A much more positive market that is looking healthier and more settled than at any time since the Matching Engine was introduced.
Superb.
Let’s really focus today on the football and the trading, as it should be. We want to have a really clear idea in mind of what is happening in February and what the strategy options are.
Today I have 4 “Key Takeaways” on what to do for optimal results in the current market, as I see them.
I will also cover this “Share Issuance” topic which is occupying a lot of social media chatter at the moment. But we don’t want to get too distracted by this – complicated topics have a way of taking our eye off of what really matters.
On the market, as expected, the premium and core players are powering on, particularly when they demonstrate strength on a match day. We definitely want to stay involved with that.
Many of these we will want to hold – it is the CL/Europa knockouts where a lot of these players really come into their own.
But in some cases, particularly where a player is nearing his True Value, we may want to consider trading them in for other good players who have not yet had a rise.
Diligent Scouting is really helping with this and the hard work is paying off. At times in 2020 it felt like a struggle – I could spot a winner coming in Scouting but the reward might seem feeble as nobody was buying anyway! Not anymore.
Winners are being rewarded, particularly those who have attractive trend profiles. Hudson-Odoi is a great example from this week.
We’re really able to take advantage of overly pessimistic traders in this market who are still selling good players cheaply – yet we know from studying the match data that they are likely to win and have strong long term value.
Here are some January winners with favourable Scouting reviews that I shared on Twitter. And in the last two days you could add Sancho and Salah to that list. I didn’t include the obvious like Messi or De Bruyne. And somehow Luis Alberto didn’t make it onto the graphic either though he should have.
Many of these were available for rock bottom before the win and really jumped in price afterwards.
Strategy Summary
The full detail and discussion is below but some members have asked for a Summary at the top, so I’m happy to try this out!
1. Consider selling or reducing holdings in premiums if the portfolio is too heavily stacked in this direction or the players are close to their True Value.
2. Make sure we have strong selections of CL/Europa involved players who are in form as per Scouting.
3. If we are satisfied that we have this Core area covered, we could then branch out into a few ineligible league picks, or longer term youth.
4. I would suggest an optimal portfolio looks something like this for the weeks ahead:
- 30-50 players.
- 10-20% total portfolio value in the Premiums
- 60-70% total portfolio value in Core i.e high performance strength and competitive for wins, ideally with CL and Europa, Euro 2020 a nice bonus.
- 10-20% total portfolio value in longer term youth in or out of ineligible leagues.
Market Analysis and Strategy
This market looks healthier than it has for a long time.
Not just for the obvious Blue Button price rises which are so crucial for the feel good factor.
The key indicator for me has always been the spreads, the difference between Red and Blue Buttons. And spreads are looking reasonable if not perfect.
The most expensive 30 or so players are enjoying around 10% spreads which is a very reasonable cost of doing business if we want to trade. Certainly given the massive profits currently on the table.
Outside of the top 30 it can start to widen considerably and whilst some in the top 200 will have a 5-10% spread you can often find the spread at 15-25%.
25%, given the huge profits available can be an acceptable price of getting out of a trade we are unhappy with. But only just. Accepting a spread wider than that usually means we’ve really lost faith in the player.
The next phase of a market recovery will need to see the money trickle down a bit to the £1-2 range. Once the top 200 are mainly enjoying 5% to15% spreads that is when we will know we are really in business.
Key Takeaway 1: At this point, consider the Premiums (top 10?) if holding them.
They might stall as people seek value further down the market.
If I had a portfolio heavily skewed towards the premium end of the market I would reduce holdings and feed that to the Core players in the £1-3 range.
I would be particularly likely to do this if that player is reaching his realistic price ceiling like Kimmich/TAA. These are not bad picks but they will not deliver optimal results from here.
I’d be less inclined to drastic action with a Bruno/Sancho as the price ceiling is higher. I would be content with a holding of maybe 2.5% to 5% total Portfolio Value in a Bruno/Sancho, but I would not want to overly weight my portfolio towards Premiums at this stage. That was good, 1-2 weeks ago, it’s less good now.
Back to the spreads, let us remember that lots of players in the top 200 are left over pumps from days where traders were a lot less cautious. Some of them are unsuitable for FI and do not deserve a tight spread or a high price. They will drop out of the top 200 eventually, to be replaced by players that do have confidence behind them.
The rising tide will not lift all boats. Only those that deserve it. Mostly that will be players who have real value. A handful of the garbage ones will be lucky to get on the right side of a pump but we shouldn’t bet on it.
Key Takeaway 2: One of the toughest challenges we have right now is deciding which players languishing at low prices really are no hopers that need to be sold, even for a major hit, and which are good players that have a strong chance of rising again within 3-6 months.
If a player is really off the pace in Scouting and it is not just temporary, we should probably drop them even for a big hit and redirect that money.
One particularly depressing area is the “ineligible league” end of the market. If you have a good player here at rock bottom with no sell price – it may be worth holding out until the build up to Summer.
Ineligible league players will have their day – we just need to make sure the reason we bought them is still intact. Look up the transfer prospects and some recent performances, is their career still on course to land them at a major club?
I’ll run an article on this before long. But I would suggest just having at least a quick google around on a player like this you may be holding.
Key Takeaway 3: IPD players. Another depressing area for obvious reasons. In some cases people have gone overly negative on “IPD players” who remain well in contention for wins due to explosive goalscoring potential. I’ve highlighted plenty of these in Scouting this week.
Not only should we resist selling such players too cheaply, we may want to exploit this over negativity to bag someone like Lewandowski on the cheap ahead of a potentially lucrative CL campaign. Many examples in Scouting recently, André Silva is another.
As I’ve said since the announcement on IPD, some IPD players really are dead. If they are out of the Europa/CL, and aren’t scoring regularly enough to get in contention they may want to be ditched at any price.
Someone like Lukaku can get away with it because he can win at Inter and it won’t be long before Euro 2020 and another season with Inter in the Europa/CL is around the corner. Not all of them have those factors.
Key Takeaway 4: Good Scouting is going to be bring us the best profits from here. Target those challenging strongly for dividends in the under £2.50 price range, ideally with favourable CL/Europa fixtures on the way.
If we are freeing up money at the premium end, and from dropping any remaining players we have lost confidence in, I would recommend pushing this towards players in the under £2.50 range from here out.
You could make some exceptions where warranted. Rashford. Kane. Sterling. De Bruyne. Good reasons to pick these up as covered in Scouting even at £3.50 or so. But ideally we want players who are capable of rising 20%-100% in just one decent performance.
As we have seen recently with players like Hudson-Odoi, Cancelo, Saka, TAA (when he was cheap!), Stones, Mahrez, Maguire, Muller – just one win for these players can bring massive percentage profits, far in excess of what a win for a premium can deliver.
The major on pitch event is going to be the restart of the CL/Europa from mid-February onwards.
Hopefully, we’ve already got a good chunk of the strongest players onboard in preparation for that. We must not forget how powerful the CL/Europa is just because it’s been away for a while.
Not only are these players competing to take part in Gold Nights from the QF onwards where the odds of them winning are vastly increased (since there is less competition).
The European scoring modifier effectively stitches up both Team of the Month and Match Day Extra for players taking part in these games.
Players who hit form in February/March, particularly if they have favourable trend profiles, could absolutely rocket. We’ve been able to double value or get 25-50% price increases in many cases this month.
Someone like Hakan or Theo at AC Milan. Saka. Pellegrini at Roma. Goretzka or Gnabry at Bayern. Ousmané Dembelé at Barcelona. Dybala at Juventus. Mahrez, Zinchenko, Sterling or Cancelo at City. Insigne at Napoli. Son at Tottenham.
Scouting is full of players looking strong who can easily triumph on these big nights. With many of them available on cheap bids – I would not get too distracted fishing too far down in the bargain basement just yet.
It is exactly the right time to hold a lot of strong CL/Europa players particularly when they have favourable fixtures.
We want a good selection of them on our side, we don’t want to be chasing them after they put up likely big scores. It’s possible to see it coming using Scouting so we should use this information.
When making new buys this month, I would put a heavy bent towards such players as they are at extreme value prices in many cases.
There is only so much money in the market and these players are much more likely to steal the show this month. Areas of the market like ineligible league players will have their day and having a few of better ones like Ihattaren, Tsygankov, Malen is no bad thing at all if picked up cheaply.
But I would focus on the Core players at value with CL/Europa fixtures this month.
Member Question: Share Issuance
“Hi there, hope all is well. I have seen a lot of confusion about share issuance, but I just cant seem to wrap my head around it. Looking at the comments people seem to be happy with FI latest reply. Would it be possible to add a small section about this in SOTM or simply just a reply back? (Doubt it’ll be as easy as it sounds!)”
This is a complicated topic and my top line would be that it is worth understanding the basics: but do not worry about this too much.
In particular, do not think that come the 20th when this starts happening that it is going to have a massive immediate impact and benefit this player or that player. It won’t. Not unless social media can convince enough people to make it a self fulfilling prophecy.
The things that have the biggest impact this month are almost certainly going to be football related, as discussed above.
As a quick recap, from the 20th February, FI can in theory issue up to 30,000 shares in a player in a 30 day period.
That sounds a lot, but this is the limit of their power, what they actually should mint if being responsible is probably a much smaller number.
And note this can be done at any price, not just the All Time High.
If Curtis Jones has a breakout game next week, and FI decide they want to sell some shares for £2 on the way up, they can even though he is below his ATH.
If Kimmich has a 3 game winning streak and breaches £8, again, FI can mint some shares there too.
They want to do this because they will make some money. And there is nothing wrong with that, in principle. As traders we want them to make money and remain a financially sound company so they can pay us healthy dividends.
Where it becomes a problem is if FI do it too much, increasing the supply of shares in a way that makes price rises too hard to achieve, and robs traders of too many opportunities to sell.
In the announcement language, FI were at pains to point out they would do this responsibly. And as I said at the time, I believe they will try to do that because it is entirely in their interest.
If done perfectly, FI’s minting will amount to them nibbling at the edges and will fade into the background. If it becomes obvious that FI are pumping out too many shares, that will reflect poorly on them and upset traders.
So, we should not fear it, and we should be content with them making some cash. But we should keep an eye out and if they are abusing this power it will become clear and they will take some flack for it.
But I suspect they are well aware of the responsibility they have as well as the opportunity, based on their language.
Exactly how this is used will be a big learning curve for both us as traders and FI. Minting is nothing new, but it is the first time minting has been so visible. And it is the first time FI have seriously committed to taking a role in judging projected yields, market sentiment and stability. At least when it comes to buying, anyway.
In essence, FI now need to have a copy of me sat in FI towers working out how many shares the market can really support in each player.
That is not an easy job, and it is particularly hard for them because whilst I can and will change my mind when the facts change, once shares are minted that is it and there is currently no obvious way for FI to burn any.
It’s difficult. I am sure FI will make some mistakes and mint too many shares in some cases and that could cause problems. But I do not think they are so naive as to just start printing shares endlessly for a quick buck – they know how sensitive this is.
My advice to them would be to start very slow, if they get it wrong, they want to get it wrong by minting too few shares rather than too many at this stage. Later, as the market strengthens, they may be able to cash in a bit more without us noticing. But things are delicate at the moment, and probably will be for much of 2021.
Whenever something complicated happens, it often gets people in a spin because all that uncertainty leaves plenty of room for rumours to start. “It will be good for premiums”. “It will be bad for players at an ATH because…” And we could go on.
But we do not know how FI will use this exactly so we cannot make such statements.
It is overwhelmingly likely that the thing that impacts prices over the coming month is going to be the same as always – performances, player trend profiles, and trader sentiment.
FI have been minting shares for years already. And I think they are aware that if they rolled up on the 20th and put up massive walls of offers traders would flip their lid. They’ve only just settled people down – they won’t want to throw another hand grenade in the mix.
I suspect the biggest thing pushing prices around on February 20th will be the fixtures on that Gold Day, same as always.
It is pretty foolish to bet heavily on assumptions of what FI may or may not do on the 20th. Stick to the value, stick to the football. Ultimately, that is what drives prices on this platform.
Final Thought
Remember when I said that once we see some green numbers we’ll find that memories are very short?
We are seeing that now.
On social media, lots of the negativity, talk of FI incompetence and betrayal has very quickly evaporated. The “Why I’m leaving FI” threads are rapidly replaced by “Why I’m coming back to FI”.
Memories are very short. All the troubles and difficulties of the last 8-10 months can very quickly be swept away if the market continues in a positive direction.
Yet, we still have a smaller market than we did. FI will have lost users. And many of them will never come back having been burned, particularly if they were following short termist strategies. Some will, but they might need more than two weeks of green numbers to be convinced. And new traders looking at recent discussion and market volatility will think twice too.
So, whilst those of us who have stuck it out can enjoy rebounds in existing holds and do some shopping for superb value, it may still be some time before we see major cash injections that provide really tight spreads and higher prices across the board. It could take 6-12 months of relative calm and stability for this to happen.
But of course, we won’t have to wait that long to make any money, if we are trading effectively! That is very possible even now.
If we do see a wider and sustained recovery though, I think we may look back on the last 12 months as a positive, in a very odd way.
FI will have been tested. In 5 years it’s never really had a serious crash or major problems. Since day 1, we have always been discussing and questioning the business model and viability of FI. It’s a novel concept, of course we did.
But if FI really was unstable, or the mangement were not committed, it is times like 2020 where it would have fallen over. Yet, it didn’t.
If FI can prove it can withstand it’s first major crash and bounce back it will give massive confidence to traders going forward.
In this last month, we’ve seen a return to great analysis being very obviously rewarded.
I have definitely been able to get some big wins from Scouting in this past month, and from member feedback I know many of you have too which is great to hear.
If we can understand the platform changes like share issuance, but not get too distracted by them, we’ll be in a strong position to use good analysis of match data and our market knowledge to do really well in the coming weeks and months.