Buying a Used Car Below Trade In Value By Using Ebay: Our Good Experience

I had a hole burning in my pocked last year when I returned from Afghanistan and felt like replacing my wife's car which had nearly 160k miles on it. There was no rush for replacing it, but I was prospecting for a newer car in my free time. I started looking for used cars which were still under warranty and below Kelley Blue Book Trade In Value.

I found that the best way to accomplish this, while not driving amongst dealer lots, was to search Ebay. It was contrary to my first thought since normally I associated Ebay with purchases made through remote vendors. But in our case, we were able to find a large number of used cars listed on Ebay which were within 30 minutes of our Memphis, TN burbs house.

I pinpointed my search to cars with either no reserve or already above the preset reserve price. I didn't mess with any Ebay classified adds or "salvage" titled vehicles. We settled on a 2004 Lexus ES330 with 46k miles. As soon as I saw it, my wife and I drove to the listing dealership. The dealership had the car listed on site for $2500 more than it's Ebay listing. Apparently, the listing salesman thought that by listing it lower that he'd get buyers bidding it up.

When we looked at the car on site, the salesman tried to sell me the car at the lot price and acted like the car would be bid up for his online listing. I didn't fall for it. In the end, I was the only bidder. Another guy in Michigan was inquiring on it, but I think his angle was to try and buy it after the listing unsuccessfully closed without a bidder (perhaps another bidding strategy). I bought the car in the final 30 seconds of the Ebay listing a whole $500 below Kelley Blue Book Trade In Value.

The most beautiful thing about our purchase wasn't found out until after we bought the car on Ebay. When we showed up at the dealership to take delivery, I learned that Tennesse doesn't collect sales tax on cars sold to military servicemembers assigned to Tennesse. No Sales Tax, $500 below trade in value, Yipee!


We have put over 30k miles on the car since purchase without any problems. Stock photo of our car, courtesy of MSN Autos:

Hurricane Gustav Fizzles In Terms of Impact On Oil Prices and Insurance Industry

A recent CNN post credits Hurricane Gustav with a projected economic impact between one-seventh and one-tenth of that of Hurricane Katrina. Meanwhile, oil prices are actually going down nearly 5% world-wide after traders are realizing that the oil platforms will likely not be impacted significantly.

I guess my recent fill up of both of our cars won't save my household much money. Here's a forecast of Gustav's path from Noaa.gov:

Sarah Palin's Seventeen Year Old Unmarried Daughter Pregnant: McCain Knew Of This Prior to Making Sarah Palin His VP Pick

Recent rumors are flying on the internet and TV this morning about Alaska governor's daughter, "Bristol," being pregnant. The rumor has been confirmed. Gov Sarah Palin's daughter, Bristol, is seventeen years old, pregnant and unmarried. Here's the link to a news article where McCain's Campaign Chief Steve Schmidt discusses this. You can go to google news and find similar articles from TV and newspapers nationwide.


In the picture below, Bristol is 2nd from the right between her mother and father.

What is My Military Pension Worth? Posting Also Useful to Potential Civil Service Pensioners or Others Trying to Monetize Passive Income Stream(s)

Many of you may want to know what your civil service or military pension is worth today. Some may even want to try and monetize other passive income streams. Determining the value of a pension or other income stream is either a two step or one step process. It's one step if you're in (or near) day one of retirement or just established a passive income stream. It's a two step problem if you still have a number of years to work.

Well, I want to know what my military pension would be worth today if I enjoyed a successful career and retired as a Captain / Colonel after 30 yrs of military service. This situation would give me $7287 / month which would be 75% of my base pay (ref: proposed 2009 pay table, O-6 over 26yrs).

Here’s two methods to determine the value of my pension (Method #1 using a basic calculator, Method #2 using a finance calculator).

Assuming a personal discount rate / IRR of 0.4% per month (equal to 4.91% APY) and a life expectancy of 30 years (360 months) past my retirement date.

1. Using a simple calculator with an exponential “^” function (minimum requirement)

(a) First find the present value of an "immediate annuity." Using the formula

PV immediate annuity = [ 1 – (1 + R)^-n] (P/R)
R = interest rate in decimal form
P= payment
N= number of periods

Filling in numbers you get:

PV immediate annuity = [ 1 – (1 + 0.004)^-360] (7287/0.004)
PV immediate annuity = [ 1 – 0.2376] (1,821,750)
PV immediate annuity = $1,388,885

This is the present value of the stream of pension payments the day I retire. This equation alone may suffice if you're at retirement or very close to retirement age.

However, I have 18 more years to work till retirement. To get the Present Value today, you have to discount the value determined above ($1,388,855) over the time I have left till retirement (18 yrs or N = 216 periods).

Present Value With Zero Payments Formula:

PV= FV (1+R)^-N
PV= $1,388,855 * (1+.004)^-216
PV= $1,388,855 * 0.4222
PV= $586,375

$586,375 is what my retirement is worth to me today assuming a discount rate of 0.4% per month or 4.91% APY

2. Using a financial calculator like a Texas Instruments BAII, you get a two step problem.

Step 1:

a) Assuming a 4.91% discount rate (~ 0.4%/month)
b) Assuming 30yr life expectancy once I hit retirement

N= 360 months
I/Y= 0.4%/month
PV= $0
PMT= $7287/month
FV= ?

Plugging into a financial calculator, you get a future value of $5,845,249. Now working backwards in step 2:

N= 576 (360 months for length of retirement + 216 months left till I retire)
I/Y = 0.4%/month
PV= ?
PMT= $0/month
FV= $5,845,249

Solving for PV you get $586,387

The difference between the financial calculator method and the basic calculator method is simply due to round-off error. The biggest determinant in figuring the present value of any stream of income is what interest rate you use for your "discount rate." Your present value (PV) will be smaller if you use a discount rate higher than 4.91% APY or 0.4% per month. I figured that 0.4% per month is reasonable and close to what one can get on CDs, I-Bonds and 30 yr Treasuries.

Keywords / phrases: how much is an annuity worth

Car/SUV, $25k Free Gas, and $100k Giveaways at Fuse TV, Progressive Insurance, Lifetime TV / Entertainment and Better Homes and Gardens

Below are four premium online contests with grand prizes of a car/SUV, $25k in gas, 2009 Ford Mustang and$100k. Entries can be made ever day. Before posting this, I traced each online entry form back to the parent site to ensure the contests were not an effort to capture your info from a less that reputable source. No guarantees that your info won't be shared with "marketing partners" of the companies offering the prizes.

(1.) Fuse TV (Music TV): Kia keys to the ride sweepstake for either a Kia Spectra or Sportage. Max one entry per household, per day. Sweepstakes valid only for continental U.S. (48 states). Entry period ends 1159pm EST on Sept 30th. Wiki's summary of what Fuse TV.

(2.) Progressive Insurance $25k gasoline giveaway. One entry per day, per household up till 12/31/2008. Three grand prizes of $25k gasoline awarded.

(3.) Better Homes and Gardens $100k Grand Prize Sweepstakes. You don't have to list your phone number on the registration form! Contest thru Feb 15th, 2009, One entry per day, valid on 50 states.

I entered into all of the above sweepstakes and will likely enter again in subsequent days as I remember.

Generating Income From My Blog

Did you know that Amazon.com is offering $12 referrals in its Amazon Associates Program? I've been an Amazon Associate for 2 years but have never used it. I'm giving it a try since there adds are very clean and it is certainly trusted content. The $12 referrals are offered until October 31st for Amazon Prime referrals.

Over last 30 months, I earned about $200 from Linkworth and about $41 in non-dispursed Yahoo Publisher earnings. In my defense, I recently did one year in Afghanistan where it was "illegal" for me to blog (U.S. Army directive for that area). Thus, I didn't blog and my traffic and established link exchange friends erroded away.

Today, I now have diversified advertising across Google Adsense, Yahoo Publisher & Amazon Associates. My goal is to earn $241 over the next year. This will equal what I've earned over the last 30 months. This is small change and should be doable. For now, I'm going to keep my content on Blogger.com. In the future I may migrated to a dedicated website. Anybody find success in other trusted advertisers?

Link Exchanges

I love to blog about finance and share my ideas with others. Please email if you have similar interests and would like to do a link exchange.

I've been blogging since 2006 but was offline during an unexpected tour of duty in Afghanistan. I'm in a stable, non-deploying job for the next 2 years and should be hard at work online as primary hobby.

Looks like my spouse may also be joining the fray and start blogging about Thai Cooking sometime soon.

Best of luck to my fellow bloggers!

A Paradigm Shift for My Financial Goals

When I first created pluggedinfinance I started with an original goal of $80k / year in passive income and a retirement age of 47. Retiring at 47 would have allowed me to beat my Grandfather who retired at the age of 48.

Recently, I changed my goals to $125k / year in passive income and deferred my retirement age to 51. I increased my passive income goal in a first attempt to incorporate what I forecast $80k in 2006 dollars to be equal to in 2025. I also am deferring my retirement age by 4 years not because I think it's necessary to meet a financial goal, but to factor in the fact that I want to make every attempt to stay in the Navy for the maximum of 30 years and retire at the rank of Captain (equal to Colonel in other services). I could stay in beyond 30, but it would require making the rank of Admiral which is only a 1 in 20 possiblity. Attaining this rank and serving 30 years would be a significant life achievement and would ensure that I never second guessed myself in retirement as to whether or not I realized my potential. Hey, and a 30 year Captain's Pension is about $84k/year.

Updated Prosper Lending Strategy / Tips Prefaced By Comments on Prior Lending Failures

This post is nearly two years in the making. I haven't posted about my Prosper lending strategy since November of 2006. My November posting hit the mark and was my best collection of tips up till late 2006. If you have a short attention span, look at my prior November 2006 posting first and come back to this as time permits. In today's posting I tell you my search criteria and include several new tips at end.

In November, I was near the peak of my stupidy with LENDER RISK TAKING. Prior to this, I had made 78 loans and all of them were performing (non-late), giving me an average portfolio interest rate of 17.8%. Around the time I hit 78 performing loans, I was also “volun-told” that I was being ripped from my desk job in Tennessee (just bought a house there) and deploying to Afghanistan. I coped with some of my disappointment surrounding the deployment by throwing a lot of money at something that made me happy in the past, prosper lending, where I previously enjoyed great success. I got cocky, took on a number of high interest rate loans and shifted my average loan portfolio interest rate to somewhere between 21.5 and 22%. For awhile, money was coming in and I was very happy with most of the high interest rate loans. Soon afterwards I was hit with an onslaught of non-performing loans. Realizing this, I was overcome with disgust and started to withdraw funds from my prosper account.

I returned from a very rewarding tour in the middle-east in October of 2007. Now, I would even consider volunteering to go back.

I started lending again on Prosper.com in February 2008. So far, my lending has been restricted to reinvesting returned principal and interest payments. Since Feb 2008, I’ve originated 20 performing loans with zero late ones. The following are general characteristics of my recent 20 loans:

-Inquiries over the last 6 months: 1.6
-Average debt-to-income: 23.2%
-Average interest rate: 15.3%
-Average credit rating: Between A and B, more closely to B. Zero E, HR and NC loans

I’m focusing on a narrow range of borrowers. Here’s my search criteria

Credit grades and minimum rates: AA (10%), A (10.5%), B (11%), C (11.5%), D (12%)

Debt/income ratio: 0% to 50%

Loan amount: $0 to $25k

% Funded: 33% to 100%

Inquiries in last 6m: 0 to 5

Occupation: Civil Service, Doctor, Military Enlisted, Military Officer, Nurse (LPN), Nurse (RN), Nurse’s Aide, Pharmacist, Police Officer/Correction Officer, Postal Service, Principal, Professor, Teacher

I’m now focusing on the above occupations because I feel these jobs are more protected in harsh economic times. Does anybody else focus on other occupations and why? Of my last 20 loans, I’ve deviated from the above search criteria about 25% of the time.

Sometimes, I also give preference in cases where a borrower’s friends are also bidding on the listing.

Finally, here are few new tips in addition to those I listed in November 2006:

-The value of any new lending strategy can only be determined once you have originated a significant number of loans (at least 30) under that strategy and the loans have had time to mature (>12 months). DON’T assume early success as a reason to assume more risk. In my opinion, borrowers may not have yet had an opportunity to fully utilize the money you lend them in the first few months after the loan is made.

-Most lenders can easily understand the importance of screening for current/past delinquencies and debt-to-income, but also consider a borrower’s bankcard utilization percentage. Think of it this way, do you want to lend money to people that may only be borrowing to increase their spending / consumption? Whether they say it or not, some people with high bank card utilization rates have problems with spending and may be originating a loan to pay off credit cards, only to continue building high credit card balances. Also, people that have high percentages are waiting until the last minute. Do you want to loan to somebody that isn’t proactive? Looking at bankcard utilization rates are not useful though when you’re considering new college graduates, divorcees who assumed the ex-spouses’ debt or people with small lines of credit.

-Spreading your risk across multiple listings is the key to any diversification strategy. But you “shoot yourself in the foot” when you invest all of your money over a short period of time. Think of it this way, are you taking advantage of your instincts / gut feeling when you lend money every day on Prosper? I highly recommend you take your investment capital and spread it out over longer periods of time. This way, you can exercise due diligence in using search criteria, asking borrowers questions, generating “watch lists” of preferred listings and finally loaning to an individual that you feel confident in. At the peak of my lending stupidity, I was originating new loans on the rate of one every day or two. Now, I’m doing one new loan about every 6 days.

-This is common sense, but you must believe in the borrowers’ story and they convinced you in their ability to repay. If this doesn’t happen, there is little value in the credit rating associated with the listing.

-If you're into statistics, consider looking at LendingStats.com for studying average and individual lending statistics. This site is a little better than Eric’s Credit Community.

Finally, if you chose to read this far, you skipped the first paragraph option of clicking straight to my November strategy posting. If you've came this far, I recommend you read my November strategy posting.

Do Not Call and Do Not Mail Listings: Just Signed Up With Both Services, You Can Too

I just registered our home phone with the do-not-call registry and am finalizing my PERMANENT OPT OUT registration in the Equifax, Experian, Innovis and TransUnion pre-approved credit card marketing agreement.

Both are pretty easy. Here's a breakdown of what you have to do:

(1.) Do not call:
- Got to the National Do Not Call Registry
- click on the register now button
- submit your phone number and email address
- go to your email and click on the provided link to confirm your registration.
Doing this took a total of 1-2 minutes.

(2.) To Opt Out of Pre-Approved Credit Card Offers:
- Go to www.dmachoice.org
- Click on "suite of preference services," you may also see other opt out services at the suite of preference services. So far, i've only elected to opt out of the credit card offers. You may also elect to opt out of "DMA Member Prospect Lists" too! This latter option may prevent you from receiving mail you want / don't want, such as new catalogs, coupons, announcements about new businesses in your community, and notices of special offers.
- Click on link to www.optoutprescreen.com
- Once you click on this, you'll be prompted for your name, address, SSN, birthday and phone number. I would normally be a bit leery about this. However, this website has a number of referrals to it adding to it's appearance of legitimacy.
- You'll be given a choice of opting out of pre-approved credit card offers for 5 years or permanently. Select the option you want and print out the form.
- Sign and date the form and mail it in.
This takes a few minutes but should prove well worth the time.

LOST MONEY IN YOUR ACCOUNT AFTER CONVERTING TO A ROTH? YOU CAN UNDO YOUR ROTH TO AVOID PAYING TAXES. HERE'S HOW.

You can undo a ROTH conversion. This is powerful information if you are stuck paying taxes on capital gains from a regular account that has dived in value after your conversion to a ROTH. The trick is, you have to act quickly (same tax year). Read this.

Just Got $35 In Olive Garden / Red Lobster Gift Cards. You Can Also Get Gift Cards To Many Popular Businesses Through This

I just redeemed my reward points at Mypoints.com for $35 in gift cards to Darden Restaurants. Darden Restaurants includes Olive Garden & Red Lobster.

You accumulate reward points with Mypoints.com simply by doing one of several things:
(1.) Open advertisements received at your email account from Mypoints.
(2.) Take surveys from Mypoints
(3.) Shop online via Mypoints
(4.) Use a Mypoints credit card

I've been a member for several years and have accumulated $178 worth of gift cards from Mypoints by almost exclusively doing #1 above (receive email advertisements). Receiving and opening the Mypoints advertisements are easy. You don't even have to read the advertisements that you open to get credit.

On occasion I have shopped via Mypoints and have earned about 2 or 3 points for every dollar spent on one of many popular national chains advertising via Mypoints.com.

I'd love to refer any of my readers to Mypoints. People that I refer automatically get 250 points added to their account (I also get 250 points for doing a referral). To put 250 points into perspective, I cashed in the following point totals today:

- 1400 points for a $10 Red Lobster / Olive Garden gift card
- 3400 points for a $25 Red Lobster / Olive Garden gift card

Once a member, you typically qualify for about 25 points a day in email advertisements, 60-120 points a week in possible surveys and unlimited points in shopping with the Mypoints credit card or online through companies that adverstise with Mypoints.

There are tons of other options for gift cards (i.e. Wal-Mart, Shell Gas, Old Navy, Circuit City, etc.).

Finding the Cheapest Gas: Just Became A Member With Gasbuddy.com

This is an excellent site for people who want to know the cheapest price of gas in their area or along whatever route they are planning to drive.

I have been using Gasbuddy.com for about a year now and enjoy its mapping feature. On my recent trip from Louisiana to Washington, I routinely saved 10-20 cents per gallon by finding several gas stations along my route that offered significantly lower gas prices.

I became a member tonight (now able to report on gas prices) because I feel it's important to identify and promote local gas stations that offer the best price on gas. I feel that if more people frequent the cheaper gas stations, then the higher priced stations would be more pressured to lower their prices to get business traffic.

The added perk of being a Gasbuddy.com member is that you become eligible for contest entries on their site. As an example, Gasbuddy.com has a gas card contest running through 1 September where people can win one of four $250 gas cards.

Check Engine Light: $80 I Could Have Saved If I Knew Before Going To Dealership

I recently brought my 98 Acura to the dealership to troubleshoot my check engine light. They charged me $80 up front just to hook up there computer, download the error code and translate it for me.

It turned out that my problem was a "low flow" indication for my catalytic converter. The dealership then quoted a price of $1000 to fix the problem and then told me:

(1.) It's far cheaper to go to a muffler shop. I compared 3 shops and found one that quoted me $479 to replace all piping, catalytic converter and muffler.
(2.) You could have originally gone to Autozone and had them tell you the trouble code on the car, saving you the $80. You would then have to go home and look up the trouble code on your computer.

I looked under the car and found that I had rust holes in the piping before my catalytic converter. I think that this is the main reason for the problem. From what I understand I could probably do a $5 temp fix to patch the leak in the exhaust pipe before the converter... I can also disconnect my car battery and reset the check engine light.

Since my car is getting old (only has a trade in value of $2k), it isn't worth spending $479 to repair the problem. I'm going to default to the temp fix and will go to Autozone if the check engine light comes on again. If I can't fix the problem, I can just go to Autozone periodically to get an engine reading to see if any new error/trouble codes have cropped up.

Buyers of 2009 VW Jetta TDI Get $1300 Tax Credit

The IRS just announced that the 2009 TDI meets its requirements for the Advanced Lean Burn Technology Motor Vehicle Credit. Buyers of a new 2009 VW Jetta TDI qualify for a $1300 tax credit.

Turns out that diesel drivers can now enjoy tax credits similar to what hybrid drivers have been getting for the past few years.

Related Car and Driver Article.

VW Special Offers / Financing

105 Hypermiling Tips

Ecomodder is an excellent site for the driver who wants to be thrifty with gas. This evening I came across a posting of 105 hypermiling tips posted on its site.

How Can You Spend Less Money on Fuel?

This is by far the most intelligent webposting on fuel economy that i've come across. It adds a little of the science behind fuel economy. If it does not address your interests in the subject, take the time to read the cited articles at the very end.

Also, try going to youtube.com and searching for hypermile, hypermiler or hypermiling.

There are obviously more ways to save money and they include not driving, using gasbuddy.com and using gasoline credit cards.

Enjoy.

41% Improvement in my Acura's MPGs

With today's gas prices, I've been thinking a bit more about practicing gas saving techniques. I have already been conservative in my driving over the past 2 years and routinely exceed EPA ratings.

Before gas prices exceeded $3/gallon, I was already:
1.) Coasting to red lights
2.) Gently accelerating about 1/2 the time. Rest of time accelerating as schedule required.
3.) Using cruise control religiously
4.) Minimizing use of brakes

Now that gas has gone "thru the roof," I've been keeping an eye out for some additional techniques.

About 2 weeks ago, I had the opportunity to drive from central Louisiana to Washington state. I'm moving my household to the Northwest and had my car loaded down with approximately 800 lbs of household goods and self.

My car is a 1998 Acura 2.3 CL, automatic. The 2.3 stands for 2.3 liter (4 cylinder). The EPA rates it at 19 city / 27 hwy. I regularly get 30-31 mpg hwy using techniques 1-4 above. However, on this trip I took one leg of my trip to test the following techniques:

5.) Observing speed limit. Basically, not exceeding it.
6.) Drafting. To minimize the danger of drafting, I kept about 1 car length distance for every 10 miles of speed. My favorite vehicles to draft were the RVs with the one-piece rock guards that went behind both sets of back tires. RVs were also more apt to maintain steady speeds on hills, as compared to 18 wheelers.
7.) Coasting in neutral down hills. This dropped my rpm from 2500-3000 rpm to about 900 rpm. Warning: This is illegal in some states and could get you hurt. The famous "click and clack" brothers who talk about cars advise against doing so.
8.) Ceased using cruise control when going up some steep hills. In doing this, I would remember my cars RPM while cruising before the hill. Once I reached the hill, I would listen for when my car was trying to apply more fuel and increase rpm. I would then immediately cease cruise control and maintain RPM vice speed. I would maintain RPM until I crested the hill. After cresting the hill, I would decide as to whether or not the downward slope was long enough to coast down or whether or not I would accelerate and reset cruise control.

Over the course of this experiment I averaged 68 mph and 37.98 mpg.

This represents an 11 mpg increase (40.7%) over my rated 27 mpg and with 800lbs of household goods in my car!

... It's about 2 weeks later now and I'm currently on travel and using a rental car. I've have / will experiment with two additional techniques with the rental car (4 cylinder Hyundai Sonata):

9.) Cutting off engine at stop lights. This mimics what hybrids already do.

This is my first time trying #9 and it's also being done in an unfamiliar area where I'm not fully aware of cycle times for red lights. It's probably best to test this on my route to work where I'm most familiar with which lights are long.

10.) Inflating tires to maximum tire pressure. I'm trying this tomorrow in a drive between Norfolk, VA and Washington D.C. I typically keep my tires at 32 psi but will try inflating them a little more after reading the manufacture's max tire pressure. Many "hypermiler" websites recommend increasing to max tire pressure. I'll raise the tire pressure somewhere between 32psi and the max pressure while leaving the pressure a tad below max pressure. Aside: my friend tried this technique with his Jetta TDI and lost one tire from tread separation (thus my reason for not going to max pressure but something close).

BMW: 59 MPG / 0 to 60 in 8.8 sec

BMW brought its 118d not for sale in U.S. diesel to New York City to accept the 2008 World Green Car Award.

It's a bit disappointing that BMW isn't selling this car in the U.S.. It's also more disappointing that the legislature is not more aggressive with our Nations' energy policy to promote cars like this. Sort of makes me think that Congress would much rather prefer low-economy cars so that they generate more income from fuel taxes.

Here's the link.

ZERO / LOW COST METHOD FOR LONG TERM INVESTING IN 5 STAR RATED COMPANIES

Read this if you are interested in establishing no/low cost long term investments via DRIPS.

I own 23 DRIPS and strongly believe in using them as a component of a diversified portfolio. I like DRIPS because of their low cost method of investing. I also find them useful in that they force you to buy and hold (not as liquid as stocks in regular brokerage account).

There are several useful sites for DRIP investors. They are:
(1.) Moneypaper INC's DIRECTinvesting.com
(2.) Computershare
(3.) Bank of New York-Mellon
(4.) Mellon Bank (in process of merging w/ "3" above)
(5.) Wells Fargo

The Moneypaper is a great starting point to find out what holding company carries the DRIP you are interested in. Then, you can either go to their website and buy, or purchase through the Moneypaper if the holding company does not allow direct initial purchase.

The title alludes to 5 star rated companies. I did a search on my Morningstar account for 5 star rated (highest Morningstar rating) DRIPS then compared it against the Moneypaper's no/low cost list. Morningstar's ratings are dynamic and change periodically when staff updates a stock's analysis. When I say no/low cost, I mean zero or negligible fees for dividend reinvestment, auto-purchase or cash purchase. Here's the result:

Finance
Bank of America
Capital One
Cathay General Bancorp
Comerica Inc
Regions Financial
Morgan Stanley
Synovus Financial
Wachovia
Wilmington Trust

REIT
Brandywine Realty Trust
CapitalSource Inc
Corporate Office Properties

DRUGS
Johnson & Johnson
Mylan Laboratories
Schering-Plough
Valeant Pharmaceuticals

Natural Resources
Alumina
Marathon Oil
Southern Union

Discretionary
Anheuser-Busch
Brown-Forman
General Mills
Kellogg Company
Limited Brands
Wal-Mart

Other
3M
Boeing
Consolidated Edison
Graco
ITT Corp
Masco
McGraw-Hill
Paychex

Of the companies listed, I own McGraw Hill, 3M, Graco, Wal-Mart, Limited Brands, Anheuser-Busch, Johnson & Johnson & Bank of America via DRIPS. I've been eyeing Boeing. I own Alcoa, Baker Hughes and Exxon DRIPS for exposure to Natural resources, but would also consider Apache. I own the Southern Company DRIP for exposure to utilities. In lieu of some of the industrials above, I own the Manitowac, Pentair and Cummins DRIPS. I've been avoiding the food stocks and have instead gone long Agriculture via ADM and JJG (ADM and JJG not via DRIPS).

Aside: My employer provides us with a free subscription to Morningstar. If you don't already have access, you can frequently find Value-line and Morningstar at your local library.

U.S. Stock Market Crash Prevention Mechanisms

Watching the European and Asian stock markets plunge this Monday and Tuesday (their time) prompted me to research what mechanisms are in place to prevent a market crash here in the U.S.

According to about.com the following mechanisms are in place:

- The market will halt trading for an hour if the Dow drops 10% before 2 pm.
- Trading will halt for two hours if there is a 20% drop in the Dow before 2 pm.
- If the Dow drops 30%, trading is halted for the day.

DOW futures are pointing to a 5%+ drop tomorrow morning. This is coming at the heels of market drops around 7-10% overseas.

I'm Back to Personal Finance Blogging

In the coming days I will start posting new content. During my time away from blogging I finished 13 months of training and deployed time in Afghanistan. In hindsight the tour was very rewarding.

In the coming weeks I will get back to posting on topics related to:
1.) Our recent purchase of a used car via ebay
2.) Our prosper.com loan portfolio
3.) Our new dividend reinvestment plans
4.) What we're doing with our other investments.

If I were you, I'd keep my eyes tuned to tomorrow's stock market. It's likely to gap lower significantly. We've been in bonds, for the most part, since mid December and have also enjoyed some gains shorting the market. I'm seriously considering dipping my toes into the market this week if Monday's Asian & European market bloodbaths (i.e. German DAX down 6% on Monday alone) continue with the U.S. on Tuesday.

CNBC Million Dollar ($) Portfolio Challenge Trivia Questions

I intend to post the answers to as many of the CNBC portfolio challenge questions as possible. Triva Q/A will be in the comments section of this posting.

For answers to the 2008-2009 Million Dollar Portfolio Challenge click here.

Adding to Four Dividend Reinvestment Plan (DRIP) Holdings

Before deploying to Afghanistan, I stopped my automatic purchase plan in all of my DRIPS. I felt that the stock market had run it's course and I wanted to keep new money on the sidelines. Now, the broad market sell off has created a buying opportunity. I'm not saying that the market is done going down. However, I feel that a person can cherry-pick from the listed securities to find some safe bets. Plus, in DRIPS, I frequently make small purchase which in itself is somewhat forgiving if the market goes down further.

I'm adding to my position in the following DRIPS:

3M (MMM)
Johnson & Johnson (JNJ)
Bank of America (BAC)
Budweiser (BUD)

I have a free subscription to Morningstar.com thru my employer. I frequently use Moringstar and Yahoo Finance to find suitable value stocks. Based on Morningstar/Yahoo Finance, I feel that the above stocks are at least 25% below their intrinsic value.

The additional beauty of the above stocks is that I already have DRIPS in them and my subsequent purchases cost $0.

My other DRIP positions are (Lowes, Yahoo and Home Depot have DRIP fees):
Exxon Mobil (XOM)
Lowes (LOW)
Yahoo (YHOO)
Home Depot (HD)
Southern Company (SO)
Aflac (AFL)

Making Investment Decisions by Cherrypicking What Warren Buffett Owns

The "seekingalpha" website recently ran an article about mimicking Warren Buffet's investment decisions. This article is the first one i've seen that succinctly summarizes all of Warren Buffet's holdings.

The article is from Feb '07. Thus, some of the info is a little dated. For instance, I think Warren Buffett has already sold his Target shares.

If You Like Sharebuilder.com, You'll Probably Like This Lower Cost Rival

I stumbled on the following microvest website today. It offers $3 real time limit orders and no annual cost. It also offers $2 and $1.5 trades if you pay a monthly fee.

The website is called sogoinvest. I'm not a user of the site. I'm considering converting over my sharebuilder account. Meanwhile, i'm also considering converting my scottrade account over to tradeking.com.

Pictures of Me Handing Out Candy to Afghan Children

I'm in Afghanistan for about another 10 months. I take great joy in handing out things to the local kids. Here's a couple of pictures of me handing out candy.

If anybody can support me with care packages, i'd love to hand out stuff for you. I'm specifically interested in getting school supplies. Anything sent would be greatly appreciated and I would be happy to take pictures for you.

Email me if interested and i'll forward you a mailing address.

Many thanks.

How I Got a $14,900 Annual Pay Raise

In my last post I mentioned that I was drafted (sort of). Well, everybody in the military gets a bump in their income when serving in a combat zone. While in Afghanistan, I qualify for an equivalent pay raise of $14,900 for my 12 months here.

The way it's broken down is:

Family separation Pay: $250/month
Imminent Danger Pay: $225/month
Hazardous Duty Pay: $150/month
Per Diem: $105/month
No Federal Income Tax: $326/month
Free Food: $187/month

Total: $1243/month or $14916/year

Of course, i'd give this all back for being back home.

I'm planning on using this extra money to help pay off two 401k loans that I took out for a down payment on our primary residence and the purchase of an AC system for a rental property.

I've Been Drafted (By Military), Well Sort Of

I've been a bit quiet lately because I've been going through a fairly turbulent process. I'm already active duty Navy, but in September of this year, I started the "individual augmentee" (IA) process. IAs are essentially piece meal replacements that go over to Iraq, Afghanistan, etc and assume Army staff jobs so that the over-worked Army can free up soldiers for actual missions.

In my title, I said drafted b/c I did not volunteer for my current assignment. Once notified, my current command and I were given 30 days notice to transfer my prior duties to others at work and for me to get ready to deploy for 12 months. In October, I finished two months of preparatory training which basically taught how to be an infantry grunt. I'm a Human Resources officer in the Navy, talk about 180 degrees out...

During my training, I was in charge of a group of 14 people. We finished the training unscathed and way ahead of schedule. Now I'm an Officer in Charge of a small unit in Afghanistan.

As for my on year tour: one month completed - eleven more to go.

As for my blog: I'm starting to settle in over here and am hoping for continued access to computers/internet. I'm still bidding on Prosper.com loans; however, i've scaled back to simply reinvesting interest income. On December 1st, I had about $5000 in Prosper loans. I'm going to watch it grow for a period of time without any new deposits. During this period, I plan on bidding predominately on loans w/ interest rates in excess of 21%. You can watch my portfolio at Erics Credit Community.

Why am I scaling back w/ Prosper.com? The main reason is to increase my liquid cash reserves, pay off two 401k loans and participate in a 10% military savings account program. I plan on working towards an eventual goal of 20% of our networth in Prosper. This goal will be reached in years not months. I intend to wait for Prosper to be in the black, financially, before I commit substantially larger sums.

As for my prosper loan portfolio performance:
- 104 loans
- 3 late (while I hate this, i'm still better than the average prosper portfolio)
- Average interest = 21.1%
- ROI = 14.96%

Hello From The Middle East

I'm almost done w/ my traveling... I'm finally in a place that doesn't block out blogger.com.

On Travel

Heading overseas for a bit. Will be in the air and/or without internet for about 2 days minimum.

Updated Prosper Lending Strategy (A Collection of Tips)

You can read my latest posting on prosper lending here... You can always come back to the below posting.

Bottom line: I've been lending money on Prosper.com since Apr 2006. Over this time, I've developed a preferred lending style that is discussed below. Some of the tips have already been discussed piece-meal on this blog; however, I feel that it's important to now summarize them in one entry.

Bidding:

(a) Bid 0% on auto funded loans. Reason: Auto-fund loan requests still have the bid-down feature that allows the last bidder (person who first gets loan to 100%) to set a lower interest rate and bump off others who set their lending rates to the borrower's requested rate. If you set your lending rate at 0%, nobody will underbid you. Of course, if everybody bids 0%, then you'll make no money. I'm assuming that at least one person will always bid the borrower's requested rate and thereby prevent the loan from getting bid down to 0%.

(b) Don't unnecessarily tie up your money in bids at the 5-9 day mark on loan requests. The lender's rate will frequently get bid down anyways. It's typically best to bid within 48hrs or less of the loan's closing. There's one exception: Borrowers have the option to accept the current market rate whenever their loan is at 100% funding, regardless of whether it's the 9th or 2nd day of the listing. In these cases, the borrower is either desperate for the money or doesn't have the sense to let the loan get bid down further. Lenders beware! You can get some sweet returns but may be incurring additional risk.

(c) Always ensure you have enough money in your account for at least one bid on the weekend. Reason: Deposits don't get credited to lender's accounts on weekends. This is the lending/borrowing dead zone. You will get less bidding competition on the weekends. Thus, you can potentially lock in some sweeter risk-reward loans if only you have the money to lend.

(d) Don't be scared to bid on loan requests that do not have the bank account verified. Prosper cannot let a loan go to funding until the account is verified. You may tie up your money a few extra days; however, you typically get higher interest rates on these loans.

(e) Don't have your Prosper sixth sense yet? Don't know how to read people. Recommend you review various lender portfolios at Eric's Credit Community. Eric scrapes data from the Prosper website and creates useful borrower and lender stats.
- Lender Stats Table (Ranks lenders by ROI and $ invested to include their bids and holdings)
- Delinquent loans (sorted by group sponsored and non-group sponsored) If you review these, you'll start to develop your Prosper lending 6th sense. You'll also find a few lenders where you favor their lending style thereby allowing you to follow their bids.

(f) Group sponsored loans have a unique feature (sometimes). I prefer to bid on loans where the group leader bids prior to me. That shows me that he/she has confidence in the borrower and feels that the borrower presents a decent risk-reward. Warning: Some group leaders (GL's) autobid on loans for their group. This has less value to me. In these cases I still view the loans favorably. However, I bid w/ narrower % rate spreads b/c I'm somewhat suspicious of the quality of the vetting. Using narrow % rate spreads also allows the lender to more easily bail out of a loan when they see that the GL is no longer bidding. By doing this you have more control and can take action when you see that the GL no longer feels that the loan market rate provides a suitable risk-reward proposition.

(g) Use the "I buy ugly houses" lending strategy to get superior risk-reward loans. Here's my post on the strategy.

(h) In my humble opinion, the following credit grades are roughly equal: AA, A, B, C, D. If you look at Prosper loan performance data, the delinquency rates on these loans all fall within a range of 3-4%. These are very narrow delinquency rates. Thus, you must ask yourself why not bid on the "D" rated individual? You only have an additional 1% (est.) credit late/default risk but roughly an 8% greater interest rate.

(i) The key to identifying and bidding on any loan is looking for what I consider an inflection point. Has the person turned the corner from a credit disaster and is well on their way to financial bliss? Or, are they an "AA" rated individual with a $7600/month mortgage note in California and have depleted their savings?

(j) Consider the implications of the pictures or the absence thereof. Also consider whether or not their decision to autofund is based on desperation or some other reason. For further comments see my postings on the subject (posting one, posting two). Warning: Postings "one" and "two" are not necessarily ground truth. They’re merely observations with an element of conjecture thrown in.

Money Management:

(a) Don't make large lump sum deposits into your Prosper account. Doing so only precludes you from collecting interest on that money in your banking account. Instead it's best to make multiple transfers each week. Keep in mind that 3pm PST is the deadline for submitting transfer requests. Requests submitted after this time incur an extra day of processing.

(b) To get an idea of the best time for bank transfers, you may want to read my post on the subject.

(c) For Small Budget Lenders: If you have a small budget, you can make deposits of as little as $25 (recently reduced from $50). Recommend making $25 deposits when your cash balance and payments in transit add up to $25. This will allow you to have a full $50 to bid in about four or five days.

Groups:

(a) Don't join a group unless you have a need to borrow money. You cannot get any of the group rewards as a lender.

Advanced Search Filters:

(a) Recommend you set up loan search filters in roughly the same manner I outline in paragraph "3" of the following tips post. I still follow the filter strategy mentioned in this post with one main exception. I now bid on loans with DTI's as high as 60% if:
1) they rent
2) their spouse or life mate contributes significantly to household expenses
3) they own or owe on a mortgage but have significant equity (50% or better) that can be tapped in an emergency.

Updated Prosper Lending Tips (A Summarized Collection of Topics)

You can read my latest posting about prosper here... You can always come to this 2006 posting later.

Bottom line: I've been lending money on Prosper.com since Apr 2006. Over this time, I've developed a preferred lending style that is discussed below. Some of the tips have already been discussed piece-meal on this blog; however, I feel that it's important to now summarize them in one entry.

Bidding:
(a) Bid 0% on auto funded loans. Reason: Auto-fund loan requests still have the bid-down feature that allows the last bidder (person who first gets loan to 100%) to set a lower interest rate and bump off others who set their lending rates to the borrower's requested rate. If you set your lending rate at 0%, nobody will underbid you. Of course, if everybody bids 0%, then you'll make no money. I'm assuming that at least one person will always bid the borrower's requested rate and thereby prevent the loan from getting bid down to 0%.

(b) Don't unnecessarily tie up your money in bids at the 5-9 day mark on loan requests. The lender's rate will frequently get bid down anyways. It's typically best to bid within 48hrs or less of the loan's closing. There's one exception: Borrowers have the option to accept the current market rate whenever their loan is at 100% funding, regardless of whether it's the 9th or 2nd day of the listing. In these cases, the borrower is either desperate for the money or doesn't have the sense to let the loan get bid down further. Lenders beware! You can get some sweet returns but may be incurring additional risk.

(c) Always ensure you have enough money in your account for at least one bid on the weekend. Reason: Deposits don't get credited to lender's accounts on weekends. This is the lending/borrowing dead zone. You will get less bidding competition on the weekends. Thus, you can potentially lock in some sweeter risk-reward loans if only you have the money to lend.

(d) Don't be scared to bid on loan requests that do not have the bank account verified. Prosper cannot let a loan go to funding until the account is verified. You may tie up your money a few extra days; however, you typically get higher interest rates on these loans.

(e) Don't have your Prosper sixth sense yet? Don't know how to read people. Recommend you review various lender portfolios at Eric's Credit Community. Eric scrapes data from the Prosper website and creates useful borrower and lender stats.
- Lender Stats Table (Ranks lenders by ROI and $ invested to include their bids and holdings)
- Delinquent loans (sorted by group sponsored and non-group sponsored)

If you review these, you'll start to develop your Prosper lending 6th sense. You'll also find a few lenders where you favor their lending style thereby allowing you to follow their bids.

(f) Group sponsored loans have a unique feature (sometimes). I prefer to bid on loans where the group leader bids prior to me. That shows me that he/she has confidence in the borrower and feels that the borrower presents a decent risk-reward. Warning: Some group leaders (GL's) autobid on loans for their group. This has less value to me. In these cases I still view the loans favorably. However, I bid w/ narrower % rate spreads b/c I'm somewhat suspicious of the quality of the vetting. Using narrow % rate spreads also allows the lender to more easily bail out of a loan when they see that the GL is no longer bidding. By doing this you have more control and can take action when you see that the GL no longer feels that the loan market rate is no longer a suitable risk-reward proposition.

(g) Use the "I buy ugly houses" lending strategy to get superior risk-reward loans. Here's my post on the strategy.

(h) In my humble opinion, the following credit grades are roughly equal: AA, A, B, C, D. If you look at each Prosper loan performance data. The delinquency rates on these loans all fall within a range of 3-4%. These are very narrow delinquency rates. Thus, you must ask yourself why not bid on the "D" rated individual. You only have a 1% (est.) credit default risk but a roughly an 8% greater interest rate.

(i) The key to identifying and bidding on any loan is looking for what I consider an inflection point. Has the person turned the corner from a credit disaster and is well on their way to financial bliss. Or, are they an "AA" rated individual with a $7600/month mortgage note in California and have depleted their savings?

(j) Consider the implications of the pictures or the absence thereof. Also consider whether or not their decision to autofund is based on desperation or some other reason. For further comments see my postings on the subject (posting one, posting two). Warning: Postings "one" and "two" are not necessarily ground truth. They’re merely observations with an element of conjecture thrown in.

Money Management:

(a) Don't make large lump sum deposits into your Prosper account. Doing so only precludes you from collecting interest on that money in your banking account. Instead it's best to making multiple transfers each week. Keep in mind that 3pm PST is the deadline for submitting transfer requests. Requests submitted after this time incurs an extra day of processing.

(b) To get an idea of the best time for bank transfers, you may want to read my post on the subject.

(c) For Small Budget Lenders: If you have a small budget, you can make deposits of as little as $25 (recently reduced from $50). Recommend making $25 deposits when your cash balance and payments in transit add up to $25. This will allow you to have a full $50 to bid in about four or five days.

Groups:

(a) Don't join a group unless you have a need to borrow money. You can get any of the group rewards as a lender.

Advanced Search Filters:

(a) Recommend you set up loan search filters in roughly the same manner I outline in paragraph "3" of the following tips post. I still follow the filter strategy mentioned in this post with one main exception. I now bid on loans with DTI's as high as 60% if:
1) they rent
2) their spouse or life mate contributes significantly to household expenses
3) they own or owe on a mortgage but have significant equity (50% or better) that can be tapped in an emergency.

A Prosper Lesson Learned: I'm Kicking Myself For Lending Money To One Person

Read my latest post on prosper here... You can always come back to this 2006 post later.

Bottom Line: I recommend against lending money to people who need to buy a car w/ a Prosper loan.

A car is a "hard asset" that can be repossessed if somebody goes delinquent on payment(s). No matter where you go, you can almost always find somebody willing to sell you a car and finance it too!

To frequently I see people w/o money buying or leasing cars they have no business with (vettes, escalades, lexus's, bmw's, etc). I know there's dealers out there that will finance a car, albeit at a high rate, for most anybody.

So, when somebody with bad credit or no credit wants to borrow money for a car, they've probably been turned down already by dealers. I suspect, their credit and/or income reliability may be much worse than what's represented (or not represented) in their Prosper loan request. Of course, there may be the case where the person may have found a good deal on a private sale, with limited financing opportunities. This is up to you... I've been burned once, and i'm staying away from them.

Ok, why am I saying this. Well, my only delinquency is a person borrowing money for a van. He's also the only "no credit" (NC) rated person that I lent to. He's retired Air Force. I guess I have a soft spot for prior military since i'm active military.

Here's my one delinquent: (Link was listed but removed on recommendation of others).

Summary of my loan portfolio:
a) 89 active loans w/ six more in review for funding
b) 20.32% return since starting in Apr 2006 (% per Prosper Performance Table)
c) One delinquent (six weeks delinquent)

Now, I'm getting to where I prefer "credit card consolidation" loans over all others. I prefer these when the tone of their application is remorseful for the situation they got themselves into, and THEY SPECIFICALLY STATE THEY'RE USING THE LOAN TO PAY OFF OLD DEBT. Of course, they could always lie to you and simply pay off the cards to continue shopping at Nordstroms.... It's one of the risks I choose to take.

Good luck!

My Annual Trip to the Movie Theater. The Movie That Gets Me Off the Netflix and Into the Theater

Joel Siegel, movie critic of Good Morning America, says this movie is the funniest thing he's seen since the Marx Brothers in Laurel and Hardy. Now this guy has seen a lot of movies. I'll go w/ his recommendation.

Joel's review.

My Biggest Pet Peeve w/ Prosper.com (Peer-to-Peer Lending)

Pet Peeve: My biggest pet peeve is not the fact that Prosper doesn't offer interest on unobligated funds. It's not the lengthy period of ACH transfers...

My biggest pet peeve are inconsiderate borrowers. Why don't borrowers who are late tell lenders why? They could change their profile to tell people up front what's going on and their own forecasted prognosis? It's the only considerate thing to do. BAD NEWS DOESN'T GET ANY BETTER WITH TIME.

Prosper member "i" hits the nail on the head with his statement:

"To Those Whom I Choose to Fund:
You have given to me your word. I am demonstrating my trust in you by allocating to you temporary control of money that I worked hard to earn. You now have an opportunity to show the strength of your character to me and to others. Please do not fail me. While I can live with some losses here, your character cannot!"

While, the borrowers may not necessarily understand that they gave their word, per se, they do a promissory note. This is virtually the same thing.

Here's a Good Policy Shift by Prosper.com

In the words of Secretary of Defense Rumsfeld, the worst things are those that you "don't know you don't know." Sounds like a Bushism to me but anyways, here's a previous unknown that I learned today while perusing the Prosper help section (I'm now wonder why Prosper didn't highlight this in a "News" email to me).

Prosper has lowered the minimum dollar amount for incoming transfers. In the past, the minimum was $50. Now, the minimum is $25. Prosper's outgoing minimum has always been $25 (at least since I joined). Perhaps this can be interpretted as a small concession to those that are fed up with Prosper not paying interest on unobligated funds.

Now a decent strategy for small timers would be to transfer $25 into their accounts as soon as their "cash balance" and "payments in transit" add up to $25. Previously, i've been pumping in increments of $50+ in order to have at least $100 (2 bids) in my account at all time.

This policy shift helps me and others who are in that end of the year crunch for maxing their 401k.

Putting Lipstick On The Pig: Prosper May Spruce Up Your Underperforming Loan Summary Section Without Your Knowledge

Whether you know it or not, your delinquent loans MA Y completely disappear from your loan summary section. Here's the details from Prosper's website:

Loans delinquent for 4 months will be sold on the open market to a debt buyer...

• After four months of delinquency for any single payment, your loan will be sold to a debt buyer and any proceeds will be distributed to lenders.
• Your delinquency will be reported to Experian, Prosper's credit reporting agency partner, and will appear in your credit history. Your credit score will be negatively impacted.
• Borrowers who have defaulted on a loan at Prosper will not be allowed to borrow again on the Prosper marketplace."

Don't believe this? Go here.

Many people probably don't realize this b/c there are so few loans that are in a delinquency status of 3+ months (81 loans, 2.35% of all funded loans).

This policy may be good for lenders and Prosper. I wonder whether or not this will be highlighted under the loan summary section. Or, will Prosper simply allow these delinquent loans to disappear from the loan summary section? Chances are that the delinquent account may just disappear and the lender may have to figure it out for themselves. If the lender is not astute, they may think that the delinquent account is now current. LENDER BEWARE!

Plea to Lenders: Don't let Prosper allow to mask these loan sales. If it's not specifically addressed in your loan summary, complain to Prosper. Have them highlight this in the loan summary section. They should include a section stating: "# Loans Sold."

I Just Learned Something New About Prosper.com "Group Rewards"

Please disregard some of my prior comments about Prosper "group rewards." Prior to yesterday's post, I previously took the liberty of interpreting prosper loan payment tables literally for what is listed in my Prosper account. On each loan payment, I'd see that each borrower would make a payment but Prosper would make deductions periodically for non sufficient funds (NSF) and "group rewards." Seeing this, I was psst off that I was paying "group rewards."

I spoke w/ a Prosper rep yesterday and he assured me that "group rewards" are paid strictly by borrowers and are included as a supplemental amount in payments borrowers make to Prosper.

That stated, I am continually unable to "check-book" balance the differences between my loan portfolio "historical performance" and "net interest and fees paid on loans to date" sections of Prosper screen displays.

- The "historical performance" is found by going to "your account," "lending," "loan summary," and finally "historical performance."
- The "net interest ..." is found at the bottom of the "loan summary" section.

The Prosper rep told me that the differences between these two reside in the fact that "historical performance" forecasts the net gains you SHOULD have in your account if all payments are current."

Even with this new knowledge, i'm still puzzled and am crunching the numbers. I'm trying to mathematically account for every penny in the difference between the two. If others out there can account for the differences in their accounts please comment below or email me. I'm exceptionally curious and annoyed w/ this.

Prosper.com "Group Rewards" Apply Only to Borrowers (Not Lenders)

I recently blogged about joining a peer-to-peer lending group on Prosper. I like PsychDoc's group and respect it; however, I had an incorrect underlying assumption.

I frequently noticed that some groups at Prosper.com have 100% shared rewards. So, I thought, i'm a lender, I bid on PsychDoc's loans anyways... Why not juice up my returns by joining his group?

I was sooo wrong. Group rewards ARE NOT 100% SHARED (no matter the group, no matter what's advertised)!! They are only shared amongst those people that have ACTIVE LOANS. If you're a borrower, you'd say NO DUH! For those w/ training in Economics, you might say NO DUH. I too know the free-rider principle from Economics. However, I took Prosper.com at their word (100% shared rewards).

Note: PsychDoc did nothing wrong in advertising 100% shared rewards, many other groups do this. It's more so a matter of understanding Prosper.com policy.

Group rewards are shared by buying down the interest rate of borrowers. Next time you look at a group sponsored loan application, pay attention to the interest rate spread between lender and borrower rates. When a loan is funded, a borrower receives NO shared rewards until after 3 months. Prosper states that this is policy to ensure that the listing is a valid. After the 3rd month, the borrower will see that their interest expense is partially paid down by shared "group rewards" (provided their group shares rewards). I'm not sure how this is displayed. The amount of reward should remain level until their last payment. At that time, any additional rewards that may have piled up will be credited in lump sum.

So now, there's no point of me being in a group, unless I need to borrow money.

Disclaimer: The extent of my knowlege on the subject above is based exclusively on one phone call to Prosper. Some borrowers may be able to better detail how group rewards work. If I made any mistakes, please address them in my comments section below.

The Best Think I Told My Wife Since Getting Married (Per Her)

I'm on vacation till Monday, and this morning I had the liberty of lounging on the couch while my wife got ready for work. I noticed that she was steadily progressing with her hair, makeup, coffee, etc. but continued to cycle between different outfits.

I followed her into our walk-in closet to give her a hug / investigate. Perhaps I felt guilty lounging around while she works, but I said:

"Maybe we should go shopping so that (insert spouse's pet name) has new clothes"

Some guys might say, so what I do that all the time. Or they may highlight that I said MAYBE, and thus can back out of it!

I'm a frugal guy and I loathe shopping and it becomes even worse if the primary shopper is indecisive. LOL. I better stop there or I might start losing the points I scored w/ her this morning.

Prosper.com Borrower Policy Trumps My New Years Resolution?

I recently decided that one of my New Years resolutions was not to bid on any NON-autofund prosper loan request unless it was within two days prior to closing. Ideally, I would manually bid snipe it with a bid time as close to closing as feasible.

Recently, I have been making initial bids on these loans 3-5 days prior to their closing. You ask, why 5 days or less? Fundamentally, I believe in just in-time bidding/funding. This strategy best helps me minimize the amount of unobligated funds in Prosper's 0% interest bearing accounts.

Recently, i've been noticing that some non-auto bid loans have been funding and closing in well less than 10 days. Here's an example:

Loan 53970.

This loan closed within about 2 days and 15hrs of opening (the typical period is 10 days). Frustrated w/ the lost bidding opportunity, I called Prosper.com. The Prosper rep notified me that borrowers have an account feature that allows them to accept a loan interest rate at any time once the loan reaches 100% funding.

Those lenders who piled in early on this loan, got a loan w/ an ROI of 14.6% (a respectable rate). Now, I'm in a quandary as to whether or not embark on my above New Years resolution. The one silver lining to the New Years resolution is that I'd avoid some borrowers who are in such a hurry for funds that they may have underlying emergent issues (hidden risks) not clearly communicated in their loan requests. Of course, this is an inherent risk that may still exist in auto-fund requests that I continue to fund.

Hmm, what will I do? I'll likely stick w/ my New Years Resolution and leave it to my readers on how they time their bids.

Prosper Lending: A Big Surge of Borrowers About to Hit the Market

I'm an avid lender on prosper.com and I was previously getting concerned that I was working a bit hard in finding suitable risk-reward lending situations. Per Eric's Credit Community, my ROI is 14.45%. Beating this ROI is starting to get difficult. But voila, I just came across a Christmas related listing.

It then dawned on me that the Christmas/New Year season will be a good period for lenders. Here's why:

(1) Who ever came up w/ "It's better to give than receive?" LOL, perhaps a retailer, i'm not sure. However, many people are going to spend more money than they have on hand. This will create more shortfalls when emergencies hit.

(2) Some of the other lenders you're competing against may get a little bit shorter on funds if they're not giving frugally, but making a splash w/ the purchase of big Christmas presents for others (perhaps a big flat screen for themselves).

(3) Other people may be making New Years resolutions that cost money.

(4) Others may be spending too much money on travel to see family this season.

(5) Others may be spending too much money on Christmas/New Years parties.

You should expect the beginning of a surge of Christmas related listings starting about 10 days prior to Thanksgiving. The one above may be one of the first ones.

I haven't yet decided if i'm bidding on the listing above. I've emailed her a couple of questions and am waiting on a response. The one challenging thing for her is that English must be her second language after I suspect Mung/Lao or Thai. I hope she doesn't think it's smart to "SAVE" at 25.48% interest. It's only saving if she would have otherwise spent the money on a 32% Bank of America or Chase credit card. If that's the case, on the one hand I applaud her for saving about 6.5% but on the other hand, she needs to work on money management.

My Prosper Loan Portfolio Performance

Bottom line: Prosper over states my loan portfolio performance by about 3%. Instead of earning a 20.28% return, I've earned an annualized yield 17.1%.

My Prosper.com loan portfolio (Portfolio display provided by Eric's Credit Community).

Details:

a) Number of loans: 85

b) Total Loaned: $4,320.23*

c) Number delinquent: 2
- Loan 314XX: 2 months late
- Loan 311XX: 7 days late

d) Effective Interest Rate = 17.1% *

*Notes:
1) Prosper states my effective interest rate is 20.28%

2) Prosper doesn't factor in the impact of group rewards and other fees. Instead, THE SITE MISREPRESENTS effective yields. YOU HAVE TO CALCULATE THIS ON YOUR OWN.

3) Meanwhile, if the delinquent accounts in paragraph "c" actually default, my effective interest rate would be reduced to 16.7% and 16.3% respectively (approximately 0.4% reduction for each default).

4) In calculating my effective interest rate, I assumed all interest income would have been reinvested at an effective 17.1% interest rate. I also ignored the 0% periods where interest income sits w/o being in an active loan.

5) When using "Eric's Credit Community," one will almost always get slight irregularities in the reporting of "Eric's Credit Community" and Prosper.com.

Can bid style (competitive bid vs. autobid) on Prosper.com help determine likelihood of late payment?

Perhaps, people with higher likelihoods of making late payments or defaulting on prosper loans are more desperate and in greater need for fast loan funding. As a result, borrowers may use the autobid feature to help ensure their loan request(s) get funded.

Like my last analysis of pictures in delinquent loans, I went back to the prosper borrower stats at "Eric's Credit Community." I looked at all of the group sponsored delinquent loans and found that there were 161 delinquent group loans with valid hyperlinks.

Of these, I found that there were only 36 competitively bid delinquent loans and a whopping 125 delinquent autobid loans. ALL OTHER THINGS EQUAL, it appears that the bidding style has some merit in determining likelihood of late payment.

Based on the above numbers, late payments occurred with 347% greater frequency when the borrower used the autobid feature.

Disclaimer: This analysis is based on ALL OTHER THINGS EQUAL (ceterus paribus for statisticians). In all likelihood, there are a number of other extenuating circumstances that also contribute to greater likelihoods of late payment.

Recommendation: Consider using this as a supplement to prosper.com credit report analysis.

Can Photos on Prosper Loan Requests Help Determine Default Risk?

Perhaps, people with higher likelihoods of making late payments or defaulting on prosper loans don't want you to know what they look like.

I did some back of the envelope math and found some possible evidence that pictures matter on Prosper loan requests.

I reviewed the prosper borrower stats at "Eric's Credit Community." Eric shows that there are 210 prosper loans that are late in payment. The accuracy of this number is limited in part due to the fact that his number of late non-group affiliated loans is based only on what is reported to him by prosper lenders.

Anyways, I looked at pictures posted (or not posted) on each one of the late loans and found that loan requests without pictures of the borrower occurred 31% more frequently than requests w/ one or more pictures of the borrower.

Pictures are only a piece of the puzzle available to lenders. I recommend continued use of credit report analysis and email dialogue w/ borrowers to determine favorable risk-reward lending cases.

A Good Listing on Prosper.com That You Should Check Out Immediately

This loan request has a fixed rate of 24.9% on a D Rated individual. It will likely get funded with less than 3 hrs of total list time.

Loan 35836

The person has a military background and is currently located at an Air Force Base (AFB). The person requesting the loan is not clear on his employment and pay. It can only be inferred that:

- If the person has been in the military for 16.5yrs, then they likely have a minimum household income of 40k with full medical benefits for his family of 5.

By the way, "USAA" is just an insurance company. He notes that he's been a member of USAA for 10 years. It's not that big of a deal; however, USAA offers alot of good financial services at decent rates.

Warning: I don't know this person any more than you. Bid at your own risk.

I Just Joined My First Group on Prosper.com

Previously, I blogged about the formation of my own group on Prosper.com. I have since changed my mind due to my work schedule w/ the Navy. Instead of leading a group, i've joined PsychDoc's group.

Unlike others, PsychDoc is also a lender. I've seen so many other group leaders manage a group and collect group rewards but do very little bidding.

Joining his group was an easy decision for me since 24% of all loans i've funded to date are sponsored by his group (a relative majority of my loan portfolio).

Ten Ideas to Make Prosper.com Better

I've made several prior posts on this topic. Here's a few more ideas.

(1) Enable lenders to have a watch list. Much like Ebay, a lender can select particular borrowers from their searches and save them for a temporary watch list. This is a useful idea in that people don't always have money in Prosper.com's ZERO PERCENT INTEREST RATE ACCOUNTS. They need a way to more easily track listings they prefer between their deposits.

(2) Add a "bid now" feature that allows bidders to bid based on a line of credit or margin account. Prosper.com would make money in margin interest between the time of the actual bid and the time that funds are deposited w/ Prosper.com.

(3) Modify the minimum $ amount required for fund transfers. Given that people are frequently getting interest payments deposited that don't add up to $50, people need a way to fund accounts with the exact amount required to supplement interest income in order to meet minimum bid requirements... For example, if somebody has $7 in interest income, then they may only want to deposit $43. At a minimum, Prosper.com should drop the minimum for incoming transfers to $25 and match their minimum requirement for outbound transfers.

(4) Allow people to set up a Prosper.com variable universal life plans. Prosper could make a little more money in fees and people could get life insurance coupled with self directed management of their tax sheltered money. Generally, variable universal life plans are bad investments; however, this might be a good medium if Prosper keeps the fees downs. Additionally, if Prosper.com doesn't go public via an IPO, they could get bought out or merge with an insurance company who wants to test out this idea and diversify their income streams.

(5) Get the bank transfer time down to 2-4 days as advertised. As it stands, Prosper is falsely advertising the observed time periods for bank transfers.

(6) Offer jobs to lenders to run "PROSPER MUTUAL FUNDS." Prosper would have to:
a) Observe over time those lenders that have the best lending track record
b) Offer a interview opportunity to the lender. If well-suited, based on interview, resume and track record, offer the person a job.
c) Prosper would then share the new income stream from Prosper Mutual Funds with the actual money manager.
d) Money manager employment would be conditional on maintaining a return track record at a predetermined rate above averages.

Some ideas from my prior posts:

(8) Add IRA options.

(9) Advertise Prosper.com on radio and TV. Right now people learn about it via word of mouth or free advertising (newspaper and magazine articles).

(10) OFFER INTEREST ON NON-OBLIGATED FUNDS IN LENDER ACCOUNTS. SOMETHING EQUIVALENT TO WHAT VANGUARD DOES (4% PLUS) WOULD BE APPROPRIATE.

MY FIRST DOUBLE BID ON PROSPER (LOOK QUICK IF YOU HAVE FUNDS FOR BIDDING)

CHECK OUT THE RISK VS. REWARD ON THIS LOAN REQUEST

LOAN #33657

The person requesting funds is willing to pay lenders a fixed rate of 18% (auto fund loan request). She's a librarian and lives in Houston, TX. Her account is not yet verified; however, i'm willing to wait for verification.

Disclaimer: I don't know this borrower any more than you... bid at your own risk.

A Freaky/Funky Quirk With Prosper.com Money Transfers

I just transferred some money into my account. I then left my computer to do something and came back to the prosper fund transfer complete screen and refreshed it.

I typically refresh different prosper screens every now and then after i've been working other applications just to check for new messages and prevent being logged out.

In this case, I found that prosper.com automatically transferred a duplicate amount of money. I found this odd b/c it did this without me ever clicking a second time on the "I agree with the authorization to debit account above."

User beware... Good luck prospering.

Adapting the "I Buy Ugly Houses" Strategy to Prosper.com Lending

Have you ever seen the sign "I Buy Ugly Houses?" The signs actually look a little funny. Anyways, there's a way to adapt this strategy to prosper lending.

Find those loan requests that match your desired lending profile (credit risk, lender rate, etc), but have very little or no loan request description.

What you then have is something similar to a house w/ good bones but a less than desirable loan request description that will get past over by others.

Once you find one of these, you've found a loan request that will probably give you a 0.5-3% (or higher) interest rate than comparable "nice looking" loan requests. What you then have to do is send one or two emails to get answers to the items you would have otherwise been looking for in the "nice looking" loan requests.

Chances are, a good portion will come back w/ decent answers... and voila, now you have a loan to bid on that has a good risk vs. reward for you, the lender.

Prosper.com Borrowers: A Good Example for Pictures to Use at the Top of Your Loan Request

Take a look at this listing. The person is requesting a moderate sum and it's now over 4 days from closing.

The person writing this add could have done a slightly better job writing the "description" section. However, he did a fabulous job with what people see first (his pictures). All of the pictures are tastefully done and include his whole family. Additionally, he added a black and white picture to the mix.

I think that his picture selection alone will get him 0.5 to 1.25% better interest rate on his loan request.

I suspect his loan will close at a rate around 16%... A pretty good rate of a "D" credit rated individual.

Ten Prosper.com Lending Tips

Here's a run down of a few tips I think the beginner should consider when bidding on loans at prosper.com

(1) Let others do the dirty work... Don't bid on non-automatic funding loans greater than 4 days from the loans closing date. You ask why? Picture yourself with your typically bidding increment (only enough for one loan). You find a loan that you like at 7 days from closing... you bid on it. But you then find an even better loan that's 2 days from closing. Unfortunately, most prosper money transfers take four or more days to complete... And thus, you won't be able to bid on the better loan. Ideally, you would have bid on the loan 2 days from closing, then transferred more money in to bid on the loan closing in 7 days if the interest rate is still to your liking.

(2) Don't keep significant amounts of money in your account. Prosper, hasn't gone out of its way to give you any interest income on your deposits. Don't let them and their partner Wells Fargo make interest off of your funds if you can avoid it. I recommend keeping a minimum of one bidding increment in your account for the weekend. The weekend is the funding dead zone. Prosper doesn't deposit money in accounts during the weekend. This creates what I believe to be one of the few periods where you get less competition bidding on loan applications.

(3) If you're not on a fixed income, don't worry about the loan applicants credit grade. In my opinion, credit grades are static and are an indication of the past, not the future. I think it's best to look at the actual credit characteristics: "debt-to-income ratio (DTI)," "current delinquencies," "delinquencies in last 7 yrs," "public records," and "number inquiries in last 6 months."

I GENERALLY stick with loan applicants with:

a) DTI less than 40%
b) Current delinquencies equal to zero, sometimes one if they have a good explanation
c) number of inquiries in last 6 months less than 7 and prefer those that have 3 or less.

(4) When searching for loans to fund, USE THE ADVANCED search feature, specifically the "auto fill" rates field. I typically use 3 searches.
a) any loan funded to 51%
b) any automatic funding loan with a 13% risk adjusted return, 33% funded and a few other settings
c) a 13.17% risk adjusted return screen, then modify the DTI to read 40%, the "current delinquencies at 0 to 0," and "o to 7 inquiries in last 6 months."

(5) I generally don't recommend bidding on business loans where you feel that the loan interest rate is greater than the owner's profit margin.

(6) I generally prefer to bid on group sponsored loans where the group leader bids on the loan. This can be a good indicator as to whether or not the person who vetted the loan applicant feels that the applicant offers a suitable risk-reward proposition for lenders. Additionally, I had once did an analysis of delinquent loans and found that roughly 75% of delinquent group sponsored loans did not receive a bid by the group's leader.

(7) I personally avoid those loan applicants that plead or ask emphatically for help, are looking for charity or asking in so many words for somebody to bail them out of a particular situation.

(8) Automatic Funding loans are my preference, they tend to be the best for people that don't like keeping their money in prosper.com's zero % interest bearing accounts. When bidding on these types of loans, recommend you put zero % interest as your minimum interest rate that you'll accept. Prosper.com applies the reverse dutch auction bidding style to these types of loans too. I know it's absurd, but i've been outbid before on an automatic funding loan (fixed interest rate loan), simply because I entered the fixed interest rate and somebody came behind me and underbid the interest rate.

(9) Check out the site called Eric's Credit Community. Some pages take a long time to load; however, you can look at current late loans and lenders portfolios and determine trends where people may have an increased likelihood of paying late and a few other interesting tidbids.

(10) If a borrower has made multiple listings, read all of the prior listings. This seems like common sense. Borrowers may completely change the reason for their loan request between listings or include only in one listing details on their income and delinquencies.

Once you've looked at all the prior postings, don't hesitate to ask questions of the borrower. Frequently, you'll get more information than what you asked for.

Finally, consider checking out the borrower's group leader's website (if they're sponsored by a group and it has a website). These sites sometimes provide even further details that can help you make an informed decision. Here's an example of some group leader commentary.

Reasons why I bid on my last HR (29%) prosper.com loan

I just bid on an instant funding loan which has one of the highest interest rates of any loan I've funded to date.

Typically, I won't touch loans that have any "current delinquencies."

Here's the one I bid on: Listing 31250

This lady is persistent and holds one of those very stable jobs (Federal Government). Additionally, the lady's group leader is both bidding on the loan and blogging about the loan applicants financial profile. Here's the group leader's posting about listing 31250.

Thunderbucks Entry

At first glance, everything appears on the up-and-up. I bid my typical cheapskate $50 increment.

Good luck on prosper. Please bid at your own risk. I neither guarantee returns on loans I blog about nor personally know this loan applicant.

If you want, you can look at my prosper portfolio here.

My first bid on a "no credit" NC rated individual on Prosper.com

Today, I made my first bid on an individual rated "NC" on prosper.com. NC stands for no credit history.

Here it is: listing #31406

Prior to bidding on this, I've filled 51 other loans. So far, none have been late, and one was paid off early.

A Potentionally Low Risk High Return Prosper Loan Request (Considering Doubling Bid Amount for 1st Time)

This will likely be the first loan I double my bidding increment on. I perceive that it has great potential as a low risk-high reward "Prosper.com" listing.

Loan Listing 28339

My reservations are:

(1) The person requesting the loan has had 10 credit inquiries in the last 6 months.
(2) The person owns California real estate.
(3) The person owns California real estate AND has negative business cash flow YET appears very confident that he'll reach positive cash flow within next 90 days.... Intriguing, perhaps crazy still.

Here's my bidding strategy:

200% of normal bid increment down to 23.25% lender rate
175% of normal bid increment between 23.25 and 21.25% lender rate
150% of normal bid increment between 21.25 and 19.25% lender rate
**normal bid increment on anything else.

So far, I have made 44 loans w/ an average rate of 20%. None of the loans are late in payments. Here's a reasonably close breakdown of my loan portfolio.

My loan portfolio

The Dumbest Thing About Prosper Peer-2-Peer Lending (Read This If You Want to Know A Lending Hack/Trick)

Ok, I'm seething mad. I just got off the phone w/ a very professional customer service rep at Prosper.com. However, it doesn't make up for the fact that Prosper is soooo stupid for applying the Reverse Dutch Auction programming code to automatic funding loans.

Don't understand what I just said? Ok, normally, a non-automatic funding loan will get the interest rate bid down by competing lenders. This is good for borrowers and is an excellent application of Reverse Dutch Auction principles.

Use of this is completely and utterly stupid for automatic funding loans. These loans have the lighting bolt symbol and end regardless of time open when the borrower has received 100% funding from the pool of bidders.

Here's the rub, I was outbid on loan 25608

I made my bid at 2:34pm as "WellVersed" when the loan was less than 50% fulfilled (I think it was around 20 or 30% fullfilled). Then, 6 other bidders successfully piled in after me.

How can you get outbid on an automatic funding loan? In this case, first-come-first serve does not necessarily apply to lenders. So long as a loan remains unfunded by just one cent, anybody can come in and bid as large an amount as they want and kick out prior bidders so long as their "minimum interest rate" is lower than enough other bidders.

From now on, I'm entering 0.00 percent for the lowest interest rate i'm willing to accept on automatic funding loans. I RECOMMEND YOU DO THE SAME if you don't want to get kicked out of an automatic funding loan bid.

Effective July 28th, Emigrant Direct Raising Savings Account Interest Rate

Just received a piece of mail from Emigrant Direct. Inside, it states that from this Friday through Monday their website will be down for upgrades.

It provides a 10 digit access code. I suspect, this is to allow you to access the website once it gets redesigned. Many people have their computer memorize their logins so providing this helps those of us who do.

On the 28th of July, Emigrant Direct will raise their savings account interest rate to 5.15%. This would move Emigrant Direct into the #2 spot on bankrate.com's listings (behind OneUnited Bank's 5.25% account).

Please note that Bankrate.com gives Emigrant Direct a 2 star financial rating. Think twice before entrusting Emigrant Direct with huge sums of money.

We'll continue to keep a small amount with them b/c of their competitive rate. However, we'll take our money out if any additional rumblings of bad credit ratings arise.

Read This If: You're Interested in How Much The Federal Government MAY Intentionally Manipulate Financial Markets

Found a great blog article that while it seems a bit of conjecture, I suspect a number of the points made are on the money... Not so certain about the Fed Reserve Hedge Fund run out of the Caribbean though.

The article states that the "The Secretary of the Treasury, Chairman of the Fed, Chairman of the SEC, and Chairman of the Commodity Futures Trading Commission are known as the 'Four Financial Dictators.' Their job is to grow and preserve the power of the state to socially and financially engineer society."

The article integrates discussion of executive order 12631 and the absurd run-up in GM lately to reinforce article validity.

Here's the Article: "General Motors, Market Engineering, and Confidence Protection"

Check Out Emigrant Directs New 5.0% Interest Rate

I was so close to opening an HSBC online savings account until this evening when I found out that Emigrant Direct had boosted their interest rate to 5.0%. This should prove convenient since we already have an account with them.

This, coupled with an NFCU 6.25% @ 18months/$15k min CD appears to be a good combination.

Testing Out the Standing Order (Auto Bid) Feature of Prosper.com (Peer-to-Peer Lending)

It's early Monday morning and I just set my first standing order on prosper.com. Here's what how I set it:

(1) amount to lend: $50
(2) maximum per loan: $50
(3) risk adjusted interest rate: 14%
(4) collection agency: AllianceOne
(5) include only those that have automatic funding feature set
(6) include only those with verified bank account
(7) only include those that are group members
(8) only support the following groups: DocProsper's Credit Community; Professors and Univeristy Grads; Ourtopia; Due Diligence; Yale Alumni; Fanafi Financial; Utopia Loans
(9) I'll add my group (Feng Shui Financing) as soon as it's activated within the next two weeks.

I'm doing this for the following reasons:
(1) I believe that as the available money for lending grows, so to will the list of those using the standing order bidding system.
(2) As this list of standing order bidding system users grows, the number of loans fully funded within 5 minutes or less will grow substantially.
(3) Many of these ultra-quick funded loans represent a superior risk vs. reward situation for lenders.