Questions and Answers with Financial Thing
Laurence Samuels is the CEO and founder of financialthing.com - a website which specialises in peer to peer lending reviews and DIY investing.
We asked him a series of questions about his experience in peer to peer lending and what factors play a part in shaping his investment strategy.
have you been investing in peer to peer lending?
I started looking into it in late 2014, then made my first investment in Spring/Summer of 2015 so coming up to 5 years’ experience of the marketplace. Though I had an eye on it for a time before that, gathering information before dipping my toe in the water.
What attracts you to investing in peer to peer lending?
I’ve never been a fan of the big banks. It’s about having the opportunity to help businesses by providing quicker financing – that’s always been appealing. Also, the idea of peer to peer solving the problem of people needing to get a fairer rate of return on their money.
And I think the idea of capital preservation became important – you can’t really preserve your capital when your rate of interest is lower than the rate of inflation, so peer to peer appealed to me in that sense. Although I appreciate that investing in peer to peer loans does carry some risks. You have to understand that your capital is at risk and there’s no FSCS coverage.
What is your investment strategy? Do you embrace manual lending or prefer auto-select accounts?
At first, I was attracted to the hands-on approach, via the Manual Lending Accounts but as I became more experienced, I moved away from it because of time constraints and risk assessment. One of the main reasons why I chose Manual investing was because I was chasing the higher rates. The first loan I invested in was offering double digit returns. I considered the stock market to be prone to volatile swings of capital, so receiving double digit interest returns without the volatility of equities made a lot of sense to me. However, when you start out, you don’t always fully understand the risks of manual loan investing through businesses, that only comes from experience.
As time passed and I became busier, I found the auto-select accounts to be better for me as they provided wider diversification while removing the time factor and risk assessment problems of manual lending. Though I do still choose to lend manually when companies don’t offer auto-select accounts and it makes sense to do so.
Aside from rates, over time what have become the other deciding factors?
I’m in a little bit of an unusual position having a blogging website, in that I tend to have more access to things that your average investor doesn’t have. I get to visit the offices and meet the directors. For me, that access has been really important - I can get a feel for who is running the company. At first, I didn’t have this insight, other than what was written or advertised on websites. I put a lot more weight on the directors of company now and their experience, and how they handle defaults etc.
What level of loan security do you look for when investing in peer to peer?
I used to think that loan security was highly important as a novice investor. However, more so now, I think that a good, solid company operation is just as important and with this comes good loan origination. Loan security is still important of course. I tend to avoid second charges on property backed loans and the lower to LTV the better.
One of the other important factors which is just as important as loan security is understanding risk. I think risk is grossly overlooked. Investors often look at rates of return and correlate that with loan risk - the higher the return, the greater the risk. This isn’t always the case. A loan offering 6% returns can sometimes be more risky than a loan offering 8% returns.
When did you decide to start doing a blog about your investments?
Right after I started investing, mid 2015. I’ve built up a following of around 6-10k readers per month. It’s great to have interaction with the readers and I’m doing weekly YouTube livestreams with them.
The FIRE (Financial Independence Retire Early) movement seems to be growing in popularity here in the UK, is this something you talk about on your blog?
Yes, I talk about FIRE within and outside of peer to peer investing. Everyone has different views on how to achieve FIRE but it’s a big part of educating people about investing.
I think it started in the US but we’re now seeing it trickle through into Europe – people are taking their investments into their own hands now more than ever. People are becoming more wary of financial advisers and how they are investing their clients’ money. There’s an exodus of people moving away from financial advisers toward DIY investing. We’ve seen a huge shift of funds from managed mutual and unit trusts to index trackers - all part of the FIRE movement.
Education is key. The financial markets have become overly complicated, confusing and off-putting for many. Look at how many unit trusts there are. Thousands and thousands. People want simplified investing. That’s why some peer to peer lending is appealing - it makes investing simpler.
What does the future of peer to peer look like to you given the global economic impact of Covid-19 and will it change your investment strategy?
I’m definitely sitting on more cash at the moment, but I’ve not hit the exits as perhaps some investors have. I still believe peer to peer is a good place to put your money if you pick the right companies.
In the short term, this year I’d be happy to preserve capital and not make any interest. I’d rather platforms were conservative and stick with what they propose, and I will move forward with those companies. I’d rather companies under promise and over deliver. It’s all about investors’ confidence. Is the company being transparent? That’s the biggest challenge for companies – to continue earning the trust of their investors.
In the long term I think there will be peer to peer lending company casualties as there will be across different financial market sectors. But if a company can survive this, they should be able to survive other economic declines. It’s just a question of how long will this pandemic go on for and will it return? Only time will tell.
You can find out more about Laurence and his investments by visiting his website financialthing.com
Investment in peer to peer loans is not protected by the Financial Services Compensation Scheme and your capital is at risk.
- May 29, 2020