Let’s take a look at how the market has been behaving this week, think about what comes next, and then do some more Members Q+A.
Lots of you have emailed in saying they like the Q+A so I’ll do more of that – do keep the questions coming in!
My main observations on the market this week.
1) The Bundesliga drain is now obvious
Two weeks ago in State of the Market one of my main points was that the market was becoming overly focused on the Bundesliga:
This became noticable last week and by now is as obvious as a slap in the face.
The difference between seeing something coming versus waiting to find out what is happening is huge in trading. Speed is crucial and you can do a lot with a 2-4 week jump on the market.
Reacting to it back then you could probably sell some Bundesliga players at a high price and pick up EPL/La Liga/Serie A players cheaply.
If you are trying to do that now you are left scrambling – either sucking up losses in Bundesliga players to buy EPL players who have risen sharply already or forced into the bargain bucket end of the market trying to get value.
That is bad. We can’t go back in time and fix that exactly – but we can avoid compounding the error by chasing what we should have done 2 weeks ago.
But what should we do now?
First let’s look at the two most important market factors right now.
2) The two most important short term factors
One is the “Bundesliga fatigue”. As usual, when something gets overhyped people eventually realise they have pushed it too far and the price fall comes after.
The second is that we have huge over optimism for the EPL now. That hasn’t quite caught on to Serie A and La Liga to the same extent. Yet.
What both of these factors share in common is that there is a particularly poor understanding of which of those players are actually good for FI and which aren’t.
The market has always been quite bad at this – it’s why my pre-season predictions went so well. I could exploit value players that were overlooked and sell players at a high when the market was over optimistic on them.
But it seems particularly bad at judging ability now. We haven’t had much football and it is that week in week out grind of matches that sorts the strong from the weak. We just haven’t had that.
After pre-season – it was only by around October/November that people started getting a fair handle on who was good or not. Most people need to see a fair few games first and don’t have or don’t know how to read pre-season data.
And any new traders who have joined in the last six months have barely seen anything. Lots of old hand traders who are used to easy profits can have a lot of money and a lot of confidence but not a lot of brains.
Stir all that up in the social media omnishambles and it is no surprise that bizarre interpretations of reality take hold.
What corrects these errors in judgement over time is matches. In any given game week anything can happen but over time the cream really does rise to the top. All I am really doing in scouting when I say strong/weak player is telling you the probability of them winning or not.
3) How far to push hyped players?
I said here last week:
The key phrase here is “as long as people seem to think they are”.
It has been acceptable in the last couple of weeks to hold bad or overpriced players with good reputations. Someone like Martinelli is exactly the sort someone would think is good. But for FI he is dire. Right now that doesn’t matter because there is no football.
But it will matter.
Someone like Pepe is a bit better in fact he has potential. But the price is still quite stubbornly high. I wouldn’t generally hold him unless he improved in his scouting numbers but holding him right now is a good idea.
Same for a Saka or a Jesus or a Mount. Even something like TAA is so blatently overvalued it’s criminal but you can see why new traders would think it a good idea to hold them.
At least in TAA’s case he will probably win at some point so you might get more mileage out of this – it’s just not particularly optimal.
But where you have a really poor player who people think is good but isn’t – they will almost certainly fall in price once that weakness is exposed over consistent poor scores over consistent games.
Occasionally they will get lucky but the numbers don’t lie – a bad player is going to be consistently bad even if they get lucky once or twice.
The key with players like this is to hold them for the hype BUT get comfortable selling them whilst people still see a reason to buy.
For a really poor player like Martinelli I would sell before he has chance to score 22 points on FI and out himself.
(But what if he does score!? – So what? A lame horse might win a race because the prize stallion tripped over his feed bucket coming out of the stables but I still wouldn’t bet against the better horse).
The better the player the more you might want to push it. Pepe for example could come good so I might be inclined to let him run for a few games and monitor that through Scouting.
Overall though the closer we get to the league actually starting the more we want to be holding real quality that is more likely to put up big FI scores and selling the hype before it’s weakness is exposed.
In scouting this week and next I am going to do league previews to help with that. Sort of a mini-preseason scouting.
4) Do not get tunnel vision on the EPL.
This EPL trend has been hot for more than a few days now. I would not feel the need to chase into it now unless a real bargain can be found.
Bear in mind though that the EPL is generally the worst value anyway. It’s the best known league in this country, people tend to overestimate players in it. It’s a tougher league than others to get huge FI scores in.
And with the upcoming media review, I am more than half expecting foreign media to start being eligible which will start to kill off the EPL premium (as will the introduction of new territories – more on that in Key Strategy).
This is not a league where I would be comfortable getting over heavy in. For now being EPL heavy can work out nicely but fast forward 2-3 weeks and it starts to get uncomfortable.
La Liga is actually back before the EPL. And whilst we have seen price rises for La Liga/Serie A players it hasn’t been as obvious as for EPL – simply because it is what people know best.
But as these other leagues get attention for coming back and their players starting beating their ovepriced EPL counterparts – attention will shift quickly.
And with a longer term view we can think about Ligue 1 but I would say at this stage it is a few weeks too early on that. I would not firesale good Ligue 1 players right now though either it won’t be too long before interest picks up for them, maybe a month or two.
5) Look for value in the off trend areas
As a general rule, a good trader is usually a few steps ahead of the main crowd. Average or worse traders see a trend happening and then follow it.
As people flocked to the Bundesliga, I was already there and started moving away from it. As they flock to the EPL, I’ll be moving away from that.
Where do I go? Typically, back to the places people currently don’t want.
That could be some really good Bundesliga players who I can now pick up on cheap bids – taking advantage of traders desperate to free up funds to chase an EPL player.
The Bundesliga isn’t going anywhere. It’s still probably the best league bar none for performance scoring, certainly at Bayern or Dortmund. We just need to have the real quality players who can win on Gold Day’s with all leagues in play.
Because people’s knowledge of who is good and bad is so poor – lots of these good players can be picked up on cheap bids right now. We can take advantage of this desperation and lack of knowledge.
It can also be some of the elite veterans like Kroos or Messi or Immobile or Parejo – the sorts nobody thinks they want until they smash performance out of the park for a few weeks.
This kind of trading is uncomfortable for most people but that is exactly why it works.
Humans tend to have an instinct to want to stick close to the crowd, seek social media reassurance for their decisions etc.
In lots of areas of life that instinct works well for us. But in trading you have to grab that instinct and double tap it in the back of the head.
You just can’t make the best profits by doing what everyone else seems to be doing.
It is tempting to follow into overpriced players at the moment I understand that.
However, I think this is an eyes on the big picture situation.
We can nod towards the short term trends, but we tend to want to do that before they are obvious like with my Bundesliga/EPL example above. If you’ve missed that moment already it’s hard to make up that ground by chasing it.
What I am really focused on isn’t the stampede towards the EPL.
Assuming football is really back permanently, and it’s looking good so far, we have an unprecedented period of uninterrupted football ahead where holding the best and most consistent performance players will be crucial.
Age will become less important when that player is winning regularly.
Youth will become less desirable when they are on the bench not winning anything. Or worse, consistently on the pitch and not winning anything.
That’s a reason to have a portfolio jam packed with real winners in the months ahead.
Another is the possible dividend review – which if it results in an increase (probably does) – should put turbo boosters under any player who has proven themselves a strong dividend contender.
This stuff is what really matters – much more so than who is rising this week or not.
Some questions from my postbag this week:
A: I’d be more likely to hold them for 4-6 month stretches. They can be such consistent winners that it’s hard to dip in and out – missing a fixture can be costly. And at relatively high prices you pay a fair bit of commission too.
It depends if you have a bit of time to do it – you might be able to get some extra value by selling on the win and then trying a cheap bid when the excitement fades – there are lots of short term thinkers out there to abuse on that!
I am not someone who trades every day though. I tend to have 3-4 IPD players at most times like Lewandowski/Morata/Andre Silva who I trade in and out of depending on fashion/fixtures/prices. Refreshing their 30 day IPD window can be really valuable here. With a strong performance player like Alcantara it is more about having them at the right time of year (i.e Aug > December this year).
Q: Hi Fit,
A: Thanks for that very kind feedback, much appreciated!
We know this for a fact. As a fun experiment – type in 2015 wonderkids or similar on Google and see how many of them actually became stars or FI relevant. Hint – it’s not that many.
Good Risk and Bad Risk
Q: Hey man, Loving the site. It’s really helping guide me on the players to go for and the one’s to steer clear of. I struggled with confidence in my picks so it’s nice to have a reference to check back on a second opinion. But I still have areas I get unsure with.
My question is about a couple of Brazil players. Been looking at Everton Soares (1.56) and Gerson(0.88 Approximate). Take Soares. He’s been linked with a move to Italy with Napoli, linked also to the premier league. A premier league move, is it unrealistic to say he could reach 2.50 before kicking a ball? A move to Napoli wouldn’t be a disaster but is this sort of trade unnecessarily risky or essential if we want to make bigger returns on the Index?
A: Thanks for the nice feedback, glad you are enjoying the site so far!
Whether a player like Soares is unnecessarily risky or not depends on a few factors – the hard factors like potential ability and price and then the softer stuff like trend fit and transfer gossip.
We are always going to have to take risks – what I try to do is make sure I have lots of ways I can win or at least break even and very few ways I can take a big loss. Drop the 50/50 gambles.
I like Soares and he is a good case study actually. I’ll go through my thought process on him.
Obvious uncertainty here as to transfer destination – could be EPL he has been linked in the past.
Most recent is Napoli. Chances of him moving to Europe very high just we don’t know where.
Then we can look at my Scouting reviews – he’s very FI suitable which gives extra confidence because we don’t just need a hype EPL move – a move to a good performance club like Napoli would be decent.
But only at this price. £1.55 is totally fair value and it hasn’t spiked recently. So you are buying a player for a fair price and whilst you may love the thought of an EPL move – the Napoli one is good too for the money.
The only way you really lose is if he doesn’t make it out of Brazil at all… which is probably quite unlikely.
If however Soares was currently getting attention and had spiked sharply in price, pushing £2.50 already maybe – I’d start to think twice.
Entering trades after the spike is bad trading practice most of the time.
Good traders as a general rule buy when it is quiet and the price has fallen or stagnated generally.