I’ve decided to split the Key Strategy article into two parts to make it easier to digest.
There are so many changes swirling around right now and before we can nail down a strategy we need to think about each issue and then work out a plan from there.
So today I’m going to discuss at length all the major issues that are on the horizon. This is part of my process and helps me clarify the next phase of key strategy.
A trader who understands the context and the reasons behind the strategy decisions will have a better chance of adjusting as things change, so I think it’s important to know all this, rather than me just issuing bullet points of things to do.
I will give bullet points of things to do! But that comes tomorrow.
I recommend taking 10-20 minutes to read all of this for a fuller understanding of what is coming up on FI and how I plan on approaching it.
The Major Factors Ahead - Analysis
This looks a hell of a lot better than it did.
The Bundesliga led the way and has provided a high level of confidence that football can continue to go ahead without unacceptable risks to the participants.
It’s strange with no fans. And far from ideal. But it’s an acceptable experience and most people would agree it is better to have football back than not. Even if it was unpopular – there is so much money at stake that’s it going to go ahead unless absolutely impossible.
There is a risk that we see spikes in reinfection rates in the general population – and this is not insignificant. Certainly, health officials are very worried about this. If that happens there may be public pressure for football to be postponed again in some countries.
We have to be mentally prepared for that.
But, I do not think it is sensible to be too defensive on this at this point. We have strong evidence now that football can be conducted safely so even if there was a postponement it would likely be temporary.
I think traders in general feel more comfortable with this concept – a temporary suspension would be unlikely to send people into mass panic now.
And FI themselves have shown they can handle this well and take the needed steps to support the market if needs be.
There will be a general thread running through player selections where we don’t want players that would be an absolute disaster zone if they couldn’t play for a few months. That may include very overpriced players, players with limited contracts or uncertain futures.
But that’s not much different from usual good risk management practice at the best of times and unlike a few months ago I don’t think unusually defensive measures are needed on this topic now.
The Dividend Increase
Huge news and it is rare we find out about this so far in advance.
As per the immediate analysis after the announcement, the “obvious” picks can be expected to benefit first.
By obvious we are talking the established dividend returners and very popular players that are considered big returners of the future (sometimes whether that is credible, or not!).
We’re likely to continue to see good things for them running up to the announcement itself. Maybe even beyond it BUT they may rise sharply and just get bought too heavily.
When that happens, people are very likely to seek value in the middle price range and then the £1 to £1.50 range of the market.
So, good players outside of the immediately obvious will get there turn provided there is optimism about their dividend potential.
A dividend increase is generally a huge boost for players of genuine quality. It has a way of refocusing minds away from the garbage and the hype and onto players who are actually good for FI. Traders who typically hold the better players can expect to benefit naturally.
With a few complications, of course.
First of all – general trader knowledge of who is really good or bad is poor. And often deliberately skewed by social media pumping.
So, we can’t just expect a good player who hasn’t won yet to get automatic buying.
There will be some smart money out there that moves towards good players naturally. But to really get lift off a player is going to need to prove their quality to the masses. Fortunately, we do have some football back and it is starting to sort the wheat from the chaff. Scouting helps us identify the winners before it happens and the losers before… most people realise they are losers.
Some poor performers who are overhyped are coming down in price already and money is flowing in the direction of good performers when they prove it. But they generally need a positive trend fit as well as just a performance win to rise significantly.
If we have spare money now, I would generally go in for those obvious and popular players that will be widely expected to benefit from a dividend increase. And this doesn’t have to be too clever.
Hell, the first player that is often the best one to buy ahead of a dividend increase is Neymar – who also happens to be one of the few premiums I think deserves his price. Not rocket science.
Something like Dybala or Depay who are rising already – good picks for the coming week and potentially beyond. The reason being they are widely known as strong returners and are not at outrageous prices. It’s hard to make a mistake here because they are backed up by genuine FI quality.
Something like Foden? Well yes if doing it straight away but I would not chase it now having seen it rise so fast. At least he has genuine potential though.
Haaland? A dividend increase doesn’t mean much if you barely win dividends and you are overpriced already. Some misguided people may go for it and it maybe a good opportunity for holders to exit at a better price than they would otherwise get.
But no – even if a trader can get some people to agree with them on Haaland here – what you want right now is players that are not controversial and enjoy widespread support as proven returners.
Once the supply of those has run dry though people will start to look for better value further down the market. This is when the smarter selections come into their own.
Once a batch of players start rising it won’t be long before the tweets along the lines of “Isn’t X looking so cheap now compared to Y?”. Rises at the top and middle end have a way of pulling up prices behind them.
For these reasons I strongly advise using any balance or new money you want to put in as early as possible ahead of the dividend increase. It’s not a time to let cash sit in the balance doing nothing.
There is no rational argument for a “wait and see” this time. There really isn’t any uncertainty that matters.
It’s a dividend increase. The beneficiaries are going to be players who win dividends or who can potentially win dividends. Good strategy isn’t always complicated!
They may benefit straight away if they are well known returners. If they are likely to win but not everyone knows yet as per scouting – we may need to wait for them to prove it in a match – but they should benefit strongly when they do.
The only uncertainty is how much FI increase dividends by.
Less than 20% would be disappointing but it’s unlikely. 40, 50%? Very substantial and this level would be my personal expectation.
I am optimistic because I think the introduction of the Matching Engine should have made FI’s finances a lot healthier. They should be relatively free to go for aggressive expansion.
There is a chance therefore that they go for a whopping 100% increase. But I’m leaving myself room to be pleasantly surprised and not assuming this.
Adam Cole is sensible though and I think they will get a big reaction out of 50%. So why not do that and save your other 50% for later? Burn all 100% now and traders will be all “Thanks for that, what are you doing for us next week Mr Cole?”.
Anyway. What does it matter? We’ve got every reason to expect a big increase so if I had new money on the sidelines I would just get it in now and worry about withdrawing later if I need to.
The key here is not to get stuck in overpriced players.
One thing I am really looking forward to is that if there is a big announcement and a market surge – it may be the best opportunity we’ve had to sell some players for a very long time.
Particularly if we are holding a player that we know is a bit weak or borderline overpriced we may actually want to sell them before the actual dividend increase announcement. Remember – to get a good price you must be willing to sell when others still see reason to buy.
In the days before the dividend increase I may sell any “obvious” players who have risen sharply in favour of the “smarter” picks that haven’t risen yet but are likely to rise later.
The Matching Engine
We’re already seeing a big impact from the Matching Engine. It’s going to be a VERY different season to what we are used to when it comes to the strategy of buying and selling.
It’s going to make prices far more volatile, for good or ill. No more predictable ratcheting up of the price and then slow tumble if something goes wrong.
Your £10 player can be worth £5 tomorrow.
Your £1 player can be worth £2 tomorrow.
And we only have half the story – bids. Once “offers” are introduced too traders gain control of that blue button price which will make that a lot more variable.
That has huge implications and the biggest lesson that many will learn the hard way this year is that this means that the old habit of reckless, low IQ trading that many could often get away with needs to go.
Traders are going to have to get serious about how much a player is really worth over the next 6-12 months.
When you can’t dump unwanted shares on FI and know you need to convince another trader to buy them weeks or months down the line – you must have something real to hold on to when the hype has faded.
This is inevitable.
Holding players that are way outside any kind of rational valuation for too long is going to lead to even more bad ends than it usually does. Chasing social media hype is going to be even more expensive.
If a trader has to wait for the market to teach them that lesson they are likely in for some very rough experiences.
We must completely eliminate any of these old, lazy habits from our trading games from here out.
None of these were good habits anyway – though it still made a lot of people some money particularly if they knew when to quit and cash in. But for the mugs the stupidity of it was generally papered over by the rise in the market overall.
We can still lean into the silly mini-trends when it suits us but must be extra vigilant and make sure we don’t hang in too long.
But for a good trader the ME should be seen as an opportunity. Big profits are going to be very possible.
It is opening up far more value than I ever remember seeing. Insanely low bid prices are being accepted on players that have every reason to be popular again in mere weeks.
The short termism of traders has been laid wide open by the ME and good traders want to be abusing the hell out of that.
The downside is that a lot of good players are stuck – neither rising right now or likely to inside 2-6 weeks. Yet, selling them for a big hit just to chase something else can feel wrong when you are very sure they will rise later.
Simply put – lots of people don’t even know who the good or bad players are which is why the spreads are so wild! A double edged sword.
It may take a bit of patience to make sure we aren’t underselling our holds here and doing more harm than good.
The bad news is that if anyone is holding some genuinely weak players they are going to be hard pushed to ever sell them for a reasonable price.
Having a good player at a reasonable price who isn’t currently in fashion is fine. But having a seriously overpriced good player or a cheap bad player is a bleak place to be in the new world of the Matching Engine.
So there will be some tough decisions if holding a player like this – some big hits may have to be taken in some cases.
No Performance Matrix Changes
On balance, this feels like the correct decision from FI’s perspective.
I would have personally relished some performance changes. The more (sensible) change the better because with my experience and no small amount of effort I can gain an advantage out of this.
If on the other hand you find that all confusing or are wedded to your “three year bets”, that’s a couple of good reasons to fear the changes.
Less selfishly, there are some genuine things that need to be fixed. Forwards need more recognition for aggressive play. Wasteful stuff like inaccurate crosses shouldn’t get rewarded so much.
Basically changes that make it easier for your average football fan to see why prices are what they are. Currently having fantastic players like Firmino so cheap just looks silly.
But by and large, the system is fine and it will be sufficient to get FI through another season.
With the Matching Engine coming in too more change on top of this would feel like too much. So the correct call overall even though it isn’t what I would personally have wanted. Changes are very likely to come at the end of next season though, so it is worth remembering that for later.
There is a trap in all this to watch out for though.
I’ve seen a few people sharing spreadsheets with things like “we can use this info to predict next seasons winners it’s the same matrix!”.
No. No you can’t.
This stuff can be interesting to look at but performance is very changable and who is looking good or not can and does change each month for a ton of different reasons.
A performance God can become a nobody with one tactical change. And vice versa.
So much changes between seasons at a club that what a player was doing 3-6 months+ ago is really not that relevant.
This happened before last season too with people trying to “adjust” these spreadsheets to account for the new matrix. It didn’t work out so well. You cannot solve FI in a spreadsheet alone although many try.
This was the biggest mistake I made when I first started on FI and I had to learn to be better.
It’s good analysis of real match data in recent games that counts the most especially when looking for value.
And even beyond that – performance on it’s own is just one of many things that moves a price. It all needs to be in context of the trends and upcoming events.
What things like historical dividend return figures can be used for however is to predict who people will buy at certain times.
Historic returners will not be the same as the future returners. But historic returners will be amongst the “obvious” players that get bought in advance of a dividend increase and probably in the build up to a new season.
This should be exploited.
I don’t think it’s really possible to predict who will benefit from specific word changes or a removal of spammy tabloid articles.
It’s going to impact who wins on a particular day but I am not sure we can say whether it will specifically make a player more or less likely to win.
I prefer to focus on things we can actually do something about.
The big change to look out for is the possible introduction of foreign media sources.
That could be a nice boost for foreign stars. Messi. Neymar. Lewandowski. Immobile. Haaland. Eden Hazard. Mbappé. Players of that sort.
It is a mild negative for EPL stars like Pogba or Bruno or Kane. They will face more competition for media.
However – I would be surprised if FI flooded media with lots of foreign sources straight away. It will likely be a gradual introduction so they don’t rock the boat too much. There is a chance they may dodge it entirely and focus on bedding in other changes like the ME.
And, in the wider context, big EPL players like Pogba (assuming he stays!) or Bruno will be getting a slightly lower chance to win due to increased competition but due to the dividend increase will win more when they do.
What to do with this? Nothing special. EPL players are often poor value and I tend not to hold much from this league at most times. And the quality EPL players who are truly worth it will punch through anyway.
It is a small boost for non-EPL players but these tend to be the best value already. It’s just one more reason why that is true.
CL and Europa this season
Back to actual footballing issues. Thank christ.
The CL and Europa conclusion will be in early August. Just over a month away. That’s soon.
Huge teams are in action competing for some highly lucrative Gold Days.
We may, if we are lucky, also see some kind of promotion or at least FI hype activity around this.
These games are also close to the start of a new season, which is particularly relevant for the Bundesliga teams who will look a lot more attractive 4-6 weeks from now.
Many of these players are currently at low prices yet are very likely to be in demand in just weeks.
This short sightedness should be abused – I think the market is sleeping on this because there are so many other distractions right now.
CL and Europa next season and Euro 2021
Obvious but important point that is worth remembering – teams who qualify for the CL and Europa next year will earn a premium for their players. It creates positive expectation and it is legitimately a huge boost to the prospects of that player returning more dividends. Provided they are actually any good, of course.
So we need to be keeping a careful eye on the run in of the leagues and paying careful attention to the oddities. For example Manchester City may be disqualified from the CL and have an open appeal.
That hurts Manchester City badly potentially but may open up an opportunity for Manchester United or even Wolves to nick a CL spot. If City unexpectedly win their appeal they could get a huge boost too.
In Serie A Napoli have already qualified for the Europa through the cup so we can bank optimism here.
All fairly obvious but I think a lot of traders aren’t thinking about this too much as seasons reach conclusions – there is too much going on elsewhere. But this matters.
Being obvious can be good as long as we are obvious first.
Losing Euro 2020 was a blow because for many really good players that was a key point of the season. It was part of the Key Strategy plan to use Euro hype from a promotion announcement to cash out of some good players and shift that money elsewhere.
In fact, that was what the entire December onwards strategy was building up to. Well, unlucky. Corona happened there is no point dwelling on it. Things won’t always go as we expect although football being cancelled for the first time in living memory is an extreme example. We still have to roll with it and we have not done badly considering.
It does create a longer term opportunity in that such players will retain their Euro premium for another season.
It’s not something people are overly thinking about now, but it is never too early to prepare for this.
I am not suggesting we should go out and sign up Euro 2021 players now for just that reason! But it is an important factor to consider – players throughout next season who are expected to be at Euro 2021 are going to attract a premium particularly if they breakout in performance scoring for their clubs.
We also have the nations league still scheduled for September 2020 – these count for performance and will rekindle interest in big internationals most likely. Another reason why preparing early is a good idea.
Lots of people seemed to think this year that buying in January was early preparation for Euro 2020 – they were actually too late.
We might be able to do some tinkering by January 2021 but our bulk buying should be done well before then.
An Uncertain Transfer Market
We’ve got an uncertain transfer window ahead.
Coronavirus just makes really big money deals less likely in some cases.
Some clubs may not have the cash we expect them to splash around like normal. Some big clubs may weather the storm better and will be able to exploit smaller clubs who become desperate to sell.
Current best guess though unconfirmed is that the window will open in each country whenever each league finishes with UEFA pushing for a uniform close on the 5th October.
So it’s a long window and there will be plenty of deals to come.
However, gone is the long and extended Summer of unchallenged transfer speculation.
Having far more match days just outright smashes the potential of media stories to dominate dividends. Not just because fewer media days are available but in the battle for column inches journalists have real football to discuss rather than dredging up weak transfer gossip for something to write about.
My takeaway from this is that we can still go for transfer players but very selectively.
The best targets are the hybrid performance/transfer players particularly where they have the possibility of a great transfer without being totally dependent on it. If they are still decent at their existing club, that’s a big positive here.
I will strongly avoid players who overly depend on getting a very specific transfer and have little real quality. If that transfer link dies we may be faced with taking a 40-50% hit and that just feels like a stupid risk to run.
Social media / chat groups will be loud about these picks because they need people to follow into them.
But especially in the new Matching Engine world running these all or nothing risks is a bad idea.
NASDAQ, the "alternative asset class" and the £1bn market goal
All stuff from last’s weeks announcement that essentially falls into a bucket labelled “nice things that we don’t need to do much about”.
Having FI’s ambition laid out, all backed by household name NASDAQ, is a wonderful thing. The increased compliance and behind the scenes regulation changes are great news. And moving to an “alternative asset class” rather than just a quirky bookmaker is good too.
They are basically a suite of changes designed to combat that persistant, annoying and possibly fair question: “Is FI a real thing?”.
All of this stuff boosts FI’s credibility and should attract bigger investment in future. Potentially great – but to benefit from this we don’t need to do anything special other than trade well as we normally would.
Lots to consider here as I write up the Key Strategy tomorrow. If there are any other issues you would like to see covered email them in or send me a Twitter DM and I’ll cover them at the end of tomorrow’s article.