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Portfolio and Life Update – Q2+Q3 2020
09/10/2020
Portfolio and Life Update – Q2+Q3 2020
He's baaaack - if only for a visit. Here is how my portfolio fared through corona.

Table of contents

I’ve been quiet for a long time. Here’s why.

First, I’ve been extremely busy with work, in attempt to beef up my financials and buy myself a home. Housing prices in Israel are insane, and since the country seems to be falling apart anyway, I’m tempted to give another try to life in a cheaper country. But with corona still raging, I can only dream of flying abroad anytime soon.

Second, writing about Baltic crowdfunding has become depressing. When I set out to write this blog, I wanted to spread the word about a newly-emerging and attractive asset. Then all hell broke loose: scams, license revocations, bankruptcies, financial crisis… It goes beyond the normal scope of investment risks. While I keep my own money invested, I now hesitate to recommend platforms to others – especially after seeing bloggers blamed for their misguided recommendations.

Third, my attempts to influence the crowdfunding industry for the better have blown up in my face. When I launched the TORCH series, not a single platform showed interest in adopting my proposed standards. When I tried to work things out with Envestio and Grupeer… you know how that ended. When I suggested a crowdfunding association against scams, I was mostly explained why “it can’t work”. Well, congrats, now I’ve given up on improving platforms.

Fourth, blogging costs money and takes unimaginable amounts of time, so I always felt very gratified to be rewarded for my efforts through my modest affiliate income. But with the surge in scepticism about crowdfunding, commissions have dried up completely, making it more difficult for me to spend time writing. What can I do, I’m only human.

Lastly, I’ve become more aware of the abundance of content on the Web. It’s easier to feel that your words are unique when you immerse yourself in a specific community of readers. But when you step back and look at the bigger picture, you can no longer ignore the million other bloggers writing the same things as you, be it about crowdfunding, corona, or anything else. Which has also affected my motivation. And anyway, the world has gone so bananas I don’t even know what to say anymore. Can we get hit by a meteor and be done with this shit already?

So after this lovely intro… I wanted to thank those of you who reached out and asked me to write a new post – it was touching. I don’t know whether I’ll write additional ones, but I wanted to at least bring you up to date on my investments since the April update.

FIRE update

Let’s start with a topic I don’t often discuss, which is the reason for all this investment hassle: the path to financial independence.

My net worth is now €303k, distributed as such:

With my current asset allocation, I should have a gross passive income of around €2,700 / month, or about €2,300 after taxes. These numbers are highly speculative, as any of my investments could crash and burn tomorrow.

While I feel rather proud for generating significant passive income, I am also shocked at how much money one needs to invest to generate a modest salary, not to mention support a comfortable lifestyle. In other words, I’m increasingly bummed about still having to work.

You may notice that a significant portion of my money is in cash – because I don’t feel comfortable increasing my investment in any of the existing assets. I am considering a new one, which will be mentioned at the end of this post.

EU crowdfunding platforms – thoughts

So far, none of the serious platforms (excluding crap like Wisefund) have gone out of business, even during one of the worst financial crises in history. It’s a good start, but we are not out of the woods yet.

If you wish to join any of the platforms mentioned below, you are welcome to use my signup links.

Mintos

I’ve been rather critical of Mintos lately. Beyond my personal anger at potential losses, I’m actually concerned about the team’s professional competence, for example:

  • How could Mintos miss the fact that several lenders had been charging illegal interest rates from borrowers (until their licenses were revoked)?
  • Why was Finko allowed to offer a group guarantee that it couldn’t uphold for Varks?
  • Why are escrow accounts not used for borrower repayments, to prevent intentional withholding of funds?
  • Why not require additional guarantees from LOs, in case the pledged loans default and become worthless (as in the case of Capital Service)?
  • Why doesn’t LO risk correlate with drastically higher skin in the game?
  • Why haven’t Mintos Ratings been updated in months? Now there’s a new rating system developed, but still.
  • Why are there so many errors in account statements, pending payment reconciliation with LOs etc.?
  • Is Mintos doing enough to retain investors’ trust, or will it gradually wither and die just as result of negative sentiment?

Despite my criticism, I can’t ignore the fact that Mintos still offers the most diverse opportunities, and also some of the most attractive ones. So I’m only decreasing my investment by a little bit, while keeping my finger on the trigger in case any more shit hits the fan.

PeerBerry

PeerBerry has positioned itself as a symbol of stability through turbulent times, and retains investors’ trust in every survey. Its solid performance, problem-free track record and great public image certainly deserve praise. The company also made a small profit in 2019.

At the same time, we must keep in mind that PeerBerry is still relatively young and small, with a modest selection of LOs and a heavy reliance on one of them. While neither Aventus or PeerBerry are in any immediate risk, we shouldn’t treat them as immune to risk. I’m keeping my investment around the same level.

Crowdestate

There’s a lot of noise in Facebook groups about investors’ disappointment in Crowdestate, following a series of nasty defaults. There are certainly lessons to be learned, but overall I remain positive about CE, and believe that the noise is exaggerated. The platform seems to be on top of things, and at least a partial recovery is anticipated for most defaults.

Personally I’m only exposed to one default: Baltic Forest. Even if my €300 invested there are lost, my XIRR will remain around 9.5%. New projects are listed regularly, mostly “ground up” development loans, as opposed to the riskier land development equity projects of earlier days.

I appreciate the fact that CE is a very profitable business (463k in 2019), not one of those “forever startups” that struggle with profitability even years after foundation (e.g. Mintos and EstateGuru). This gives them incentive to stay in business.

EvoEstate

EvoEstate is shaping out to be a stable source of lower-risk RE projects, with lower returns but wider geographical diversity. In my own case, Israeli taxing and currency conversion fees make low-return projects unattractive; otherwise I would invest more. Even at lower returns, I’m a sucker for long-term rentals, and feel that EvoEstate has a unique potential in this direction.

The riskiest thing about EvoEstate is its project originators, some of which still have some proving to do. As for the platform itself, I’m happy with the recent addition of project updates, but still miss important features like a coherent repayment schedules, a list of upcoming payments, and XIRR calculation when buying and selling on the secondary market. I feel that these are taking too long to add.

Read EvoEstate Q3 investors’ update here.

Lenndy

Lenndy and its loan originators are apparently content with their small market share. I recommend going over the 2019 financial statements of all 4 companies here and here.

Some of the originators were significantly impacted by CoViD, but none collapsed, and the platform operations remained smooth… with the usual high ratio of late loans, of course.

Interestingly, Lenndy is now related to two of its three loan originators. This puts their objectivity at risk, but also provides a joint motivation for LOs and platform – they need each other to stay afloat. This joint structure has recently become more pronounced when Lenndy announced the formation of a parent company – Giantus Group.

Anyway, the platform doesn’t feel large enough to justify a large investment, so it remains a small portion of my portfolio.

Crowdestor

The best – and the worst – thing about Crowdestor is its rapid growth. Finally, a small platform that seeks to rapidly expand into a significant market force. A true startup.

The problem? Crowdestor is gambling with other people’s money. I don’t just mean the equity campaign, but also the loans themselves. The high risk is starting to materialise in the form of defaults, which is fine, but Crowdestor doesn’t have enough of a track record with regards to recoveries in order for investors to estimate whether the return is worth the risk.

One thing is certain: You can’t expect loans bearing 16%+ IR to never default. The idea with extra-high-return investments is not to walk away with your entire principal, but to earn enough to cover the losses and then some. This works fine with stocks, but not so well with crowdfunding, due to the taxation on interest payments looong before bad debts become deductible.

Which is why I keep very little money invested in Crowdestor. I prefer to earn a clean 11% over a messy 14% (just an example, not based on anything).

Moncera

In principle, I see it as a bad trend for investors when every LO starts its own platform, like Placet Group has done with Moncera. There is a reason why stocks and bonds are traded in regulated stock markets managed by an objective third party (like the Mintos model, in theory).

On the other hand: Placet Group is one of my favourite originators, and has displayed better stability than Mintos itself throughout the corona crisis. If it goes bankrupt, investors are screwed whether they invest on Mintos or Moncera. Considering the higher returns and better terms offered by Moncera for the same Placet Group loans, I eventually decided to join this platform. There are plenty of available loans at 12% IR.

If you join Moncera, note that all loans share the same group guarantee. The only reason to diversify into loans with lower IR is their shorter term.

Israeli crowdfunding platforms – thoughts

So far, Israeli crowdfunding is shouldering through the crisis nicely, with only a marginal increase in defaults. But two long lockdowns have pushed Israel into a serious financial crisis, and it remains to be seen how many loans default in the future. Some days I feel optimistic; other days I wonder if I’d made a mistake by increasing my investments.

BTB offers very large discounts on late loans. These loans are repaid either through debt settlement or through a security fund (whose status remains hidden from investors, sadly), so theoretically they don’t pose a higher risk than other loans. Buying some discounted loans has pushed my return through the roof in recent months.

Crowdfunding portfolio performance

Enough talk, let’s look at the numbers. Remember: The following tables don’t take into account potential but unrealised losses.

May:

June:

July:

August:

September:

Hedge fund

The meteoric recovery of the American stock market amid a catastrophic financial crisis is one of the most bizarre phenomena in the history of finances. I don’t care about the explanations, it’s still bonkers, and I wouldn’t be surprised if it all drops again. Then again, what do I know.

I’m grateful to be invested in a hedge fund that puts an emphasis on preventing losses during market collapses. Let me remind you of first quarter results:

Since then the S&P has been rallying and surpassing the fund’s periodic returns:

But when looking at long-term XIRR the fund still wins, because it never lost value during the drop. In other words, its starting point for Q2 and Q3 was higher.

I’ve been asked by readers about the fund. Sadly there is no information about it online; it’s a very private club that I somehow got into. Together with the high entry barrier, this makes it irrelevant to most of you. I only mention it here to clarify that not all of my assets are in crowdfunding.

Other stock market investments

I have failed to adhere to my own advice about not hand-picking stocks, and made a few small investments in the Israeli stock market.

₪1 = €0.25

Fattal is a hotel firm whose stock plummeted in response to corona. I bought the dip and sold at a profit, three separate times.

Doral is a solar energy company, newly listed on the market, with a ton of potential. I bought it shortly after it was listed, and intended to hold for a long time. But throughout its first month, the stock trudged in loss region. I got nervous and sold as soon as it moved into profit region. Huge mistake – its value has since increased by two-fold.

I still believe in Doral, but haven’t bought it again, because I can’t estimate whether its value will continue to rise. Which is exactly why I hate direct trading – it always feels like a gamble, even when I get it right (and just to clarify: In the past I had made some huge screw-ups).

This is the reason I’m planning to join eToro – a stock trading platform where you can automatically copy other people’s portfolios after checking their track records, some of which stretch back a few years and show consistent profits.

I just got my account approved, and plan to spread a few thousand dollars across a few of these “copy portfolios”. If anyone has experience with this platform and wants to share, I’ll be happy to read it.

Update 12/10/20: I’ve lost my appetite for eToro, and will probably give it a pass. Read my comment in the comments section to understand why.


This post is not meant as investment counselling. I am just a fellow investors sharing his personal thoughts and experiences.

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