Monday, May 23, 2016

Why Lending Club (LC) Is A Great Speculative Play

Normally I don't recommend speculative stocks on this blog.  I want to make sure I give you all the best possible advice and at the same time be respective of your risk appetite.  But in a market like today's, when one day is up and the next is down, there is no headway being made by the long-term stock market investor.  This is why if you want any chance at a decent 5-8% return, you may have to take on more risk.

That's what I did recently, buying shares of the beleaguered Lending Club (LC), the company that recently ousted its Founder and CEO, Renaud Laplanche for breaking internal rules.  I'll spare you on a summary of what actually transpired.  You'll have to do the research for yourself.  I will tell you, however, that what Mr. Laplanche did was not illegal.  An impropriety?  Yes.  But not illegal.  The board acted swiftly and terminated Laplanche, and the stock, which was not doing well to begin with this year, tanked even more.

This company went IPO in August 2014.  A darling of the fintech movement, along with Prosper and other micro-lending outfits, Lending Club is now smearing the entire industry.  The blood being spilled on the street was murderous in nature, and not many had the courage to pick the stock up at $4 and some change.  I started a position in LC, seeing in my analysis that there was nothing inherently wrong with the core business...let me clarify.

Whereas Lending Club itself was suffering from a drought somewhat of new investors putting in money to fund loans for reasons such as concerns over a hike in defaults, and market volatility, business operation was still humming along.  Meaning that though the volume of new investors funding accounts to buy loans was diminishing, it was still happening, albeit at a slower pace.  Laplanche perhaps felt the pressure to keep the pace up.

Now he's gone and the business is being investigated by the SEC, the news of which drove the stock below $4.  That's when I picked up some more shares.  What is the SEC going to find, really?  Nothing!  They couldn't find Madoff for years!  Catalysts that I see driving the stock down in roller coaster fashion include...more SEC intervention news, and institutions dropping out of any dealings with LC for having had their trust violated.  But there are so many more stories that could drive the stock back to the $8 range, a double.  For example, LC today closed 8% up after news that the Shanda Group, a Singapore-based investment group, took an 11% stake in the company.  Now that is a bold statement.

I'm sitting at $4.02 so I made out today nicely.  I anticipate more investors seeing LC's stock bouncing back from this oversold territory and buying up the stock.  After all, it's the obvious mispricings that provide the best returns.  LC is one mispriced stock I will keep buying below $4.00.

Remember to do your due diligence, my friends.  Until next time. 

Friday, May 6, 2016

5 Reasons Why You Should Get Earthquake Insurance

I’ve been a homeowner in Southern CA since 2005.  I bought my home brand spankin’ new…I mean I even got to tour it while it was nothing more than a frame with floors.  A two-story, 3200 square feet wooden structure looks less sturdy when all one sees is the innards.  The walls and stucco exterior somehow gave it a more cemented look.  But I knew better.  I looked into earthquake insurance.  Mind you this was well over a decade after the Northridge quake.  I expected costs to have come down.  They hadn’t.  I couldn’t afford over $1K a year, along with my mortgage(s), and home owner’s policy.  So I did like most Californians and passed.

After the housing crash a couple of years later, getting earthquake insurance made even less sense.  Like most Americans, I lost a ton of fake equity and my fixed 30-year mortgage financed with a 10% down payment was more than the house was worth.  If it weren’t for the Making Home Affordable plan I qualified for in early 2010, I’d probably have done what many people did and walk away.  Fast forward to today.  I’m now sitting on over $100K in equity, and my home’s value has increased…not to the level it once was, of course, but it is certainly better.

A few days ago, I read this online: San Andreas Fault Locked...
I must admit it scared me.  Now, I am a physical science teacher, and am not so prone to reacting emotionally.  But react I did.  I know enough about plate tectonics, faults, and mechanical waves to truly appreciate the destructive power of a large magnitude earthquake.  I grew up in the Bay Area, and was 10 years-old when the Loma Prieta whopper struck.  As a stock market and real estate investor, I also appreciate risk and how the risk band widens or diminishes under certain scenarios.  The probability of a large magnitude temblor happening in Southern CA is high, not just because earthquakes are a thing in CA.  The last time the So Cal section of the San Andreas Fault shifted considerably was in 1857!  We are so overdue for a big one.  That’s why today I called my home owner’s policy provider, Allstate, and got earthquake insurance.

Here are 5 reasons why you should consider getting earthquake insurance if you live in CA, but also if you live in other high risk states.
  1. It’s not a question of if, but when.  When a damaging earthquake happens, you will be uninsured.  If you have valuable items in your home or a home with a decent amount of equity, will you have enough cash in the bank to replace and rehab it all?  
  2. You can’t afford to pay hotel fees or rent while you pay out of your own pocket to have your home live-in ready once again AND your mortgage at the same time.   Most Americans do not keep thousands of dollars ready for catastrophic events.
  3. Costs have significantly come down.  As of January of this year, the CA Earthquake Authority rolled out (pun intended) new options for homeowners that make getting insurance more affordable.  I am paying, e.g., only $243 a year for $554,563 in coverage with a 10% deductible.  For an additional $25 a year, I got $15K in Loss of Use per year, meaning, I can stay in a hotel or rent a place for at least five months in my area without having to pay for it myself.
  4. Your home is not built on top of bedrock.  My home is next to the San Luis Rey River, and sits on top of sandy soil.  You better believe it will move a lot (more damage) during a strong quake.
  5. Peace of mind.  Are you a worrywart?  If you are, paying a few hundred dollars a year for earthquake insurance will let you sleep at night.  You may go through some hardships immediately following, “the big one,” but they won’t be the types that ruin you financially.

Tragedy can strike at any minute.  The pain of not having a place for you and your family to live can be avoided with adequate earthquake and other hazard insurance.  Thanks for reading and good luck!