Wednesday, July 11, 2007

Build your own fantasy Prosper loan portfolio

So, you want to lend at Prosper, and you think you can beat the market averages, but you aren't ready to invest real money? Well, you are in luck. Gavin Tools has created a Fantasy Lending Tool that allow you to pretend to invest money on Prosper loan picks and see how your portfolio does over time.

This has been something that has been available in other markets for a long time. I remember creating imaginary stock portfolios with eTrade more than 5 years ago. Even before the internet, economics classes would have students create imaginary stock portfolios and track them with paper and pencil (it was easier for people to cheat on their imaginary portfolios back in those days).

With Gavin Tools, the way it works is that you create an account, and then you enter the Prosper listing number for any loan that you want to bid on. It works similar to Prosper in that you have to bid at least $50 and then you can get outbid or the loan can end up not funding. The one cheat that it does allow is that you can bid on a loan after it has closed as long as it has not yet made the first loan payment. You can't browse the listing information at the Gavin Tools website, so you have to hop back and forth between Prosper and Gavin Tools copying and pasting loan numbers. The one shortcut is that you can add FantasyLend to your favorites which allows you to get a popup window at Prosper for adding listings to your fantasy portfolio. In either case, it is a bit clumsier than placing a bid at Prosper, but is still functional.

There is a top ten list of fantasy portfolios with the top performer earning 25.26% on a portfolio of 8 loans. The worst portfolio belongs to freedomseeker who is earning -29.47% on his portfolio of 27 HR loans all of which are at a 29% interest rate. Interestingly a RandomBot that randomly picks one listing in each credit grade each day is in the top ten list with an interest rate of 14.8%. It will be very interesting to see if the random robot continues to outperform lenders that are carefully screening loans.

My recommendation has always been to diversify in quality loans in the higher credit grades (preferably As and AAs). If you are a risk taker and think you can beat the odds and make money investing in Es and HR loans then I would encourage you to first try it out first with a fantasy portfolio to see if you are really as good as you think you are. Chances are you may learn some valuable lessons on investing without loosing any real money.

If you are a serious long term investor, I encourage you to create a good portfolio and try it out for 6 months or so. Don't shoot for being on the top ten list. Just see if you can consistently make about 8-12% on a diversified low risk portfolio. Once you can do that I think you will see how Prosper can be a good alternative to putting the money in a CD at a bank.


Gavin Andresen said...

Thanks for the nice writeup, Matt!

It is interesting that "RandomBot" is doing so well. I actually ran a simulation with a hundred RandomBots on my development machine, to see how much random, dumb luck affects a diversified portfolio (it affects "D-grade" portfolios a lot, "AA-grade" portfolios only a little).

Matt said...

Yes, it is very interesting. I think I will do a follow up post in a couple of months to highlight how the random bot is doing at that time.

Matt said...

Looks like a new fantasy prosper site just popped up today at:

This one does allow you to browse and search listings within the site, but it doesn't have a top ten list or a random bot.

Reportedly there are features in the pipeline for lending contests, and the ability to see other people's portfolios.

Anonymous said...

Generally I think that fantasy sites encourage risky picks. Although just about any investor would be happy to see a 20% return on their own money, there is something boring about getting a 20% return on stocks on a fantasy stock portfolio. It's all about making that top ten list.

Matt said...

Yes, FreedomSeeker, who has the worst return on the fantasy lending site because of his high risk portfolio is actually doing very well on the actual Prosper site with no late loans, an average loan age of 177 days, and an interest rate 19%.

Anonymous said...

Wow, that's a great profile. He only has 12 loans though. One default would kill his overall return.

Unknown said...


any idea, why the random bot is also ranked on position 2 of the top 10 WORST. (link below the Top 10 you linked.)

Anonymous said...


"RandomBot" is a loan-picking robot that bids on one fully-funded listing every day in each credit grade. So there are actually 7 random bots.

Here's how they are doing:

RandomBot AA: 8.16%
RandomBot A: 7.07%
RandomBot B: 8.39%
RandomBot C: -2.76%
RandomBot D: 14.84% (top 10 list)
RandomBot E: 1.18% (top 10 worst list)
RandomBot HR: -17.8% (top 10 worst list)

Anonymous said...

I forgot to mention it in parentheses above, but RandomBot C is also on the top 10 worst list with his -2.76%. Three random bots made the top 10 worst list and one is on the top ten best list.

Gavin Andresen said...

RandomBot actually has 8 portfolios, not 7 -- AA through HR, and one that picks a random listing every day without regard to credit grade.

The any-credit-grade portfolio is returning 3.12% overall.