Regarding the psych. component of investing, I’m on board with that line. I tentatively believe that I have trained myself to not act on emotions w.r.t. investing. However, that does not mean that I do not feel emotions w.r.t. the apparent trend of a given investment. I still feel a lift when my stocks rally and a pang when they swoon. The highest achievement would seem to be developing an emotional insensitivity to financial windfalls and woes (without losing sensitivity to other matters, of course). For now, I’m just happy I do not act on such emotions; even so, who can say what actions one might take i.r.t. emotions stemming from exceptional financial gains or tragic financial losses?

@Steve - According to lendingstats, my estimated ROI is currently 8.71% e.g. in the same ballpark as corporate bonds of some really solid companies (hint hint). My weighted average interest rate is about 16% which makes my effective default rate around 7-8%. I am invested mostly in C and D grade loans but I have had all categories default on me except E(!). I don’t see scams as a problem. If there is a scam prosper buys back the full principal. A much bigger problem are people who don’t care about their credit rating e.g. they take out a loan, make a few payments and then disappear; people who take out big loans and then declare bankruptcy half a year later; and finally startups.

@Kin - Yeah, I’m looking forward to getting out of it too. 2010 should be my final year of dealing with it (unless an option is introduced to sell loans).

@Adfecto - See my comments to Steve. In addition, I have played the statistics game e.g. making $50 loans to a lot of people rather than making big loans to a few people. P2P-loans have a way of drawing one in e.g. in the first few months, everything looks really good with very high interest rates. The fewer or the more concentrated the portfolio is, the longer this period of happiness can last, but of course if one loan goes bad in a four loan portfolio things can change radically. Also I would not underestimate the psychic component. For instance, when I lend money to people I see it as a business transaction (rather than say helping poor innocent people get out of debt), whereas when people default I see it as a personal insult (rather than innocent people just caving in), so I’m clearly emotionally biased.

I can’t come to embrace the view that lending money is “helping someone out directly”, and the arrangement feels too scam-susceptible for me to consider P2P lending. I have visions of central Africans stealing the ID of dead people and other US citizens, just to get a payout of several $50 hits. I’m considering a retirement career in vigilante microloan collections. ;-\