I’ve had plenty of emails from members recently asking about their portfolios. The questions boiled down to the same thing: “Am I doing this right?”.
This is something everyone will be asking themselves at the moment, no matter how experienced the trader.
The Key Strategy was adapted using the State of the Market analysis in recent weeks. Hopefully it will be helpful if I set out clearly where I think a strong portfolio should be right now and how Key Strategy has evolved.
Then, I’ll move onto what I’d do if I was holding different types of portfolios.
First, a word on the overall mindset and approach I am using.
Aggressive, Balanced or Passive?
Particularly when times are tough and we have lots of uncertainty ahead I favour a balanced approach that:
– Sets up opportunities to profit or at least not lose significant money in as many of the likely scenarios as possible.
– Maintains some flexibility in the balance to deal with the unexpected.
Instead of making a win/lose bet on what will happen next, we’re trying to set up so that we’ll either profit handsomely or at least do ok in all of the credible future scenarios.
And we have funds and a watchlist of suitable players in the backpocket that we can move for quickly if we get new information (like strong indicators that the season is getting back on track).
I’d describe my approach to tackling recent events as a bit like counter attacking football. Making sure we’re nice and solid at the back and waiting for the right opportunity to be aggressive.
If I was being aggressive, I would make a big fat bet on the season restarting. That would mean plowing in aggressively now to the cheap performance players (probably the elite veterans from recent articles) in hope of a big win if football is back by May/June.
We may well get that big win. And if I was going for maximum possible profit and didn’t care about the prospect of a loss, this is what I’d do right now.
Alternatively, I could bet big on the season not restarting, and plow in heavily to big media players for a similar chance of a huge win in the event of a very long period of media.
However, in either of those scenarios, I’m risking a huge loss if the bet doesn’t go my way. And with the spreads as they are, it is extremely difficult for me to change my bet if it looks like going against me without taking a huge loss.
To me, being aggressive and betting on one particular scenario at this particular moment just feels like an awful idea.
If a trader was feeling very nervous and passive they may well have sold up, even at these huge spreads and guaranteed 40-50% losses.
This feels very self defeating to me. Whilst we may well lose the rest of this season, we may not, and there is nothing currently that indicates next season is under threat yet.
It is likely FI maintain the spreads lockdown until there is a clear path ahead and nobody wants to sell, so I think recent fear I have seen of mass selling when that spread lockdown is lifted seems overblown in my opinion.
Of course, when the spreads are eased up some will sell. But given FI won’t lift the lockdown (in my view) until there is sustained good news, many won’t want to leave then. And plenty will be plowing back in and that could be into many of our desirable players. We can benefit from all this money moving around IF we are positioned in the right part of the market when it happens.
In my view heavy mass Instant Selling now is only a good decision for the desperate trader who, perhaps through no fault of their own, finds themselves in dire need of immediate cash in these tough times.
A better passive approach might just be to sit tight and hold everything you have, particularly if a trader did not follow my advice to trim some fat from portfolios in the weeks before the spreads lockdown.
This isn’t optimal. But provided you had solid players of the Key Strategy Full Season Fit type, you can generally expect them to be in demand again whenever football does spin back up.
Instant Selling good but currently off trend performance players at this point feels like a very bad idea, although if they can be moved to market that’s much less of an issue.
Revised Key Strategy Objectives
Key Strategy modified by the State of the Market analysis would now look like this:
In State of the Market guidance from 3rd March onwards, I advised starting to trim vulnerable players. (By the 15th March State of the Market was discussing the heavy spreads and after this freeing up balance becomes very difficult to do. Still is – I don’t think this is a viable option anymore as things stand).
Player types I suggested tightening up on:
- Players who depended heavily on Euro 2020 or the rest of this season including the CL or Europa for their value
- IPD players
- Any remaining short term elite veteran punts.
- And obviously, any fat that shouldn’t be there anyway as per the “Clean House” objective from mid-season Key Strateg
- Strong performance players who can be held through to next season, particularly with a Summer reason to hold them, (i.e transfer)
- High potential long term youth
- Summer transfers
- 1-3 premium picks.
By straddling the ground between potential media and strong performance, we’re setting ourselves up for success in all of the most likely scenarios where this season goes ahead or it doesn’t.
Sticking to real quality means that even if we have to be patient, our players should come back on trend eventually. The only really bad scenario would be a wipeout of next season and we do not look close to that in the coming weeks.
This is of course a huge generalisation/simplification of a lot of advice. Not every player sits neatly in a box and there are plenty of Euro 2020 players who are worth holding even without a transfer.
On 25th February we discussed how to differentiate between players. I considered someone like Werner or Ruiz pretty safe ground – they benefit if this season goes ahead, they are fine if it doesn’t because of the transfer prospect.
Someone like Gnabry, De Bruyne, Griezmann I highlighted as a bit trickier to pidgeon hole as they have a lot going for them but Euro 2020 was a big part of their story.
In general though, these are quality players who will eventually come back on trend. Whether you trimmed some of your holding here or left them be, I don’t think either is a bad call – good players do give us options.
With the help of State of the Market analysis, we’ll need to judge when football is returning be that May/June, August or even longer.
Particularly if there have been further drops, this can open up further value and the 10-20% free balance from Objective 1 can be put to work.
This may mean going harder on value performance players, or could mean going further into media depending on events.
Value Hunting articles will help identify a wide variety of options so we can move quickly if needed.
Is site strategy working?
It’s too early to say for sure.
But I think a portfolio built like this is in a decent position and will do particularly well if the season is restarted in May/June. It can also do fine if this season is scrapped and we have to wait for the next one.
I only see it struggling if next season is a wash out too, and I think we are some way off that becoming a serious risk, at least weeks or months.
I feel confident in the longer term, even if I know there is plenty of hard work and uncertainty ahead.
The strong performance players with a Summer reason to hold should do fine whatever the weather. They benefit if the season resumes, they benefit if they hit a transfer link.
High potential long term youth (including ineligible league players) generally don’t rely on current fixtures for their value anyway, should be fine.
Summer transfers is important ground to cover and we’ve been preparing for this for months now. But it’s important to be aware that it could go very well or very badly.
If we have no football all this Summer there is a long window of transfer speculation on the cards and they should do very well.
If football is back on by May/June we may see a very condensed transfer window or a lower key transfer window that is running during the season. Some transfer players could do very badly in this scenario.
For this reason I have advised to generally stick to strong performance players who are desirable at their destination club for more than just initial hype. And not hugely overvalued if they don’t end up moving. These players should be fine whatever the weather.
The summer transfers that must move to a very specific club, or rely purely on short term media hype are most at risk even if they appear very popular right now.
The 1-3 premium picks (top 10) can be doing very well and I think the proven returners are good bets for the period ahead.
I generally say don’t go for more than 10% total portfolio value in this area. At this time, 15-20% would not be outrageous with the proven returners. Some of them tick the media and performance boxes nicely and indeed that is what we should expect from a premium player.
One of the key things from the State of the Market updates was adapting in time and trimming that fat whilst we had the chance and before the spreads were locked down.
That should have saved a trader a lot of money by avoiding some significant drops, and gives 10-20% in the balance ready for when we feel more confident which is a good place to be.
The price of having 10-20% sat on the sidelines is that we may be missing some of the rises in the last week.
I’m not concerned about this – I feel much better knowing I have the ability to react quickly. It is very difficult to get out of players right now and if we have our whole balance committed we may find ourselves unable to adapt to new information.
By and large though, I’d be expecting a Key Strategy portfolio to be benefiting from the rises in the last week as much of it is going to strong transfer/performance prospects. Some people are clearly feeling optimistic already.
Through State of the Market, I’ll let members know if I think the situation is changing to a point where we can get confident again.
I set out my “three tests” recently. I want to press go on that once we have enough information to make an informed decision, but I don’t want to wait for 100% confirmation that football is back because it will be too late for the best value by then.
In the mean time, lining up lots of Value Hunting selections can keep us well occupied. A small number of these could be picked up now where we see extreme value and feel comfortable doing so. But in the main, we want to keep most of the 10-20% balance intact for now.
What if I have a very large cash balance now?
It’s possible a trader might be sitting on a large pile of cash, maybe 50-100% of their total available balance. Perhaps they are a new trader or a now regretful panic seller.
With spending new cash now, I would follow exactly the same approach as we are in Key Strategy with the 10-20% of spare balance, just on a larger scale. Watch and wait for a great opportunity.
With spreads locked down, and with us not knowing whether media or performance will dominate the months ahead, a trader with liquid cash is in a uniquely powerful position.
Let’s not give that up too early by following short term rises in the market.
If we can read the signals correctly, we may be able to move quickly into key performance players before the official announcement that football is back is made.
With many such players at value prices right now, this could be a great opportunity.
We may also find out that football is off for a much longer period and have to position ourselves very differently. This is why having that flexibility is powerful.
There may be some players that offer such strong value they are worth picking up now.
I would consider this where there is a strong chance of the player surging if matches are restarted AND the player is good value as a long term hold at their price come what may.
What if I do not have a free balance now?
For a trader who did not trim the portfolio before the spreads lockdown, it is very difficult to correct that now.
The spreads are just too big and are specifically designed to make selling irrational for all but the most desperate.
Currently desirable players may be able to move to market, but clearly if they are rising we may be best just leaving them be unless we really think they are a bad fit for the next few months.
Putting in new money is an option for those who can to get some flexibility. But not many will be feeling that flush or confident.
Instant Selling is one way to open up balance but we would have to be holding some serious rubbish to come up with a convincing case for taking a 40-50% hit.
If I was completely sure I was holding a dud and they had no real prospect of recovery even as next season approaches, I might want to Instant Sell. But even then it is probably just better to wait until the spreads lockdown is over and bite the bullet then (though I think that will be weeks if not months).
Assuming there was a good reason we bought the player in the first place and they are likely to come back into fashion, perhaps as next season draws near, I think sitting tight is the best thing to do.
With no free balance, this trader has also lost the potential opportunity to profit from any value that has been created in this market.
It would have been optimal to make cuts before the lockdown, but spilt milk and all that. We can’t fix this now, the least we can do is avoid making it worse.
This trader may however be able to catch up a bit IF we get positive news about the new season and FI remove the spreads lockdown.
They’ll have to move quick to liquidate unwanted positions and shift it to fit the upcoming trends. This may warrant Instant Sells if the spreads lockdown is lifted, because it’s unlikely anything we are desperate to sell will be moving quickly.
The traders with free funds and the know how will beat them to it, but knowledge of who the best players are and the real trends in play should still get this trader there ahead of most.