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Lending Club & OpenStocks

Lending Club

I’ve been researching a few stocks recently including LendingClub which I now own. It got me thinking – why isn’t there a wiki of all this information?

For example, one of the interesting things for me to follow is the SEC Form 4 filings of a firm. This is where people who have some major position in a public company have to make public if they buy or sell shares. For example, if you learnt that the CEO was selling or buying shares that would be useful to know. It’s an indication of whether they’re personally invested or not. Similarly, if the whole leadership team is buying or selling then that tells you more and so on.

I just read through all of LendingClub’s Form 4s going back to when they went public in December 2014. I’ve summarized them in the OpenStocks wiki here. Each Form 4 is pretty dull. It contains who’s selling or buying, what it is they’re selling or buying (stocks, options etc), when and for how much. There can be footnotes to explain transfers and other things like that.

Aren’t there things that automatically parse these forms and spit this stuff out? Not really. Yes, they exist, but they tend to be terrible at interpreting the information. For example when someone in the leadership team of a company gets some shares they will often put them in a bunch of trusts. This can make the automated software misreport their holdings and lead you to think they have less at stake than they do.

What we’re doing is compressing information and time. It took about 4 hours to read the Form 4s for the last year, wikifi them, do a bit of research on the people and so on. We need to compress that time and energy in to a buy/sell. The first intermediary step is to tell a story using the Form 4’s as recovered DNA in Jurassic Park, and then filling in the holes. And hoping no dinosaurs eat you.

Thus. LendingClub went public after giving hundreds of millions of shares to their VCs who acquired rights to them in the A, B and C rounds. Some of the VCs also bought some at discount. The IPO price was $15. Six months or so later they gave a bunch of shares to their board. Then the VCs started selling them in lots of 2 or 10 million shares here or there. All this selling probably depressed the price, but the VCs have to do it to return capital to their investors. It’s likely this selling will continue.

In the last couple of months a few insiders have been selling shares for “new Tesla” to “new apartment” levels of cash ($100k to $500k or so). But those sales are dwarfed by their options and holdings across their trusts and so on. They’re sitting on tens to hundreds of millions of dollars. Incidentally, all the leadership team plus their board have excellent careers and lots of credibility to lose. This kind of selling looks acceptable. Maybe they just want a new Tesla or to send a child to college or whatever.

The quarterly earnings were a few weeks ago. They turned a small profit of about $1MM on profit of $110MM or so on $2.something billion in loans for the quarter. The decimal places don’t matter to me much. The graph with all the numbers screaming upward does.

The costs are all flat as a percentage of revenue if you go look at their filings. But, the revenue has been going up. A lot. So they’re hiring like crazy. If you look at glassdoor, the reviews are all pretty good modulo complaints about the rate of growth. At some point they’ll amortize the staff and other costs over growing revenues (e.g. they won’t need to keep hiring).

The earnings call laid lots of heavy hints about a new product in 2016. My bet is that will be mortgages. Eventually LendingClub will offer every aspect of finance and they want to ship 2 products a year. So far they have personal loans and business loans. There’s a lot more out there from credit cards to kickstarter. Mortgages just feel kind of big and obvious and leverage the existing client base really well. Plus, they have so much (p2p) money they need to find places to put it.

LC aren’t at war with the banks, which is very nice. Instead they’re partnering all over the place to help banks find uses for their capital and help their customers find loans. All very win-win.

There’s negative stuff to find too which I leave as an exercise for the reader.

OpenStocks

So – why not put all this stuff in a wiki? I can’t find anything like it so I built one at OpenStocks. It’s very early.

It’s interesting to think what an open source community would look like, blended in to the investment space. Well it would have a wiki, and a mailing list right? And it would have some sort of chat area and a github repository. And it would have code and tools.

I view the wiki as the first step, informing the next things to be built. It’s fairly obvious that the public lack the tooling to understand investments, and open source code would fix that. If you’re a huge investment bank then you can pay people to read all those forms or write code to summarize them. It would be interesting to see what happens when you do that in a community.

Part research tool, part opinion, part software, part community. And google ads or something to pay for it. Mainly it’s just the things I want available when figuring out to buy or sell.

UPDATE

Via blogging about this I found Rank and filed, Sumzero and Value Investors Club which are all way more advanced and already running compared to the wiki idea.

4 Responses to Lending Club & OpenStocks

  1. ebwolf November 18, 2015 at 3:01 pm #

    I’d love to contribute, but…

    Account creation error
    Your IP address is listed as an open proxy in the DNSBL used by OpenStocks. You cannot create an account.

    • Steve Coast November 20, 2015 at 3:48 pm #

      fixed 🙂

  2. RussNelson November 18, 2015 at 10:45 pm #

    EMT is why not OpenStocks.

  3. RussNelson November 18, 2015 at 10:49 pm #

    There are three levels of sales by insiders that have meaning:
    1) too few sales means that they don’t know what they’re doing or they’re getting bad advice. Either one is a red flag because you *always* diversify.
    2) just right sales means that they’re confident they won’t scare investors and feel that the stock they aren’t selling is going to continue to grow.
    3) too many sales means that the insiders know the company is going down, and they’re pursuing the burning match theory of corporate management: always leave someone else holding the match when it gets short.

    It’s all a judgement call in the end.

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