by guaranteeing at least 50% of the principal on defaulted loans. GreenNote provides no such guarantee.

Given that they do offer a very good interest rate for students, they will surely have no problems attracting borrowers. However, I think GreenNote has a long road ahead if they intend to attract enough investors in order to meet the demand. Unless they can eventually insure part of the loan principal as Fynanz does or provide a secondary market for liquidity, I have serious doubts as to whether they will be able to compete with Fynanz and survive the long road to profitability.

Related Posts:

New Peer-to-peer Lender for Student Loans

Having Trouble Refinancing? Borrow from a Rich Friend or Family Member

Prosper Investing Tips and Testimonial

I read a TechCrunch article today about how much it would cost to convert all fuel vehicles into electric vehicles. According to the article, Philip Greenspun calculates it will cost us nothing to convert to electric cars, but I beg to differ. He deduces that for the cost of annual vehicle fuel consumption, everyone in the U.S. can have an electric vehicle instead of a gasoline-powered one. I do like the math and it would be great if it were true, but there is one major problem with electric cars. Current battery technology cannot support it, because the range that an electric vehicle can travel on a full charge is quite limited. Another problem with current battery technology is that batteries take a relatively long time to fully recharge.

What do you do if you’re on a road trip and your battery is running low on charge? Even if battery technology improved to allow for a five-minute full recharge, where would you go to recharge? You can recharge at home for intracity commuting, however, you still need a recharging station when you travel further distances. Unfortunately, there will be no incentive for entrepreneurs and corporations to build recharging stations because electricity is so much cheaper than gas. It would take pennies to recharge your electric car so it will be up to the government to provide public recharging stations. There would be significant capital investment and there would never be a return on that investment. I think the cost to put an electric car in front of every house is much higher than Philip has calculated.

Although there won’t be anyone rushing to build recharging stations, there is definitely a bright future for improvements in battery technology. It will be the key to improving hybrid vehicle technology as well as fully electric vehicles. The electric double-layer capacitor is one type of technology that shows a lot of promise. Eventually someone will start to mass produce a highly efficient energy storage device and it will change the world. When this happens electric cars will be much more viable and it will open up new markets. At a minimum, the majority of vehicles (if not all) will be hybrids that incorporate the new technology. Only then will we be able to wean ourselves from our addiction to petroleum.

Related Posts:

The Number One Mistake that Would-be Real Estate Investors Make

Receiving Dividends from Non-Dividend Stocks

Multilevel Marketing Fuel Additive

This weekend Microsoft withdrew their bid to buy out Yahoo! for $31/share. They reportedly look the offer as high as $33/share, but Yahoo! was looking to get $37/share. Now in premarket trading, Yahoo! shares are down over 20% at around $22/share. I think it was a good move on Microsoft’s part. Rather than pay the $31/share that they were offering or the $37/share that Yahoo! wanted, Microsoft can now perform a hostile takeover for nearly 70 cents on the dollar on their original offer (60 cents on the dollar of what Yahoo! was asking). It’s just another twist in the ongoing saga between Yahoo! and Microsoft.

Microsoft will likely lay low for a while now to see if Yahoo! will come crawling back as they lose billions in market value. It will also allow some time for the share price to fall and stabilize a bit before they begin the hostile takeover. There is also a lot of talk that Yahoo! will take a poison pill by allowing current shareholders to purchase new issues and thus diluting shares (and effectively lowering the stock price). I think this is an extremely poor tactic and undermines the whole purpose of investing in public companies. It is also possible that Microsoft will never pursue a hostile takeover for this reason. Either way, the Yahoo! board of directors needs to be prepared for another barrage of class action lawsuits.

Related Posts:

Back Assward Yahoo! Class Action Lawsuits

Receiving Dividends from Non-Dividend Stocks

Yahoo! Attempts to Increase Market Value with Investor Presentation

I finally downloaded and tried out Greasemonkey for Firefox extension the other day. I had heard of it before, but never installed it until recently. Greasemonkey is a Firefox extension that allows you to manipulate any web page you visit in Firefox. It uses JavaScript code that runs as if it were embedded into the website. It also provides some additional functions that let you do magical things such as cross-site scripting (which can also be dangerous if you install a malicious script). I actually had written a few JavaScript “bookmarks” to do some quick stuff for me on the Prosper website, but Greasemonkey provides a much better interface. It allows me to do what my bookmarks were doing and even more. Here are the features I’ve put into the script so far:

• Auto-login

This is disabled by default. In order to enable it, right-click on the monkey, and click “Disable Automatic Login” under the User Script Commands. When the prompt appears asking if you want to disable the auto-login, click Cancel and it will enable the automatic login. I realize this probably isn’t the most intuitive thing in the world, but I was too lazy to develop my own dialog and I just used the window.confirm() JavaScript method. Your username and password is stored locally within your browser and is not transmitted anywhere other than to the Prosper website.

I assure you that that the auto-login feature does nothing evil. I have it disabled by default in case you don’t believe me. Your username and password will be stored as configuration values within Firefox. If you navigate to about:config in the browser, you’ll see them under greasemonkey.scriptvals. Please note that the password is not encrypted. If you’re using a public machine or someone else’s computer, you may want to think twice about using the auto-login feature.

• Total Revolving Credit and Total Available Credit

If there is more than 0% utilization, then the calculated total revolving credit and total available credit is displayed. If utilization is 0%, it is displayed as Indeterminate.

• Estimations on Listing and Search pages

The estimated loss, adjustments, fees, and estimated return will be displayed on listing pages. On search pages, I display just the estimated return and estimated loss (to take up a bit less space than displaying all 4 numbers). You will need to be logged in for this feature to work.

If you’d like to try it out, first install Greasemonkey on Firefox. Then click the button below to install:

If you have any suggestions for new features to add, please feel free to let me know and I’ll be glad to see what I can do to accomodate.

---

Update: I’ve added a user script command called “Set Investment Preferences.” It allows you to specify a minimum desired return, bid amount, and maximum loss amount. When you run searches, as the estimates are loaded in, listings will be removed if they are below the minimum desired return or if they have an estimated loss higher than the max loss.

Related Posts:

Credit Card Refinance Calculator

My First Post on the Official Prosper Blog

Prosper Days 2008 Videos

As I was writing my Rule of 72 on Prosper article for the official Prosper Blog, I began to think about developing my own ROI calculation based on what I had written. I had attempted creating an ROI calculation once before that was based on actual payments received, but I became frustrated with the lack of the detail payment data in the LoanPerformance table of the private export. I took another crack at developing an ROI calculation based on actual payments, and think I’ve come up with something that’s reasonable. If you’re interested in the actual implementation, you may want to check out the technical details and link to the SQL code here:

http://wealthboy.com/wbsroi-technical-details/

Once I’ve constructed the tables necessary to calculate the payments that a lender has received, I have all of the information necessary to calculate the WealthBoy Strict ROI. The WBSROI performs two return calculations: TotalROI and AnnualizedROI. The TotalROI calculation is calculated by dividing the total profit (interest less servicing fees) by the total amount invested (which excludes reinvested loans). The calculation does not take into account the declining balances, hence the “strict” designation. If you have been lending successfully for a long time, it is certainly possible to have a TotalROI more than 100%. Here is the formula in a nutshell:

TotalROI = (Total Interest Received - Fees - Losses on Defaults) / (Total Loan Originations - Reinvested Loans)

The AnnualizedROI is calculated by dividing the TotalROI by the weighted average loan age and multiplying by 12. The weight for each bid is the amount lent as a percentage of the total originations. This may not be the best way to perform the AnnualizedROI calculation, but it was the best I could come up with. I believe the TotalROI is relatively indisputable, barring the errors in the payment calculations. The AnnualizedROI could probably use some enhancements.

I like the idea of having a strict ROI calculation that doesn’t account for the declining balances. Many lenders on Prosper may not even be aware of what a declining balance is. Others may know about declining balances, but they just want to know what kind of return they’ve received on the total amount they’ve invested. That is what the WealthBoy Strict ROI attempts to do, and I believe it does it reasonably well. If you are reinvesting loans, your strict ROI should be reasonably close to your average interest rate less fees and your default rate.

So what about late loans? Why aren’t they part of the calculation? Well, one of the nice things about of my calculation is that it really doesn’t take much more effort to account for the probability of late loans eventually defaulting. With the information provided in the calculation, you know the total investment and you know the total profit. All you need to do to account for late loans is to incorporate the loss estimation into the profit and presto! You have your new ROI including the probability of late loans defaulting.

I decided to exclude any default projections from the initial announcement of my ROI calculation. Although it probably wouldn’t take much more effort to incorporate it, I think there is something to be said for an ROI calculation that doesn’t make any kind of suppositions. The WealthBoy Strict ROI calculates how much went in and how much came out. It makes no assumptions about the future value of loans. I have left it to others to make whatever assumptions they wish to make about estimating defaults.

I do realize that not everyone has the expertise and/or resources to put together a Microsoft SQL Server database for analyzing Prosper data. Unfortunately, I don’t have a web application connected to my database so that people can see their WBSROI. If you would like me to provide you with your WBSROI, just post your screen name into a comment here. I’ll post the data in a responding comment. If I become overwhelmed with responses to the post, I may not be able to respond to requests any longer. If it does become a popular metric, perhaps someone with a popular stats site may be willing to add my calculations to their site. Here is what the WBSROI on my account looks like:

Screen Name:WealthBoy
Total Bid Count: 45
Total Reinvested Bids: 3
Total Originations (total amount loaned): $2,250
Total Investment (total amount loaned excluding reinvested bids): $2,100
Total Income (total principal and interest less fees): $209.22
Total Profit (total interest less fees and defaults): $60.53
Total ROI: 2.88%
Average Loan Age: 1.76 months
Annualized ROI: 19.62%

Related Posts:

The WealthBoy Strict ROI Technical Details

Prosper Investing Tips and Testimonial

Who is to Blame for the Credit Crunch?