Another difficult week on the market. Not without highlights – but often for the wrong reasons like rapid, and far too easy, profits made on IPD flips as mentioned over in Scouting.
Outside of that the picture is bleak and the mood is characterised by cringing and hand wringing on social media about what to do about it. Popular social media solutions include:
- “Get better at trading, idiots!” and;
- “Hey FI, give us back the old system where you bought all our bad trades and gave us easy profits for minimal effort at little risk to ourselves!”
None of these are real solutions.
Yes, people should get better at FI. We all should. Every season something is new and all of our same old tricks will not work – it’s our attitude of being traders that keep learning that will help us be consistently profitable.
This isn’t something confined to “idiots”. Although it should be no secret that there are lots of poor traders on FI and I am not sure why this gets denied. There is an apt poker saying that “if you don’t know who the worst player at the table is: it’s you”.
These traders do tend to be the type who spray champagne in the good times and hit rock bottom in the bad – overreacting to everything. They are useful though – they grease the wheels of the platform generally by trading too much.
FI will want to take some steps to protect them but over time – most people with this kind of attitude will lose money and drift off the platform. It’s inevitable. We’re probably seeing a lot of that already.
And reverting to the old system before Order Books or hoping FI change the overall concept? It’s a waste of energy to hope for it. It’s never going to happen. This was always the long term plan and it’s essential to FI’s business model.
FI are currently breaking dividend payout records on a weekly basis. Where are all these recent massive dividend payouts coming from?
That is all possible because they have cut themselves out of the massive liability of paying the bill for people’s bad trading.
There is zero to be gained from harping back to a past that is never coming back. It prevents a trader from a) realising that they need to adapt their game away from hype and more onto substance and b) seeing how much slam dunk value is sat there staring them in the face.
These changes we’ve seen, whilst painful now, are great for the platform if you are actually interested in trading. It makes bigger dividends, bigger prices and bigger profits than ever possible.
It also makes it much more possible to lose money on trades in future – if you are bad at it.
Up to now – traders were insulated from the consequence of poor decisions or bad luck because FI would just buy the bad bet off them for a nominal loss. This created a culture of bad trading practices for many that now needs unpicking one harsh loss at a time and it’s uncomfortable.
Really, we should think of the first few years of FI for what it was – a very long introductory offer to get a new platform off the ground. If it ever felt too good to be true – it’s because it was. Huge profits were available at minimal risk because FI would bail out the really bad results.
That was always going to end so in my view it’s better to get that over with and head to the next chapter. Which I think is an exciting one because the dividends have never been higher and the prices never lower versus the potential payouts.
If I have a criticism for FI on Order Books it’s the timing. In an ideal situation you’d make a big change when the market was strong. They decided to make a big change when the market was reeling from covid, spotting an opportunity when Instant Sell was suspended anyway to withdraw it and replace it with bids.
That’s brave to say the least. It may prove to be genius if in 1-3 months the cloud has lifted due to the consistent large dividend payouts plus further tweaks from FI to the mechanics which is very possible. But no doubt it was a risky play that has contributed to a very rocky 2020.
What can be done?
You can basically divide this into “things I can control” and “things I hope FI will do”.
It’s a combination of those two things that will settle the market and our own portfolios.
What can FI do?
For FI’s part, from past performance, we know FI are not going to be idle. They aren’t perfect but on the whole they’ve done an undeniably great job over the last 5 years establishing a new product.
Many people are quick to jump on their back when something isn’t right. These same people are also probably the first to scream their praises when things are going well. The picture is a bit more balanced.
We’ve already seen a deposit bonus that’s going to run for 5 weeks in 2 parts. And it’s pretty generous at 8.25%. The reality is a trader depositing in that window is already getting better value, if making good selections, than I can ever remember. So getting 8.25% for free on top? Incredible.
Of course, you can always say the best value was available 5 years ago at the very start and it’s not wrong. But I think right now if I make a deposit the value is more genuinely justified in the here and now than ever. In terms of what I’m paying for the potential dividends I can win the yields are just huge – we do not need to rely on future dividend increases at all.
There are lots of theories about what FI should do. If you want to be a social media big shot, you can try stuffing as many big words and trading terms into a sentence that includes “liquidity” to make a point about… well I’m not always sure what the point is.
Some of the discussion is good, a lot of it is just weak. In all walks of life real experts tend to communicate in simple language. If we’re overusing complex sentences and showy vocabulary as if we’’ve swallowed a trading textbook? We’re probably trying too hard to sound too clever.
We’re well aware that liquidity problems exist; they’re not new. To fix that we’ll need a combination of:
A) existing traders feeling more confident and injecting more cash;
B) new traders coming in and;
C) behind the scenes activity from FI including increased market makers and bribes like deposit bonuses etc.
With confidence shaken, A and B are difficult. Although I think it will improve as we see more and more games go by and these huge dividend payouts start dropping into balances, especially in the absence of the 5x IPD promotion.
The IPD promotion has turned out to be a very poorly timed distraction for the health of the market overall. Though I won’t deny I’ve been able to bank some stupidly easy profits from this. I remember being shocked at how generous this was and I’ve never been a fan of IPD’s being too muscular for this exact reason.
I’m glad they are back down to more sensible levels and I think we may see some healthier behaviour this weekend as a result. But they do remain doubled from last season and are still a big incentive with prices for many strong IPD players remaining very low.
Overall though we are leaning heavily on point C right now – needing some FI intervention. I’m sure traders are chomping at the bit to get stuck into the huge value available but they’ll want reasons to be confident first.
The deposit bonus will help. But as we can see – it has not resulted in the instant rises we have come to expect from such events. It will however sit in the background as a strong incentive and I think it will have a big part to play.
However I think what people want to see more than anything is spreads closing up again and this is where it would really help if FI make the first move and ramp up market maker activity.
I don’t suspect it is easy – finding someone to actually do this who is both independent from FI and competent will be difficult. It’s not like you can call up a stock exchange and order an FI market maker. Many people familiar with being a market maker will be starting from “Ok what’s FI?” They’ll need to be trained etc.
And more information helps too – we’ve discussed the need for Market Depth data for a long time. They have committed to these things and it should come – but it’s taking longer than hoped and this is causing problems.
If they wanted to make a big change like Order Books in 2020 when the market was rough already after covid – they must surely have known they’d need to provide a lot of support to get over the hump. If anything they have trusted the market too much – it’s probably only just mature enough to handle an Order Book system and it’s going to need more help.
As the match days go by, those bigger dividend payouts are going to get hard to ignore in the absence of 5x IPD. And based on history we can expect FI to make more tweaks that help things along.
But these aren’t things we can control. The only real point of considering them is to settle our own minds. What’s really important is what we can actually do ourselves.
What can we do?
The most dominant feature of the market is still that the dividends on offer versus the prices are unbelievably generous. And over time, the weight of that will tell.
There are a couple of new things to watch out for – the first one is how different trading could be in the next few weeks now that the IPD promotion is out of the way.
What’s been particularly odd about early season is that players are winning but then often returning to the same price as before the win. This is unusual and is caused by traders chasing the IPD promotion.
It’s both good and bad. Bad because if you have correctly predicted a win for someone like Kramaric, you’ve probably got a nice profit but that bid price is still pretty low if you didn’t sell straight away (although with the IPD maybe we got more than usual in terms of a return).
On the flipside, a player demonstrating quality by winning is often remaining at value. Usually, they might rise sharply and chasing that rise is generally a bad idea. So if you’ve missed a good one, you can get a second bite of that cherry at the moment.
Taking Kramaric as an example, if you’ve bought him for a pitiful £1.01 bid when he was in my Core performance pre-season article in that 30 day window you’ve earned 50p IPD dividends and 28p in performance dividends – about 75% of what you paid for him in a month and you could hold for 3 years.
With more active trading that could be massively optimised, selling after the rise with the first win and dividend then rebuying for the remaining dividend window after the dip, then potentially either selling again after the 2 goals vs Bayern for up to £1.49 without waiting for the actual IPD dividend.
Very time consuming, but the rewards were very real and very easy to get. It really didn’t require a lot of brains – just effort.
Equally, even selling today at £1.26 and having done nothing except buy at £1.01 you’ve still doubled your money. But it could have been much better than that with active trading.
However – that’s all because of the IPD promotion. We need to avoid the trap of thinking that’s how it is from now on.
When a player like this demonstrates consistent strength – we can reasonably expect the price rise to be more sustainable and there should be less of a rush to exit immediately.
Even though I think Kramaric more than deserves to be £1.40+, it would be a naive trader who trusted all those on the goal IPD buyers to know that or care during the promotion window.
We may see a bit more short termism – people might be in the habit of this now. But they are going to find it stops being so easy without the cushion of massively inflated IPDs and there will be some major burns from this behaviour.
With the IPD promotion out of the way, what we should see is a gradual return to something like a more sensible market where people are focusing more on finding consistent winners rather than chasing IPD.
There is however the international break after this weekend which is another distraction we could probably do without, but nothing we can do about that. What we need more than anything is a relentless grind of match days. Fortunately, that is on the way and it will be the most chock-a-block season of all time.
Another factor we are seeing now is, as expected, a widening of the spreads. The downside of locking the Offers to 1p below Blue Button price is that it keeps those prices artifically high. Good for on paper portfolio values – bad for creating a logical market.
This is temporary. And needed to prevent panic. But it’s sending us back to how it was in much of 2020 where Red Button and Blue Button prices often have little to do with each other.
The Red Button remains the best reflection of what people are currently willing to pay. The Blue Button is often stuck at the highest price someone was willing to pay last week or last month or perhaps even longer.
Overall – I wouldn’t take either too seriously right now. As I discussed last week – the only real valuation that we should trust is our own valuation of the players worth in terms of their dividend potential and overall trend fit.
Last week I spoke about knowing “true value” when considering buying and selling.
Market downturns are another time where being confident in the true value of your holds pays off. Mentally, if nothing else. If we are confident that our selections are justifying their value in dividends then the three year bet argument holds water.
Diligent scouting earns us a reason for confidence. And that’s how I remain calm at the moment, even if it’s clearly not easy to watch.
If however you have players that are well beyond true value and rely too heavily on “sentiment” and the usual over optimism around new players… well. Sentiment is just a word for “what other people think” and clearly pinning your fortunes to that for too long is a terrible idea. If you have then panicking is rational and legitimate.
I’m sure FI will come forward with some more tweaks to the mechanics but relying on that isn’t a game plan. It’s about being ready so that when others feel more confident we are already in the places that people will want to go.
With value so easy to find, even in popular players, one tweak I’d make right now is to be a bit more “obvious” than usual in player selection. If we imagine a scenario where FI announce a positive tweak or two and people see a weekend of big winners and remember there is a deposit bonus and start getting optimistic again… where are the first ports of call?
It’s not going to be straight to the hipster clubs like Sassuolo or Leeds. There is a time and a place for digging out relatively unknown value targets. And people will get there eventually. But right now there is a ton of value available in some fairly obvious players at big clubs that are going to be fairly easy to sell when confidence returns.
Clubs like Bayern, Dortmund, Real, Barcelona, Liverpool, Manchester City/United, Chelsea. Milan. Napoli. Juventus. PSG. The big hitting CL and Europa teams are a rich source and at the moment we can go for established starting 11 players and get value quite comfortably.
We don’t necessarily need to make too many bets right now on fringe players or under 18’s breaking through. With so much value available in established players – it might be the time to be a little more obvious than usual and not overthink things.
Buying established players doesn’t mean we can be lazy – we need credible evidence from scouting that these players are still good and not just living on reputation. Things change all the time, particularly in early season.
But I think we can make life easier for ourselves right now by favouring players that will be easy to sell in a more confident market – the sorts of players people don’t need much convincing to buy.
Whilst that can be a good guiding principle, I’d also say don’t ignore some of the real slam dunk value picks either which at the moment is mostly at the veteran 28+ end. They may not be easy to sell right now, but when they are looking in deadly form that can all change very quickly and the percentage gain can be huge.
Beyond those tweaks… for all the hand wringing and complaining and frustration… there really isn’t much to do other than keep refining our portfolios.
That’s the bit we can control. FI will make more interventions but it’s far more productive to worry about our own portfolio rather than anything else.
On True Value and De Bruyne
Q: Hey FIT,
I love reading your articles, I’d say they might be worth the subscription fee alone before you even come to the money you can earn by applying the knowledge.
But I have to say that today’s left me a bit confused (the Guide Pricing article last Thursday). You laid out your working for true value, if applying it to De Bruyne’s for example, I’d say he’d do well to get £2 in match day divs over the next year but being more optimistic we could use £2.50.
That would make true value £7.50 using a 33% target yield but then discounting for age would be 40% off as he’s 28-30, this gives a true value for De Bruyne at £4.50. I know he has a bit of media but it’s very minimal. Of course it’s not exact science but I’m wondering how you think he is good value as you’ve said in some scouting articles I think when your valuing method would suggest he isn’t?
A: Great question and I think it perfectly illustrates the thought process of how these “True Value” and “Market Value” prices can be used in practice.
It is tricky and whilst these are good ball park guides, applying them to individuals requires a lot of thought and that’s why “when to sell?” is one of the hardest things to master.
I think with De Bruyne as he is particularly exceptional your estimate of £2 returns or £2.50 if lucky over 12 months is reasonable. So that would be a true value of £7.50 raw but discounting for age you’d call his true value £4.50 (I reduce by 40% at 28-30 to account for age – that’s just my estimate not a law and if you wanted to make it 35% or 45% it’s not that important).
So technically, you would say that De Bruyne at £6+ is significantly over his true value based on a rational dividend return in this dividend structure (not factoring in that dividends may, and probably will, increase later).
However, I have also said for months now that I think he is a good trade regardless, certainly since he dipped towards £4.60 in March/April which is still above true value even then.
Inconsistent. But not really. Because this is where we need to use Market Value to help us – sticking to True Value alone can be too rigid.
This one goes back to the point about if you are good enough you are young enough.
He is always going to have that drag on him for age but if he keeps winning consistently – people won’t care so much.
Technically speaking De Bruyne is already overvalued in true value terms.
But realistically speaking, I think his Market Value is reasonable provided he keeps winning because people are greedy for short term wins and actually not that forward thinking – almost nobody is planning to hold De Bruyne for a full 3 years. They are more worried about whether he will win next week and for the rest of this season.
And according to my Scouting – there is no reason he cannot keep winning so I’d still be happy with this trade. Although much less happy at £6+ than I was at £4+ but I think he can still carry that for a time.
The discrepancy you are correctly identifying is why I’ve offered up two different methods of valuation. I like to be aware of true value and not get too far away from it – but I don’t always rigidly stick to it and it would not be optimal to do so because most people don’t even know what it is!
If people are willing to overpay then we can oblige them – and it’s all the factors ahead in the next 6-12 months that can keep people in trades beyond a strict rational value. Given De Bruyne isn’t a million years away from rational value, and he is likely to win and keep people interested, I would be happy with this.
But the whole point in setting down these markers is to make sure we keep questioning these things along the way. We should not use True Value or Market Value as an automatic tool where we say “ok – he’s hit rational value, must sell!”. It’s never that simple and it depends on a lot of factors.
Market Value thinking here helped me identify that whilst £4+ was a lot for De Bruyne in May/April – I still thought people would be willing to pay more when he showed his strength, which he did and he is now £6+.
Where True Value helps us is that unlike the majority – we know he is really overvalued. And we also know that most will not be planning to hold for the full 3 years. So, whilst this may be a good year to juice what we can out of De Bruyne… will we want to push that into next season if he holds this price? Maybe not. Unless there is another big boost to dividends.
But by keeping true value in mind – I think we’ll have a better shot than most of being amongst the first to get out of the trade with a profit with a clutch of dividends and before any period of decline sets in. But that may not be until towards the season end.
Whilst True Value is important here, had we stuck too rigidly to True Value and not considered Market Value – we’d never have enjoyed the rise from £4 > £6 plus the dividends along the way.