Outlook

Caution

I’ve been reading news and awaiting the EPL’s statement from their meeting all day. There were no bombshells but there are a few clues.

They acknowledged that the league will not be resuming at the beginning of May, but this was widely expected anyway. It’s notable however that it specifically says the beginning. That means a restart as early as mid-May is still on the table.

That’s a bit earlier than expected – as it stands we were expecting a restart even as late as July and there are rumours that the UK Government have agreed to this provided the situation doesn’t get worse. 

May probably feels a bit optimistic. June is possible and UEFA’s recent letter warning against early finishes mentions July or even August as possible finish dates.

The exact start date remains in doubt and at this point we may be looking at a season restart anywhere between mid-May and August. We won’t be able to guess on that because I don’t think anyone in the world knows that right now.

The league has basically been suspended indefinitely and they can’t put a time on it which is understandable.

But what we can pick up on is the seemingly universal determination to finish this season come what may. Even if that means delaying the start of the next one. 

So as traders we can expect at least another 6 weeks of media domination, which could become 12 weeks or possibly even longer.

After that, we could have a huge football calendar ahead of us including this season’s European knockout Gold Day’s. And each season would run quickly into the next.

At this point, we can start to view the restart of football in the same way we would the start of any new season. Just better. It could come much sooner than August, would be a lot longer than a usual season and with a ton of extra Gold Day European ties at the start of it.

So, an obvious approach would be to gun for media now and switch to performance later, but it’s not quite that clear cut and I’m going to set out my thoughts on this in detail.

Overall Key Strategy Position

Having freed up a bit of spare balance by trimming the fat before the lockdown, I’ve been cautious on new buys to maintain the flexibility that having cash on standby brings.

But because 80-90% of the portfolio stayed where it was, Key Strategy has stayed in an optimistic/positive posture overall. There was a point around early March where the thought of a big cash out crossed my mind but I ruled it out and that looks like the right call now.

We’ve been fortunate, like most, to avoid really severe drops because of the spreads lockdown. 

But there will have been some drops like Bruno Fernandes, Kroos, Alcantara. Nobody can avoid all the drops and this is fine. It is milder than expected and not concerning if we are happy with the player going forward.

We should even have benefited in recent weeks from a buoyant market where people have been buying transfer prospect players, premiums, some youth, and even shown a perhaps sooner than expected interest in some general performance players too. 

Lots of the usual site suspects like Coutinho, Ziyech, Trincao, James, Stengs, Greizmann, Ruiz, Bailey, de Beek, Gnabry, Aouchiche, Umtiti etc etc have had a good few weeks. That’s better than I’d have expected so soon.

But could we be doing better?

Big Media Strategy vs Key Strategy

Some premium players have been very lucrative and my advice to generally stick to 1-3 and no more than 10% total portfolio value could have netted some gains here. 

But shorter term we might have done better with a portfolio that gunned harder into the Big Media strategy which I cautioned against. For example, some might have had 10-20% value in just Sancho and done well from it this month – that’s a gamble I’d never be taking (though 5% or so would be fine).

Whilst a Big Media strategy might do well in the short term I consider having too much money in this area to be a bad strategy unless you are prepared to hold that player for a very long time. It’s particularly foolish when people are chasing whoever is winning media that day which we are seeing a lot of right now.

We still have a very uncertain calendar ahead and flexibility is important. 

Once we buy a player, particularly a very popular one who gets a lot of attention, we are stuck there right now. Instant Sell is bankroll suicide. When it becomes clear that something has gone wrong with a player, you will not be able to move him to market because everyone will want out. 

Let’s say a player’s value heavily rests on a specific transfer. Right now, we don’t even know if there will be a transfer window this Summer or when it will be. Or indeed if clubs are going to have the expected financial muscle to be doing lots of big deals at this time.

Or if we’re buying a player because they hit a media spree and rose in price this week, are they still going to be in fashion next week? If not, we’re in trouble.

Once you commit to these players you are stuck and buying a short term win is just not worth losing your flexibility for. 

In normal times our portfolios can be more fluid and we can be nippy like a speed boat if we want. But these are not normal times. We’re driving an oil tanker right now and changing direction once we are committed is not easy.

This is why I am setting up with players who may benefit from a transfer or a spree of media but also have long term value at their price, with very few cliff edges (like a failed transfer link) that can drop their value swiftly.

Sancho is one example. I’ve liked him since the turn of the year as a hype prospect but he’s reaching the kind of price now where he has little chance of justifying it outside of that hype. 

I think this can be ridden a few weeks longer to collect some dividends but once all of these reasons fueling the hype are out of the way and he is settled at Manchester United as hoped or still at Dortmund those reasons for the extreme premium will be gone. 

To believe otherwise you have to be making some extremely optimistic and hopeful assumptions about his ability to improve and be more media worthy  long term than Kane etc. Or you have to be just plain pumping him up to get others to follow you in. 

The tricky thing here with this kind of hype trade is you have to be disciplined enough to sell whilst the mood is still positive. The trader who really believes the hype is the one who pays the bill when the pumpers and better hype traders move on. 

Even someone like Werner is vulnerable. It was only yesterday he was at £5.68 and after one bad news story he’s £5.46. I said just yesterday his short term prospects can be up and down. But the reason I think he’s ok is that if he doesn’t move to Liverpool it is likely Bayern step in and I’d be happy holding him anywhere between £4.50 and £5.50 at Bayern.

I actually favour a Bayern move for longer term value, especially as we are expecting media to open up to other leagues eventually. But not many think this far ahead.

In normal times, I’d likely have been selling him to dodge any dip if he doesn’t move to Liverpool. But in these circumstances? Am I going to be taking a 40% loss to Instant Sell a good player because of stories in the Mirror? Maybe if someone put a shotgun in my mouth and forced me to but I’d still be unhappy about it.

Am I going to list him hoping someone will buy? What’s the point? It will only drop the price exacerbating the issue and nobody will be buying anytime soon anyway unless the move to Liverpool looks back on. And then I’ll be annoyed I sold him because I’ve missed the rise.

If I wanted rid of Werner the time to do it was last week when I may have found a buyer. Once the bad story comes for your transfer player, it’s too late. And that’s why you have to cash them out when things look good unless you want to hold them no matter what.

These are the sorts of issues we’ll have to deal with this Summer which is why I’ve focused heavily on the sort of “evergreen” player who is a good hold in a wide variety of possible scenarios rather than just betting on one.

It can be tempting to chase the media dividends around but it’s unwise unless we really want that player longer term. 

We can end up stuck there and whilst we may get a short term gain cash is important right now and we want to keep that flexibility unless there is a good reason to use it.

What's next?

If we were happy to make a bet that football is restarting at least by August or September (with this season finished before then or not) there is a solid potential strategy here that would be easy for a Key Strategy portfolio to flex into.

Essentially, we’d use our spare balance to bulk out our portfolio with currently off trend, extreme value, high performance strength players that we expect to be in demand when there is a long football calendar ahead. Elite veterans would be a good source here.

So it comes down to the fundamental question: Do we believe that football will be back by August or at least September?

As things stand I would place my bet that it will be back at least by then. We don’t have perfect information but we never will until it is too late and any advantage in the market is gone. We’ll have to decide on that over the next week or two.

Why don’t I commit all my funds to a bet on next season going ahead now?

As things stand this is where I think I’ll go. But I’m not quite ready to commit the spare balance I have yet. I want to see a bit more from football authorities on practical measures to get the show back on the road, and ideally I want to see the whole situation in countries like Italy starting to settle down.

Whilst next season doesn’t feel under threat yet – it’s far from guaranteed. Let’s say we see a second wave of infections in China as they lift lockdown – we might start wondering whether next season is going to be disrupted too. This is why we need confidence that football has a way to keep going even under a partial lockdown. 

Given my likely targets are off trend performance players I don’t feel a great need to chase them right now – they aren’t exactly flying off the shelves. In fact by waiting longer I may get a further discount as people sell them to chase short term media.

I’m in a great spot if this season does finish. And I’m also fine in the event of an extended media period as there is decent coverage there with a few premiums and plenty of transfer prospects (that in the main don’t just rely on hitting that one transfer for their value). 

Another reason to hold spare balance is that we are still at the point where unexpected stuff can easily happen and we might need to do something we haven’t thought of yet. 

And we have to bear in mind that we are probably still 80-90% committed. That’s plenty aggressive in an uncertain time, having 10-20% on the side isn’t that much. 

It’s probably quite easy to obsess about any spare cash because that is pretty much the only control we have right now.

In times like this it’s natural to feel we have to do something. Particularly if bored at home with too much time on our hands. But I think a bit of patience will pay off here, I don’t think we’ve seen “the moment” yet when a clear path opens up and it’s time to go all in. 

Equally, we can’t wait forever and we’ll never have perfect information. We just want enough for a reasonable decision.

Conclusion

There should be some big decisions in the next week or two depending on events and how the market reacts.

If we see signs football looks back on the agenda in May to August and people gun too hard towards media, it may be time to cash out some of our riskier transfer holds and reposition that cash into performance for example. 

This is the “bait” strategy I’ve mentioned recently last used successfully during the Share Split hype in early 2019 – using the charge towards media and premiums to cash some holds out for a strong profit and hoovering up the value instead of following the crowd. It’s possible that is going to be relevant here too.

If on the other hand we think the football calendar is falling apart for the longer term we may want to flex into some more media picks to strengthen us in this area.

Tons to think about here and in many ways, despite how hard this is, I’m enjoying the challenge and this is the sort of time when trading skills really get tested.

I’ll be back on Monday looking at more Value in the market. Have a good weekend all.

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