Bad Loans

The Good Book says a fool and his money are soon parted. I don’t consider myself a fool, but I did manage to lose some money. You might remember a blog post from Dec 2006 about a new website called Prosper, which allows regular people to loan and borrow money to other regular people. Using credit checks and other means, the site gives a prospective borrower a credit rating (A, B, C, etc.). The higher a borrower’s credit rating, the higher the interest rate the lender would demand. All loans have a 3-year term with no collateral (which should have been a big red flag), and the site processes the loan and payments. I loaned small amounts of money to 24 different people over several months. I liked the novelty, the chance to earn high returns, and the opportunity, by loaning money to people who might not be able to get a loan otherwise, to help people who have either made bad financial decisions or simply fallen on hard times.

I have learned why some of these borrowers have trouble getting loans: they don’t pay them back.

To be fair, 14 of my 24 loans are current on payments, and I appreciate their faithfulness. However, I also have 2 bankruptcies, 1 default, 3 lates over 4 months, a few in collections, and various other problems. Some had low credit scores, but some even had high ones. I would call the borrowers in question deadbeats, which is technically correct, but I don’t want to make light of their financial troubles. I doubt any of them wanted to miss their payments. Things happen, sometimes due to our own mistakes, other times due to circumstances outside our control. I don’t know all the details on my borrowers’ situations. All I know is that many of them aren’t paying back their loans on time, some not at all, and as my principle and interest come in, I plan to withdraw those funds from Prosper.

It’s been an interesting ride on the lender side of the street, listening to people ask for loans and deciding whether or not they are a good risk, or whether I should loan them money anyway even if they won’t pay me back. It raises questions about our Biblical duties both to help the needy and to use our resources wisely and plan for the future. I must admit I’m quite disappointed that Prosper didn’t live up to my high expectations. As the son of my parents, I’ve always had both a large aversion to debt and a huge internal burden to pay any bills and debts on time if not early. I expected my borrowers to have the same attitude. I also naively thought that the nobility of Prosper’s concept and gratitude from the borrowers would ensure almost universal repayment. In this broken world, even a noble cause can’t always overcome the harsh realities of life. Perhaps Shakespeare had the right idea in Hamlet when he said, “Neither a borrower nor a lender be.” Customer Survey

I use hit-tracker software to record traffic on My home page averages 8-10 hits per day, which makes me both happy and curious. Some of my frequent visitors are family (Hi Mom! Hi Grandmother and Granddaddy!), but I know they only account for a few hits. So I want to know who the rest of you are! Please visit my contact page and shoot me an email. Tell me how often you visit and why. Tell me your favorite and least favorite parts about the site. Tell me what else you’d like to see. I want to hear from you!

In a side note, you might have heard about a MASSIVE STOCK MARKET SELLOFF today, or something to that effect. International stocks fell more than American ones. My best performer, American Oriental Bioengineering (AOB), fell nearly 14 percent. Am I disappointed? Of course. Am I panicking and selling? Absolutely not. Why? Because as far as I know, the companies I own are still good companies with solid business models, good management, and bright prospects for future growth. Nothing has changed about the companies except their stock prices. This is a marathon, not a sprint!

Another New Page and a Lot of Caffeine

Hello again! It’s 3:29 AM on the first day of Feb. After over a month of mostly day and afternoon shifts, I’m finally switching to midnights starting tonight. To start switching my body from day shift time to night shift, I made some coffee last night and stayed up working on my website and surfing the Net. The dog and cat are probably confused; Daddy won’t go to bed, and Mommy isn’t here. (They don’t know it, but she’s in Orlando on business.) Anyway, the result of all this is version 1.0 of my long-ballyhooed investing page, where I talk at great length on a subject I only know a little about. =) Fortunately for you, I also give you links to some REAL financial websites. I am quite excited about investing and hope that all of you are, too. It’s quite fun, often profitable, and very satisfying, especially when you make a good pick. Feel free to email me with your own investing advice or favorite companies.

Live Long and Prosper

Today’s Cool Website Spotlight shines on, a site that links up people who want to borrow money with people who want to lend money. The borrowers either don’t want to use a traditional bank or have poor credit and can’t get a loan. They provide their financial details, get a credit score, and write up a request for a loan amount and suggested interest rate. Then the lenders look over the requests on the site, including their credit score and debt/income ratio. Then they bid on a piece of the loan, offering maybe $100 toward the loan at 10%, 25%, or whatever the appropriate rate is. Most lenders lend small amounts to many people to spread out the risk of default. If and when the loan is fully funded, the lenders start bidding down the interest rate until the “auction” closes. The borrower gets the money and starts paying it back to the lenders with interest over a 3-year term. If they default, Prosper sends a collection agency after them. It’s a fascinating concept, and if you can tolerate significant risk, it can provide excellent returns for you as a lender. Behold the power of the Internet!


I have purchased stock in three companies over the last couple of weeks. After doing some reading online and in print, reviewing lots of financial statements, and applying a variety of criteria, I think I’ve worked out the beginnings of a solid strategy and found some good picks. I’m considered a “value investor”, which is the opposite of a day trader. Warren Buffett, the most successful investor ever, falls into this camp. Rather than trying to chase the market, pick the perfect times to buy and sell, and flips stocks for a quick buck, I’m buying companies I believe in and planning to hold them for years, letting the incredible power of compound growth work for me. I’ve had a lot of fun studying the craft of investing. I found some good websites in the process: and I’m using Fidelity as my broker. They aren’t the cheapest in terms of commissions, but they’re not too bad and offer some great research tools. I bought stock in RPC Inc (RES), an oil and gas services company, American Oriental Bioengineering (AOB), a China-based company that makes drugs and health products for the exploding Chinese market, and Honda Motor Company (HMC). All of these had reasonable or very low debt, strong growth prospects, high profit margins, plenty of cash, positive cash flow, and some other strengths that make them good candidates for the long haul. IMPORTANT DISCLAIMER – I am not recommending that you buy these stocks, only telling you what I’ve done in the hopes that it will pique your own interest. =) Soon I hope to start working on some hobby-oriented webpages for, such as investing, wine, and photography. Stay tuned!

And It Will Not Be Long, Love, Till Election Day

Hee hee…I might be the only freak in the world who gets that joke. Anyway, today was election day, and I did my civic duty by voting against the Republicans and Democrats wherever possible except for the US Senator election. Kay Bailey Hutchison helped repeal Wright, so I couldn’t vote against her, but she also insulted Southwest’s coffee in a press conference afterward, so I couldn’t vote for her, either. She’ll get elected either way. I’m still pulling for Kinky, though…

I have a new project and possible use for my MBA – making money in the stock market. I picked up some books at Half Price Books, and I’ve been reading reports by Warren Buffett on his investing philosophy for Berkshire Hathaway. From what I’ve seen so far, the stock market is largely illogical, despite what I learned in my finance class. We learned tidy formulas for valuing a company based on the present value of projected future cash flows, discounted by the risk premium, etc. But it seems to me that a stock’s price is largely determined by the market’s consensus about the stock’s future movement rather than the actual value of the company, especially if the company doesn’t pay signficant dividends on earnings. The price goes up if the analysts and investors think the price will rise and down if they think the price will fall. How circular is that?!? In addition, a stock’s price is significantly affected by how closely the company hits the analysts’ and its own earnings forecasts, more so than by the actual amount of profit or loss that help determine the company’s health. Even more strangely, Southwest’s stock price often DROPS when we report our quarterly earnings, which have been positive every quarter since the early 1990s, even if we BEAT the target! Despite the insanity of the system, there is money to be made, and I intend to figure out how to wisely carve off a slice for us. I know a couple of people who are getting into day trading with some success, but that sounds a little risky for me. I want something a little more stable and logical. I’ll see what my books recommend…