In this week's blog, at the time of writing, two breaking stories of equal gravitas are battling it out to dominate the financial headlines; on the one hand, the IMF has announced that its upgraded its 2023 forecast for the UK, and even with a backdrop of high inflation, it's strongly suspected that a recession will be avoided this year. But, on the other hand, this contrasts with the macro global headlines that have been heavily focused on the US debt ceiling drama, where political brinksmanship and nuanced partisan wrangling have seemingly pushed US Treasury Secretary Janet Yellen into ringing the alarm bells around the consequence of the federal government reneging on its payments. With all these conflicting depictions of events being the popular zeitgeist of modern media, like Iago alerting the townsfolk in Othello, it's impossible to decipher at this point what is the real alarm and what's just Machiavellian alarmism, so we have decided to talk initially in this week's blog about a 1960s New York delicatessen. Still trying to figure it all out? Stick with us, and we will explain.
The origin of the term the "Lindy effect" can be traced back to 1964, when an article written by Albert Goldman referenced Lindy's delicatessen in New York and proposed that a folklore belief had sprung up amongst local comics frequenting the establishment that the frequency of a performers output would dictate how long their Broadway run would last. This unintentionally theorised an input, output equation to judge the minimum future life expectancy of all non-perishable things, including technology, art, ideas, and perceived asset values. It proposes that the longer something survives, the longer it will survive because it demonstrates resistance to change or obsoletion by the simple fact that it hasn't happened yet. By mere accident, the article had outlined a statistical way of looking at the world, becoming Lindy's Law.
Applying Lindy's law to the P2P asset class is an exciting way to look at our sector; the natural go-to when the macro headlines are raucous and confusing is to deem everything that emerged out of the era of low rates and speculative excesses to be fodder, due to be swept away in the storm, leaving only the proven and the established. P2P may be a new exploration for some, but this asset class has been around since 2005. In the last 18 years, the industry has weathered almost every natural and manufactured disaster, and it's done that through the following principles.
Diversification: P2P lending platforms typically have a diverse pool of borrowers and lenders across various industries and geographic locations. This diversification helps mitigate the impact of these macro events that may affect specific sectors or regions. As a result, the overall performance of the P2P lending platform can be more resilient compared to traditional lending institutions that may have concentrated exposure to specific industries or regions.
Decentralisation: P2P lending operates on a decentralised platform where individual lenders directly lend to borrowers without intermediaries. This decentralised structure often reduces the systemic risks associated with traditional banking systems. In addition, the impact may be distributed across many individual lenders and borrowers in a macro event rather than concentrated in a few large institutions.
Risk assessment and borrower selection: P2P lending platforms typically employ rigorous risk assessment models and selection processes. Platforms leverage technology and data analysis to evaluate the creditworthiness of borrowers, and this careful selection process helps to minimise the risk of defaults and delinquencies, making P2P lending more resilient during macro events.
Flexibility and adaptability: P2P lending platforms are often more agile than traditional financial institutions. We can quickly adapt to changing market conditions and adjust our lending criteria or interest rates accordingly. This flexibility allows us to respond to macro events more efficiently and make necessary adjustments to mitigate potential risks.
So, what are we saying here? Tomorrow the financial news may call for the end of the world, but focusing on our asset class and the observations of Albert Goldman, these four Corinthian columns that have underpinned the industry over the last 18 years will undoubtedly see it through the next 18 in just as solid standing.
Invest & Fund has returned over £144 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com or contact Shaheel at shaheel@investandfund.com.
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