Nope, Let’s Crowd Smarter is not shutting down. Neither have I lost faith in crowdfunding. My investments are doing fine despite some late payments.
So what happened?
A few personal reasons. At the end of last year, I changed my job. My new role requires me to pick up and apply new skills. For a while, that took up all my energy and attention. At the same time, my boy kept falling sick after starting at his pre-school. Although things have stabilized now, my daily schedule is tighter than before. To send my boy to pre-school daily, I now sleep and wake up early. No longer do I have the luxury of blogging past midnight.
Of course, this is not optimal. I hope to be blogging as frequently as before. So far, I’m settling well into my new role, but I still expect several more months of intense pressure. As for the blog – I’ll still keep it, although I may be blogging less frequently. I’m also open to contributions from fellow p2p investors. If you have opinions to contribute, do send them to me.
2016 was a success. Cash ROI was 15.9% for the entire year, surpassing my initial expectations. Throughout the year, I had several late payments and one outright default (TLC Cars). But I was very lucky and avoided several bad loans (S Travel, Rupini’s, Amplitude, Sigma, etc).
I am less lucky in 2017. Two outstanding loans (Rex and FTMS) seem to be turning sour. Thankfully, most other loans and invoices are still okay.
After more than a year of investing in p2p loans and invoices, I have experienced my fair share of late payment and defaults. I am now wiser and perhaps less bullish than before. P2P lending is risky because the p2p loans or invoices are made to less bankable SMEs which have higher probability of failure. Pursuing bad debts is costly and not always practical. When a borrower fails to pay, investors are at the losing end. I have yet to see any errant borrowers made bankrupt as a result of non-payment.
Investors should simply consider all p2p loans as unsecured. It is best not to pin too much hopes on personal guarantees or crowdfunding platforms chasing down bad debts. In my experience, not a lot can be done once a loan turns bad. If this sounds too risky, then p2p lending is not for you.
In my view, there are just three fundamental rules for p2p investing.
- Diversify. Forget about picking the best loans, the best strategy is still to diversify and diversify. Being a former credit analyst, I thought I can pick the less risky loans. I was wrong. A large number loans that look risky on paper turned out to be fine, while those that look good on paper turned out bad. FTMS is a good example. The lesson learnt is that standard credit analysis techniques may not always work on SMEs.
- Take it slow and start small. When I started in late 2015, the default rates were low and returns were good. But the situation changed dramatically by the middle of 2016 – several default cases were reported in newspapers. Now, the default rates seem to have eased off again but nobody really knows if they will spike up again. P2P lending is still in its infancy, so investors should not be too aggressive in putting in too much money. My personal rule is not to put in money that you can’t afford to lose.
- Find a suitable p2p platform. In my first year of crowdfunding, I tried all the different platforms: MoolahSense, Funding Societies, Capital Match, KapitalBoost, Crowdo, CoAssets and New Union. Each platform is slightly different and may not be suitable to my needs. For example, I’m only willing to lend a maximum of $10,000 on any one platform. If each loan requires a minimum investment of $2,000, it would mean that my capital can only be spread across 5 loans. This level of diversification is not acceptable. I would be taking on too much concentration risk. If just one loan goes bad, I would not be able to recover. I need to choose the platform that gives me a good diversification and my highest chance of success.
2017 is a tricky year. The fallout from the oil & gas industry is not yet over and many SMEs remain vulnerable. In my view, there are still too many crowdfunding platforms in Singapore. For my personal investments, I’ll be looking to reduce and consolidate into just 2 established platforms. Deal-by-deal analysis no longer make any sense to me. As for this blog, I’ll try my best to write as frequent as I can. Fellow investors – do write to me if you wish to contribute to the blog.
All the best and good luck!