Passive Income

[Open123]

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@Revelate wrote:

Out of curiosity what do you see as the current state and future of hedge funds?  Saw an Economist article last week suggesting they were getting beaten down on their price points, and certainly the last few years bull run on the stock market has been something of a mess, but perhaps now coming back into fashion?

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While there’s been a general trend to compress fees & commissions in the industry, I think the top Hedge Funds will be relatively unaffected.  Meaning, the top performing ones should be able to maintain the 1.5% and 20% of gains with a high-water mark threshold.  

Of course, non performing ones, similar to mutual funds and managed funds, will likely be subjected to fee compression, since there’s no value added, unless it outperforms the S&P 500 with an equal or lesser risk exposure.  Recently, many Hedge Funds unperformed mainly because of the ease in which this current Bull Market has risen, aided largely by historically low rates, and massive amounts of Fed infused liquidity via the QE (Quantitative Easing) program.

When the markets, let’s just use the S&P 500, go up without pause, any managed funds, hedge or otherwise, will under perform.  This is because in rising bull markets, nothing can outperform simply buying the S&P 500 index, since it has no fees, trading costs and maximizes the upside. 

By nature, a hedge fund will seek to protect the downside, which incurs trading costs and hedging costs.  Managed Funds will charge a fee on AUMs, which will only decrease it’s return in a rising market.  The past several years has been the easiest and smoothest Bull market I’ve ever seen with every hedge expiring worthless, since there has been no downside risk.  When there’s no risk, almost all managed funds will underperform the S&P 500 index.

There’s always a regression to the mean, and QE & low rates can’t last forever.  Won’t go into it here, but the markets will correct at some point.  This is when the well managed boutique Hedge Funds can potentially make a killing, especially the Global Macro ones who make the right bets on the potential sovereign debt crisis.  The short sellers should rake it in too, since once this market corrects, shorting overbought stocks will be like shooting fish in a barrel.

Once volatility returns and tapering begins in full force, you’ll see some Hedge Funds post some spectacular gains, in my view.

[Kenny]

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@Revelate wrote:

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@awal wrote:
I would love to hear from someone who has experience with the peer-to-peer lending scene. The risk seems really high in my opinion.

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If historical trends are to be believed, I'll continue making on the order of 12% after defaults.  Not certain that'll hold true as I expect the economy to be skittish this year, but we'll see.  Knock on wood, but the worst thing is the amount of time it takes for me to get invested into it, but admittedly I'm loan sharking rather than picking up the A-C tranches where there's loans a plenty.  Lending Club has just launched their prime service but it only looks at tranches (LC breaks up into A-G and subcategories for each grade) and nothing deeper: I don't trust it enough to do better than the statistical average, and likely it will do worse.

Honestly a lot of it is just paying enough attention to avoid stupid loans in my estimation: if someone is asking for a 30k credit card consolidation loan, and they only have 6K of credit card debt, or business loans which have absolutely no associated busiess information / data with them.... durr.  Also if one knows something about FICO and how it's calculated (in particular, how much ugly utilization hurts) you can find some real gems in any tranch if you know their scores would be 50-60 points higher than what's reported currently as soon as they get their loan especially if they have pristine payment history through the rough patches not too long ago.

I'm not putting any money I can't afford to lose into P2P lending, but I suspect it's less risky than my stock market investments currently and far less than the option trading I'm now dabbling with.  It's an amusing aside but it takes too long to get invested in it to create a diverse portfolio of notes which is admittedly recommended: I've already changed my default investment up to $50 just to get it out there quicker.

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I took your advice here. Got started with a P2P lender. Deposited an amount that I didn't mind losing but would be happy if I've gained. And I have. Kinda happy with it, for sure. Going to keep dollar cost averaging it and hope for the best.