Time for this week’s State of the Market which will not wait for the Q+A that never was for a second time.
I am sure we will see the Q+A this week (or FI will face yet more social media wrath) and I will be there with a Live Blog to cover it assuming I catch it and being a sad act in lockdown I am here almost all of the time. But not having an actual date and time set for the Q+A causes us all a headache.
I don’t want to dwell on the self inflicted wound of the cancelled Q+A. I was actually quite annoyed about that one, not because of the Q+A, who cares if we wait another week? But leaving it right until the last minute to cancel with people putting Friday night plans on hold and what not… it just felt wrong.
As if they were waiting for something that they wanted to announce to happen but it didn’t quite make it over the line so they chose to dodge it instead under the veil of there being “too many questions”. Just delay the Q+A early if you are going to and nobody would have minded so much.
Anyway. Enough of that – it is history and the important thing is the actual content of said Q+A when it comes.
We are also seeing some renewed positivity on the market and perhaps I’ll cover that more in the Live Blog.
Today I think it is most useful to focus on the big change to match day trading – the altered dividend deadline. How has this changed trader behaviour, and should it change the way we trade?
Impact of the Shifting Deadline
Moving the match day deadline to the end of the day is a thorny topic and has it’s passionate advocates and fierce critics.
To some, being able to buy a win after the win is just fundamentally unsportsmanlike and against the British sense of fair play. I feel a bit like that too. This is something that will probably never sit entirely right with a good section of the community.
But if it did genuinely improve the match day experience and got the market moving, you can see why it would be attractive and it might win over the sceptics.
Overall I started from “neutral” on this. The market has so far to grow based on rational prices that if confidence returned then whether the dividend deadline was before or after kick off wouldn’t matter so much. It will matter more when things are tight and value is difficult to come by. But we are some way off that.
On first impression – since the deadline was moved to the end of the day match day trading has been livelier and there have been big price spikes for winners which is good. So far, it seems popular.
But observing the price movements afterwards I started to worry a little as my instinct started telling me this:
In this environment the rational trader seeking optimal results should sell pretty much every time their player wins. Whether they want to buy back later or not.
Thing is – how people use this new system in the first week is not how they will use it a month from now. People will adapt, learn, and change their behaviour to try to get an edge.
It is important therefore that this trial is fairly long so that we really see how it changes behaviour over time. With the trial ending on Thursday – there is absolutely no way that FI will have enough idea of how this will really change behaviour going forward. None. Zip. Nada.
It really needs to be longer if you are serious about observing how it pans out.
What we can do though is make observations on the incentives it is providing. A lot of my thinking around the market is driven by Game Theory. I believe that people can generally be trusted to make the choice that appears the most optimal for them.
So, this morning I decided to have a poke around in the numbers to see if my instinct was right, or whether I was just crazy.
What exactly has the trial period taught traders about what actions are in their best interests? And therefore how might they adapt to the new deadline over time as they seek out optimal results?
Most importantly, how should we be using this new deadline to increase our profits?
Holders and Chasers
For this little study, I’ve selected a sample of 6 winners from this week and then observed the net profit/loss that results from the 3 most common match day actions:
– Sell fast once the player looks like winning and spikes in price, not waiting for dividends;
– Collect the dividends, then sell in the morning;
– Collect the dividends, then remain a holder until today.
I have done this from the perspective of both:
– the existing Holder, assuming they bought 7 days prior to the win on a bid and;
– the “Chaser” who bought quickly on the Blue Button during the price spike as the player looked like winning on the day.
For disclosure, this is an imperfect study as:
– It relies on imperfect data, since the data we are given on exact buy/sell prices particularly bid prices is poor from FI, and even the red button sticker price usually does not show the price you really pay.
– Chasers can pay a range of prices depending on how fast they are – I have assumed our Chaser is in the middle of the pack and gets a price about halfway between the low and the high of the spike that day. They may be faster than that and get a better result, they may be slower and get a worse one.
– Profits/losses do not include commission, so a mild profit is probably an actual loss.
– It’s only 6 players in a small sample size during the trial (and the trial in general is far too short to really be conclusive).
– People will get significantly different actual results because of variance in personal buy/sell price that I can’t account for.
However all that said, I’d be confident that the general thrust of this is right even if the individual numbers themselves might wobble a bit if you poke them too much.
What does this tell us?
Some stark results here. The headlines:
Whether you are holding or chasing, selling on the win assuming you can sell on a blue button offer somewhere near it’s peak to chasers who want to buy quickly is currently the overwhelmingly optimal choice and it is not even close.
In fact, in this admittedly small sample size, our Holder who sells on the day of the win has a chance to make 50% more profit on average than the holder waiting for their dividends. In reality the holder will not always get optimal prices and it may be more like 20%-40%. But that is a lot of wiggle room. This suggests that in current market dynamics, we should be disloyal to our boys.
Being a Chaser is almost always a losing hand unless you are amongst the very first to buy the player once they look likely to win and are swift to sell to the bad Chasers coming in those seconds or minutes later.
Even for the Chasers who are quickest to the button, this is something of a lottery with a wide range of possible results depending on the buy and sell price you can get. It can go very well, or very badly.
If we want to Chase – do it right. Good Chasers require strong analysis and prediction skills to monitor the games and have a good idea of who can emerge at the top of the leaderboard – a good Chaser will take an early punt when the big score is quite likely but before the big score becomes very obvious to Average Joe.
Do not just rely on having “the fastest finger” as your way of making a profit. This is a mug’s game. Chasing is often attractive to bad traders as it sounds easy – just click on the ones who are winning first right? Stats are for nerds! No. Good chasing is hard and requires skill and a lot of time and effort.
Chasing and then actually holding for the dividend results in generally bad outcomes. Particularly if you sell the next day or the week after. The only reason you might want to do this is if you really believe in the long term potential of the player and think you will catch up later. Even then, if you want a winner you do not hold – it is probably better to avoid chasing on the day and buy the next day on a cheap bid.
Holding a winner before they win is a winning hand. Always. No matter what the holder did in the week after they are up in every case. Selling into the win and ignoring the dividend has been overwhelmingly optimal. But holding a winner before the win is extremely likely to result in a profit no matter what over this time frame.
The more unpopular your winner is before the win, the better your results. Note that humble Azpilicueta’s win is worth up to 5x what Sancho’s win is in real profit. (And yet which did we hear about more?!). Bale’s is worth potentially 10x Sancho’s win because he came back from the dead. We should back unpopular players when there is strong evidence to support that call.
The current “meta” (i.e optimal) strategy is likely this: Predict the win. Sell into the price spike on the day, ignore the dividend. Funnel those profits back into that player again (or another very strong player) on a cheaper bid in the days that follow.
Note: Whilst this all sounds very rosey for our Holder we must bear in mind one thing. We are only talking about winners in the narrow example. Our Holder may be winning here but losing overall if he is holding too many weak players that are not winning. Death by a thousand cuts.
This is why the best results require:
1) excellent research so that we are right often enough (I like to aim for 7 or 8 successful trades out of 10) and;
2) a relatively compact portfolio ideally around 30-50 players at most times so that we profit from the wins, can manage them comfortably, and don’t spread too thinly into mediocre players that are wasting our time.
Before we completely change how we trade forever, we should consider what happens next. When people catch on to the above dynamics, how does the game change?
The above observations will probably keep working for a while. But will they forever, over weeks and months? Probably not. And here is why.
People learn. Often quite quickly if they start getting burned. The conclusions above are quite stark so I would expect the majority of people to catch on to these dynamics within weeks rather than months.
Most Chasers are currently getting a very raw end of this deal. They are losing or squeaking by, unless they are first into the likely winner consistently.
So much so that the bad ones will probably learn to stop doing it as they will get burned.
This is bad for everyone.
It is bad for holders, as they need people to chase their winners.
It is bad for good Chasers, as they need bad Chasers to hide behind and sell to quickly.
As much short term fun as abusing these people is…we all actually need our bad Chaser to win big at least sometimes. It’s what keeps them coming back. Football Index need to look after their bad traders at least a little bit. Why do you think Casino’s shower them with free food, booze and gifts? You have to keep them at the table.
I am starting to worry that the burst of optimism we have seen recently for dividend chasing will fizzle out, and we may run out of people willing to chase if they keep losing or being lumbered with players they only bought for a short term dividend.
Even worse than this would be if too many normally long term holders realise that selling on a win is the optimal move. It will lead to more odd situations like we have seen recently where winners actually fall in value.
And then people stop trusting winners and they stop getting chased down on match days.
Of course, there will be no shortage of social media screenshots of big wins on flips – they will be happening for sure. But I suspect the majority of people will be quietly losing when they do this. And if you did get that big win, how many losing flips did it take to get that one?
It used to be that players who winning on match day got rises without the need for the on the day buyer to get the dividend.
The main reason people would do that was because they believed that show of strength meant the player could win again, i.e they had long term value. These buyers are more trustworthy inherently.
But the buyer who is chasing a dividend, or currently believes that the only way he can profit is to buy on the big score then sell straight away? Not trustworthy. Holders will feel they have to join in and sell too.
And then if everyone does this? People get cagey all over again and this is why we ended up with a stagnant market for long periods because of IPD flipping and then the learned fear of it.
There should always be some of this dog eat dog behaviour going on. Always was. Always will be. It’s actually healthy to have short term traders nibbling at the edges of the match day trading. But if this becomes the dominant form of trading the market stops functioning. Not everyone can be a flipper.
We need to be really careful that this new system is not teaching everyone that “selling into the win” is the optimal strategy. Because we have just endured a lot of pain (removing IPD) to get away from that.
In the short term, particularly if FI extend this trial or even make it permanent, we should probably adapt and start using some of the above tactics to our advantage, including being a bit more active in our match day selling at peak if we can, then funnelling profits into cheap bids.
Regrettable state of affairs though it may be – if we do get a very large price spike on a match day for a player and can sell for a strong Offer it is likely in our interest to do so. We should not necessarily Instant Sell mind, unless the spread is very tight.
On Kroos for example, rather than just holding like the old days, we could have double dipped! Selling into his match day rise for £2.45 or so, potentially buying back under £2 the following day. Riding it to another win. Maybe even Triple Dipping in this case after an exceptional week for him.
There is another reason to be a little more trigger happy in our sales at the moment that is not related to the dividend deadline. We have no Fear of Fear of Missing out (FFOMO?). There are so many value options available that no player whatsoever can be called essential. We have so many good ways to use our money.
We will also want to be especially careful of chasing rises. The name of the game on this site anyway is to predict the winners rather than chase them and the February record of players reviewed positively in Scouting before the win suggests we still have the mojo that has kept the site alive for 3 years+ now:
In particular, there are very strong rewards available for those with the courage to back unpopular players when there is strong underlying evidence to do so. Bale being the most recent example. Or Azpilicueta. I’d encourage anyone to shake off this reluctance to buy unpopular players when they are looking good.
But, if the trial is extended, we should be on the lookout for signs of fatigue amongst the chasers if they are getting burned as I suspect many of them are based on observations this week.
We may start seeing this Chasing behaviour start to dwindle over time as people get burned, with fewer big reactions to big scores unless the player is very popular and people feel safe to go for it.
If the trial ends as scheduled on Thursday, we might see a more settled market and less immediately obvious buying of winners which might make it more rational to hold a winning player and collect dividends once more.
Of course, these are just my theories about how traders might start to change their behaviour based on the experiences they are currently having.
I don’t expect this article to be particularly popular. Bear in mind I haven’t been pushing for or against this change, I’m just observing how it is playing out and where it might go next.
This week has been good for match day trading and it has made the new dividend deadline look very obviously beneficial at least on the surface. The concept could therefore get a wave of popularity only for people to have very different experiences come week 4 or 5 of such a system. I may be wrong.
But there is one thing I am not wrong about – there is absolutely no way that this 10 day trial has told us how traders will use this over weeks and months of it being a permanent feature.
It would be an exceptionally lazy conclusion to say “this week’s been good, the trial has obviously worked, let’s make it permanent”. One would hope that FI are a little bit more sophisticated than that.
If they pursue this idea, I would strongly recommend a longer trial for at least a month so we can start to see how traders are really adapting to this over time.
But also. Let’s not get too distracted by it. Like I say, a healthy market on course for player prices to rebound to anything like their rational values can take any deadline in it’s stride. For now, anyway.
We look to the Q+A as the main focus to the week where we have bigger fish to fry.