Estateguru portfolio status, 3 months

A while back I wrote that I took a look into Estateguru as an investment opportunity due to wanting to both diversify and perhaps move a part of my lending portfolio into real estate backed loans. Since then they’ve slowly gotten their pipeline going and there is new projects happening every now and then.


What do I like about Estateguru so far?

  • While the interface and web page could be smoother, all numbers and transactions are clearly visible and I’ve had no issues so far trying to find information and failing to. (Looking at you here, Bondora!)
  • There’s a reasonable amount of data on each investment and there’s enough projects moving currently to have hope of not much cash drag happening.
  • The loan terms are short, meaning that the lack of a secondary market at the moment isn’t as big of an issue as it would be if the investments were 3+ years.
  • I don’t need to log on often to keep track of what’s happening – in that sense it’s way more passive than some other investments I have. (I trust they won’t make any big changes without previous info.)

Portfolio plans?

I’m currently a bit torn when it comes to my plans for Estateguru. Due to the short term of the projects, it doesn’t take long to create a kind of a cycle of investments. (It’s shorter than with Crowdestate for example). This means that in theory out of all my investments Estateguru is closest to a classical CD ladder (A strategy in which an investor divides the amount of money to be invested into equal amounts to certificates of deposit (CDs) with different maturity dates.), with markedly higher interest though!

This means that I’d have the option to keep investing 50€ per project (the minimum), until the year comes full cycle (next July) and then re-evaluate whether I want to increase the sums that I invest or keep them at the same level and lessen contributions. (Since you get interest paid, then for every next 50€ investment you need to add in less of your own money, and just reinvest the returns).

My current plan is to keep to the minimum to slowly diversify my portfolio and then re-evaluate after like half a year. There is always the question of what happens if a project defaults and issues arise or how many projects they’re capable of bringing out to keep cash drag to a minimum. Definitely they seem to have hit the ground running and are doing well enough that I’d dare to give them more importance in my P2P portfolio.

*’If you feel like starting to invest with them, then using the promotion code EGU05422 will cash back 0,5% of your invested amount to both yourself and me as the person who referred you for the first year of investing.

What is Bondora moving towards?

Having invested into Bondora for almost three years now, and having seen many radical changes happen over the course of that time, then yesterday’s announcement about both the primary market and secondary market being phased out to be replaced by either completely passive PMs or a more active chance to build your own API, the question arises – what exactly is Bondora moving towards?



What is alternative finance at heart?

In the recent (I’d say 7+) years information technology has finally reached a level where it’s possible the radically disrupt classical business models via technological solutions. Most know examples of course being AirBnB and Uber, Transferwise, even Google as an overall idea and many others.

Fintech in that sense has been an interesting field to follow since at heart, innovation in the financial industry is mostly limited by how creatively you can find wiggle room between different regulations that try to stifle your growth and business model.

Quite a lot of new innovations have gone with the model of “It’s better to ask for forgiveness than permission”, and Uber is perhaps the best example of this in many ways due to actually being declared illegal in some places due to what amount to essentially cartel agreements that exist in the taxi industry.

For fintech, this has meant that many of the startups have started out being not regulated since they don’t fit into a traditional mould of what a credit institution should be. This is why many fintech start-ups first test their business model with a minimum viable legal work to see if it’s reasonable to pour money into actually working with all the regulations that will start pressing in from all sides once you’re a “real” business.

Bondora is one such example – they started out small enough to not be regulated, and now that they’re big enough certain steps need to be made. The first one was probably being voluntarily regulated by the UK financial inspection, but this was likely only a first step on a long path to the new Bondora business model.

What are the new changes about?

While the information so far has been vague in terms of what will happen (and when), then essentially Bondora will move from a one-time heavily individually (actively) managed investment to a more passive form, closer to a fund than a loan market in terms of how it’s going to work.

Now, where this gets interesting is if you follow what Bondora has been doing recently. Clearly they have done a pretty clear 180 from what they promised several years ago – more transparency and more tools for an investor are nowhere in sight, things that were heavily emphasised a few years ago.

Why the sudden change of heart? Bondora will probably never actually explain anything (since they never do), but it’s likely that this change will pave way for a bigger influx of institutional investors due to how much smoother it will be to use for portfolios that invest significant sums of money. Why institutional investors? – The reason is simple, small scale investors are unable to provide the money for expanding to new markets.

In some ways a more Lending Club-ish method of investing wouldn’t necessarily be bad, I mean it works for LC. Investors don’t really own the loan pieces, LC does, and you essentially buy a “bond” with expected returns. While this will likely drop overall returns, it should in theory also reduce risk. However, the success of their model is still heavily tied to the quality of their clients, so as long as they can guarantee that, then for the investor theoretically there shouldn’t be much difference in how the actual interface works.

Another key thing to keep in mind here, is that Bondora is in the process of getting a banking license. Pärtel mentioned this as well at the Opinion Festival, but it’s a move that makes sense if you want to ease your way into the big players, since the way banks are regulated is in many ways simpler than the (legal) loops that alternative finance needs to jump through. The recent announced changes certainly align with becoming a more “classical” type of business.

*I wanted to write a bit about the api as well, but there isn’t enough information yet. I truly hope they don’t accidentally make a Forex-like system though where you have to pay money to third parties to have the best chance to invest. Especially since most retail investors will never be able to compete with institutional investors.


Why I will probably not be investing via Fundwise

Today the first equity based crowdfunding site in Estonia launched, and while I fundamentally like the idea of investing into growing companies (more than giving them loans!), then I will probably not be investing through Fundwise for a while still, since I see some key issues in their whole model of working.


Is equity funding smart money?

In the world of investing there exists an idea that some of the money invested is so-called “smart” money. This generally refers to angel investors or venture capital in terms of the investment being linked together with know-how. The problem with Fundwise being, they (either team or the businesses) believe that they are gathering up smart money, but inherently accessible-to-all crowdfunding will never be smart money. Especially in their model where the people who buy a piece are absolutely “silent” owners.

So, there is a fundamental issue here as to the actual plan of how Fundwise should work. Smart money investments are generally bigger in therms of the sum due to the investor knowing more, or being more aware and therefore trusting the project to be a bigger % of their overall portfolio. However, since crowdfunding is fundamentally accessible to all, then you can’t consider it smart money, therefore the large buy-ins for Fundwise start to work against them. (They buy-ins are as high as 600€ per piece).

How to diversify in equity?

This is obviously a trick question – you diversify like in most other crowdfunding investments, reasonably widely. This is where the problem arises with big buy-ins.

Let’s assume that they have 2 projects every month, the buy-ins are an average of the current projects, let’s say 300€. The person might not like all projects, so let’s say the invest into 20 projects per year. The projects last about 5-7 years, meaning that to run 20 investments per year for even 5 years, that makes the total portfolio value 30000€ before the money starts to recirculate. (Yes, I know this is very oversimplified)

This is why Fundwise will likely struggle to include small scale investors such as myself. To achieve meaningful diversification you have to invest so much money, and the delay for returns is so much longer than other similar investments (like social lending or the current real estate projects).

Especially when we talk to people who are just starting and have like a 5000€ portfolio – completely respectable after a couple a years of investing. Just a few investments into Fundwise would very quickly make up 10% of your whole portfolio. I don’t think that’s a reasonable risk level.

What I would invest in

Since it’s currently somewhat unreasonable for me to aim at building a portfolio (since in theory a diversified portfolio would work well enough), then I’d only invest if I saw a project that I’m personally in love with. For example I like the game building project, and that’s something I’d support but in terms of investing it’s a bit closer to a Kickstarter type investment than an actual make-money investment.

Also, I would make a portfolio if the buy-in was sooooo much smaller. I don’t understand why the pieces have to be so big since the people who buy into the project are absolutely silent partners anyway. Also, since you use crowdfunding such as this partially as a marketing tool, then why would more investors be a bad thing?

Expectations vs investor capability

I’d say that the easiest theoretical fix for them would be to realign the idea of who their ideal investor is. If they want so-called smart money they should be heavily marketing towards medium-portfolio investors (100K+), who wouldn’t care about the bigger buy-in and also bring some know-how to the table.

Another option would be to go truly crowdfunding and drop the buy-in like they have in some other crowd-funding portals to like 10-50€, max 100€. That would make it accessible to small scale investors in a way that it isn’t right now. This would also make more people invest – investing 600€ into a project might be above a lot of people’s comfort level, but investing 100€ into something you think is cool, would be a lot more viable.

Also, more work in marketing and communication would definitely help, but that’s the case with all current crowd-related investment portals.

Panic at the stock market!

It’s quite a fascinating day (week)! Markets are falling across the globe, and even the Baltic market has managed to drop 4%. You’d think that this isn’t a huge deal since markets drop all the time, but the expectation of a crisis happening has been hyped so much that people seem almost excited to see if the market will properly crash.


At first I was quite unmoved by the market dropping since I don’t pay much attention to day-to-day movements but suddenly my Facebook newsfeed was taken over by all sorts of panic, which made me take notice.

Firstly the biggest national business paper of course “helpfully” wrote about how to avoid losing money in a crisis and how to last-minute-rebalance your whole portfolio if you’re afraid and emphasised just how much the markets dropped. (For example Shanghai Composite has dropped 9%!!! Leaving out the fact that 1Y returns are still 45%…)

There was also another subset of personal panic in the form of both gleeful “Kiyosaki was right!” or “Now it begins!” or just “Oh no, the sky is falling!” type of posts.

What to do? What to do?

I think this is a brilliant case study about how panic affects the masses. Seriously, people have been so mentally prepared (or paranoid, depends how you look at it) for a crisis, that the moment something started moving on the market at all then it released an avalanche of panic that caused thousands of people to sell. You’d think that investors would be a bit more rational, but this shows amazingly well just how quickly all rationality is wiped off when your stock portfolio drops into the red.

I’ve also had several people already ask me what to do or what I’m doing about the current situation (as in, whether or not I’m selling). I’ve been honestly super confused at how so many people have been super convinced that the crisis is here and now! How do they know this? I’d be hard pressed to make any predictions about how this will turn out, honestly I think we’re 50-50 at this point that the market will bounce back once the Chinese & US markets have bled out some money.

However, what am I doing? For fun I actually logged onto my stock account to see how everything looks pretty in red to see if I had any emotions on the topic of selling. Not surprisingly, no emotions. I was just left with the feeling that I should think about buying and I should figure out how long to wait before buying, if I think that the Baltic market will drop more or it’ll bounce back relatively quickly.

My recommendation – all those investment plans you made a while back when the market was rising? Look them over and figure out why you’re panicking. The market dropping in such a manner is not at all uncommon, it happens every now and then and even if it is the start of a huge crisis (which I don’t believe, but I’m not an economist), then figure out what you’re going to do calmly and in a rational manner, not after reading all the panic in the media. (Remember – drama sells and the stock market dropping is always very dramatic. Soon we’ll be getting news about people losing their lives’ savings like we did from China a couple of weeks back already!)

Book review: An Astronaut’s Guide to Life on Earth by Col. Chris Hadfield

From the title alone, I can assume more than one of you has the question of why I’m reviewing a book about space travel in a personal finance blog. The answer is simple – it is hands down one of the best motivational books I’ve read pretty much ever. (Though I’m a huge fan of space travel as well, so 😉 )

What’s the book about?

Chris Hadfield was a young Canadian boy when he saw the moon landing happen on TV. He decided that he wanted to be an astronaut as well, which was somewhat problematic – Canada didn’t have astronauts, the likelihood of becoming an astronaut was abysmally small and how do you become one anyway?

The book follows his path of becoming an astronaut, how he prepared for the role of becoming an astronaut even though at start there wasn’t even a pathway for becoming one as a Canadian. He also describes his whole career in the space industry, his life as a test pilot and working at NASA and finally spending 6 months on the ISS becoming an online sensation after sharing on youtube and social media his experiences of life in space. He also did a very famous TED talk about how to solve problems in life and death situations in space, that I highly recommend (I show this to all my students!).

Lessons to learn from the book

Other than the book just being a great read (and you’d think that since I knew that everything went well in the end, the book would be less thrilling to read, but I couldn’t put it down!), there are also great lessons to be learned about aiming high and getting to places that are impossible to reach.

The only way to be prepared for everything is to prepare for everything

Imagine that you’re at a birthday, an older relative’s 90th. Suddenly you’re asked to give a speech for the birthday boy/girl. What do you do? Most people who aren’t extremely extroverted shy away from the offer with answers of “oh, I wouldn’t have anything to say”, “oh, no, not poor old me”. How can one be ready for such events? Take a moment to give a speech in front of the mirror to practice – when the moment comes that someone asks you to give a speech you’ll be able to do it well and others will be impressed.

There are millions of scenarios that can happen to us and the only way to be ready is to actually think ahead in terms of what you’d do in those situations. A lot of people have the dream of being financially independent, which is a great dream to have. However, what would you do if you finally achieved this independence? Not many people have spent that much time thinking about it, and it’s an issue since once you reach your goal you might find yourself stumped as to what you want to do.

Want to be famous? You’d better be giving interviews to imaginary reporters while showering. Want to become a philanthropist who will change the world? Take time to think about how and what you’re going to do. Want to reach that next promotion at work or learn another skills? Make a plan and start following it, so you won’t be surprised when the opportunity arises, since it’s sad to have to say no to an opportunity since you’re not ready.

The power of negative thinking

I must say, this is hands down the best book I’ve ever read that’s clearly explained how my thought processes work. A lot of people tell me that I’m very negative in how my thinking works – that when someone offers out an idea, my first reaction after a moment of deliberation is to explain all the things that could possibly go wrong. This doesn’t mean that I don’t like the idea or I wouldn’t work hard on it, it just means that I want to see all the possible outcomes.

Hadfield writes about this conundrum from his point of view as a person who is responsible for life and death situations. When you’re preparing for space flight every single small thing might cause fatal accidents – just one bolt or one wire might mean the difference between a successful landing and a spacecraft disintegrating upon entering the atmosphere. This means to prepare you have to think of literally every single possibility that might go wrong – in a sense thinking “What could kill me next?”.

Once you’ve isolated all the potential issues you simulate how to react to them – a large part of an astronaut’s work is running simulations for thousands of hours to manage all kinds of potential situations. The reason being that once a situation that causes a problem hits you have to be prepared to deal with it and not be afraid. That’s the key issue – if you don’t know what could go wrong then you’re more likely to be scared of the unknown. If you isolate the potential issues you can start preparing yourself and work on avoiding some of the problems altogether.

This can be transferred easily to investing as well, since for a lot of people investing is largely associated with fear. What happens if the market drops? What happens if I lose x% of my money? Thinking through those issues in detail will help you keep rational once those problems appear. What would happen if you lost 10% of your portfolio value? What about 30%? What about 50%? If you already feel your heart hurt at the thought that you might lose 30% value then you’ve already identified a potential problem situation to work on – either sell at 25% loss, either rebalance earlier etc. Now you have a potential solution instead of being blindly afraid of problems.

Who should read this book?

Honestly, I’d recommend this book to everyone just because it covers space travel in a way that’s very different from what we’re used to from Hollywood movies. How much of being an astronaut is work and how much is glamour of being in space – and how many astronauts prepare for decades and never make it to space and how to live with that idea.

In a stricter sense I’d recommend this to anyone who has big dreams to take a moment to think about all the “what if” scenarios. What if everything happens like I want it to and one day I’m xzy? How to get over the fears that things will never go my way and how to prepare for when things do go my way.

*Did you know that the International Space Station is 109m wide? It’s difficult to imagine it just floating around our planet, no?