There is a great discussion thread going on Twitter at the moment about hype, young player values and new traders and experienced traders. It inspired me to write more than I expected to when I started, so bear with me today!
It’s about whether new traders should really listen to more experienced ones who tell them that dividends are the focus of the Index. If you had joined in the last 2 months, you’d be entirely forgiven for thinking whether dividends matter that much at all!
And, there is an entirely understandable feeling amongst some new traders that they don’t want to be just following in to line the pockets of the guy with 2000 Neymar’s he bought for £2.50 years ago.
Instead, people want to find “the next Neymar”. That instinct is completely correct. You do not make the best profits by following the market. You make them by working out where the market is going to be and then get there first.
But that good instinct is leading people down a very dangerous path. Taking big risks on talented but unproven young players at £1-3 is one thing. Taking big risks on talented but unproven young players at £8+ is something else.
Most traders have decent instincts to spot a good footballer. A dividend suitable footballer less so. They are sometimes the same thing but often not. In the same way, some are better than others for Fantasy Football but you work with what you have. No scoring system is ever going to quite capture it. You can make some tweaks to improve it but there will always be quirks.
But generally at the moment, it is good players that are rising, who have a reasonable chance of becoming dividend suitable in a lot of cases.
It isn’t that people are buying bad players either in reality or potentially for FI. The real issue is this: people are paying way too much for potentially good players.
The general sense of optimism is too high, and the risks that people instinctively get about older players (i.e he might retire) seem to be getting completely ignored in the young even though everyone is really aware of them. Young players are every bit as risky as that older player who you fear may retire. It only takes the first few to fail to meet the unreasonable expectations for traders to look around and wonder who is next.
To illustrate the point, I did some very quick and dirty research this morning by tapping in “2015 wonderkids” to Google and bringing up some articles from that time. We all know the ones: “100 best young players to watch in 2015” etc.
I looked at a few and the numbers of them I would now consider to be in a position to regularly challenge for dividends 4 years on were low. Very low. Taking outsideoftheboot.com’s 2015 list as just one example, of the 30 forwards listed I would pick 8 who still have any chance and just 3 who I think could become big hitters, and one of those is Lozano who still is not eligible although may be soon.
In midfield, I’ll be generous and pick 11 out of the 35 as still having some chance of still turning into dividend suitable players, and perhaps 3 I think are really suitable. And one of those is their number 1 midfield pick – Hakan Calhanoglu who currently sits at £1.31 despite the fact he does regularly challenge for dividends. Another of those 3 is Tolisso who sits at £2.16! Although mainly due to injury.
The rest have either faded into obscurity, are at weak teams with no realistic chance of a move, or are doing well but are just not suitable for the Football Index scoring system. I looked at other similar “wonderkid” lists from 2015 with the same results.
So what’s the answer? Is it to ignore the trend entirely? Of course not. But you do not have to follow others into hype fuelled high risk trading to make the best profits. That is a myth and in fact it is the opposite. You make the best profits by finding the £1-4 player who will make it to £7, not in jumping on the £6-7 player who makes it to £10. And you can do it without exposing yourself to the market correction that inevitably has to come one day.
A major flaw in the “follow the market” strategy is that it leads you into paying too much for a portfolio of overrated and overvalued players. It might make you feel good in the short term as long as the gold rush lasts. But it’s at huge risk of collapse when that bubble bursts. And you’ll have picked up a ton of bad trading habits along the way.
The only thing that gives any shares in any player real value is the promise from FI to pay dividends. So, it’s not malicious if some traders are reminding people of that. It would be irresponsible to do anything else.
But that does not mean you have to push into premium players, or jump on players that are rising high. I have shown in my New Trader Challenge (which needs an update soon!) that you can make big profits starting with a blank portfolio at season start without holding any of the big hitters. The 73% profit (last count 21 Jan, it’s probably higher now) was achieved mainly by finding very cheap players who went on to soar, like Thorgan Hazard and Joao Felix.
And it isn’t even that you specifically “play for dividends”. One of the questions was “why buy a player who can win 10% dividends in a year when I can buy a player who made 25% capital appreciation this week?”.
Dividends make up a fraction of my profits. I currently play for the capital appreciation that inevitably comes when a player regularly competes for dividends. But as time goes on and the Index matures, dividends will become more and more important. This kind of capital appreciation will simply not be around forever and we will have to work harder to find it.
In future I think the best traders will end up very happy with a 30-40% annual return with at least half of that from dividends, where as some of us have been pushing well over 250% in recent times. And bad traders are going to lose substantially and pass their money to the good traders, unlike now where almost everyone appears to win. Now is the time to build good habits whilst the market is forgiving.
Fortunately, there are only a handful of players who are iron clad long term dividend holds. Dividend suitability is highly dependent on lots of variables that can change often with form, team tactics and, exact playing position amongst other things. So it’s not the case that old school traders can just horde their holds for 3 years and forget about them leaving new traders with the scraps.
And indeed, there will always be new promising young talent coming through and whilst most of them will not turn out to be Messi, some have a chance and that is worth something until proven otherwise. But it isn’t worth as much as people currently think.
As someone who spends a lot of time researching players and teams in detail, it is definitely true that who is strong and who is weak for dividend suitability changes not just each season but many times throughout a season.
That will keep the game fresh and there are plenty of opportunities for new traders to profit without holding 1000 shares in every top 5 player or paying £10 for a kid with a <20% chance of being Neymar and >80% chance of not.
In the short term, markets do crazy things. But in the long term, if FI is going to remain a sustainable platform, it has to shift back more towards rationality and true value.
And there is only one source of true value on the Football Index: dividends.
Zaniolo is having a good spell on the field and early Summer links to Chelsea are already starting. How credible they are for a player who only moved last year and is getting minutes I am not sure.
If I was 19 I’d avoid Chelsea like the plague unless I really, really liked the bench.
On the pitch, we can be happy with his goal threat. His expected goals (xG) per 90 is reasonable for his position, and whilst he is not putting away tough chances, he is reliably putting away good opportunities.
For his playing position though, I need to see more overall involvement in the game. It’s not awful but it does need to improve considerably if he is to do better. The scores he has so far make sense. When he has scored recently he managed a 140 and an 87. For the 140, it wasn’t the match winner so a bit unlucky, it could have been a 180 which is ok, but usually only enough to win on a very soft day.
The 87 would have been more like 150 if it was the match winner. So we need him to be scoring 2 or having higher levels of involvement than he does.
It’s possible but not hugely likely anytime soon. However, on match days like the Champions League next week where there are limited numbers of fixtures he is in with a shout.
A small drop but compared to his 7 day rise it’s very much in the ocean.
It’s probably more people flipping the rise as their is not much news to react to.
Or will conversations like the one I mentioned on Twitter get people to rethink the wisdom of trades like this?
Some people maybe, but I don’t think enough yet to cause a real market change.
As with any gold rush, when times are good nobody can ever imagine them going bad (I think Adam Cole quoted that recently) and I think this will continue for a good while until the first hype youngsters start failing to meet the sky high expectations.