Who knows what forces were at play here during the first day of the Uber IPO, but this bump in the middle sure looks like someone was trying to get the Uber stock out of the rut – perhaps the investment banks exercising the greenshoe option? Cue the usual pictures of two big hairy animals fighting each other.
Bloomberg reports that out of 207 million shares allocated for the IPO total, 27 million were reserved for greenshoe. I wonder how much of that was spent in the first day.
The return on my portfolio with LendingClub – my choice was mostly low-grade notes – steadily dropped all the way down to 5.88% over the last year and a half. Until we finally run into this:
As of 11/7/2017, F & G grade Notes are not available for purchase by investors.
noticed an increase in prepayment and delinquency rate in F and G grade Notes
Seems like the 20+% APY party came to an end. Even without any major event or recession in sight yet. My guess would be that with a spike in demand, LendingClub had to loosen up some criteria and let in a bunch of borrowers they wouldn’t and shouldn’t have otherwise, so now all of us are paying the price. Still might get much worse when the economy starts to tank.
Quick summary from reading up on tons of links and discussions on Betterment, Wealthfront, WiseBanyan, etc.
TLDR: real concerns:
- You can actually do it better yourself if you put in enough time: both rebalancing and tax loss harvesting (the latter actually only kicks in when there are losses)
- Betterment just jacked up their fees, and there is no telling whether they will do it again at any point in the future, which leads us to the third point that is more general for all robo-advisors:
- An argument can be made that the whole robo-advisor business model is unsustainable, especially with low initially advertised fees that are the key competitive edge over an ocean of other funds, choice quotes:
Charles Schwab is already undercutting both companies with no fees (0.00%), and despite what Betterment will tell you, it’s a great deal.
25 basis points is not a business model, it’s a temporary growth tactic.
Even shorter TLDR: it’s worth paying them if you really want to automatically rebalance and diversify across a range of funds and ETFs for a still-low fee, and hope they can make their model work out. If you are not particularly bent on having, e.g. a slice of bonds and overseas equities, then VTI/VOO/what have you is the way to go.
(Of course, in the context of present day, this assumes you are either not of the opinion that we are in an equities bubble, or it’s not a concern for your portfolio choice)
Why doesn’t anyone see the obvious? Many years of near-zero interest rate and dumping cheap money into the system produced mediocre economic growth combined with a huge debt and equity bubble (though surprisingly little inflation).
The rate will have to go up to realistic levels at some point, and with it will evaporate the equity bubble, mortgage affordability and the housing market – with debt servicing (consumer, corporate and government) draining all other parts of the economy.
Wouldn’t it be nice if we had a temporary figurehead with historic unfavorable rating to use as a scapegoat to do some bloodletting in this system?
Short-term: it means nothing. The sky isn’t falling and my adjusted return rate over 3 years is still 13.77%. And MMM et al are still collecting a sweet chunk of referral change for sending the general interwebs population in that direction.
Long-term: will see. Short of catastrophic operational disruption (which I don’t think is the case here), I expect things to move along the same way in this established business (ok, so the startup tag on this post looks pretty ridiculous by now, of course). The threat I’m still concerned about is some economic event which may cause people to default much more. But what will take the biggest hit in that case – equities, funds, real estate or peer-to-peer lending – is anyone’s guess.
So I painfully moved to cash, bonds, money market and other assets throughout 2015. It was a very lonely and depressing experience, missing out on all those FBIOX gains (I know, right?) But I kept asking myself, do I really believe that all those S&P 500 big old dudes, the General Electrics, the General Motors, IBMs, and Exxons. Do they make twice more money than 5 years ago? Hardly. So why all the craze? We don’t have a noticeable inflation, at least not in the consumer, non-real-estate space. S&P 500 is still almost 2x over 2010, give or take, even after the ongoing correction early in the year. There are no fundamental reasons for these companies to jump 2x in their market cap. Meaning, there might have been some other, non-fundamental reasons – perhaps more speculative in nature – and now we still have some way to go…
A couple of years back, Sam Altman wrote (paraphrase) that the 90-day stock option exercise window is complete bullshit which adds to the nonsensical ways startup employees get screwed over – as if building a successful company wasn’t hard enough.
I’m really glad to see the sentiment is getting heard, and yes, the startup employers need to be seriously reminded of this – here on the webs, as well as during the employment and especially the offer negotiation. And companies that adopt sane options policies need to be praised. Zach Holman started a list of these employee-friendly outfits that I sure hope will grow over time. As of today, it is:
P.S. Bonus points – when stock options suck and there is no way around that, here is a classic little post (not from me) on how to stop worrying and in 5 minutes maximize the deal you get for years to come.