I realize there are greater risks associated with the returns, but I feel that the returns are still greater than the risks. How does one quantify such things? There are infinite statistics that could show be argued either way. At the interest rates that I’m getting 22+%, I figure that as long as 80% of people pay me I’ll be breaking even. Obviously breaking even isn’t very good, but I’ve been doing better than 80%.

I don’t think I’ll truly know how well I’ll be doing for at least a year. It is complicated by the fact that I add more money as I go. Using Prosper’s general statistics, it seems like 86% of their loans are current (going from company inception through July) and 90% of their E grade loans are current. Doing a little math (9 * ($50 x 1.22))/10), it looks like it’s about a 10% gain. Maybe you are right Steve, but I don’t think 10% is that bad either.

You may get higher returns, but there is a greater risk associated with them.

I’m reminded of a friend who’d bet on the Internet on small college basketball games. He knew a ton about these teams and did quite well. I think the reason is that he found a less efficient market. There were relatively few people who were experts and could gain a small advantage with his expertise. Multiple that out and he was able to beat the house – at least in the short term. I think he realized that it would be too much work and risk to continue long term, but it definitely has a similar feel.

So the answer could very well be, is find a niche market and be an expert in it.

Joe
http://www.StingyFinance.com