Issue 002 | Transfer Window, Winter Break & Volatile Youngsters

We’re back again! Hope you all enjoyed the first issue a couple weeks back. This time around, the topics are similar….but it’s not our fault, this is what the Index community is talking about! I’m joined as usual by my two talented co-authors, Liam and FI Trader

Paul Pogba and Manchester United

Liam

As a United fan, it’s been a rollercoaster ride of a month and for their players on the index, it’s been a similar time. The power of sentiment has once again proved critical, especially in the case of Paul Pogba.

On the news of United sacking, pogba fell as low as £11.50, which was, at the time, a reasonable fall, having seen his future potential dividends cut pretty dramatically compared to what he was producing up to that point. Naturally, those who held defended this with their lives, but it is true. Those who bought at £12+ in the months prior were not buying for performance buzz or for him being a big personality on social media, because if that was the case they’d of bought much earlier, they were buying because of the José feud and the fact the papers were fixated on it. So when that stops, it’s inevitable that some of those who bought for that reason are going to want to sell. Anything further than that was just an amplified effect of this reason caused by panicking and confusion brought about by the number of differing opinions on both sides being thrown around as if they were the god’s honest truth about what was going to happen next when in reality no one really knew.

What did happen next was one of those footballing turns of events that are just so typical, that you really couldn’t make up. As his media began to dry up, United went out and breezed past Cardiff, playing arguably the most positive football since Sir Alex departed, which resulted in rises across the board for the star players. Then the next game vs Huddersfield really saw Pogba turn it on, netting twice and winning star player with a score of 305 as well as take home the media dividends. Once again, sentiment changed, people began to consider, what if he’s a reborn player? Is he going to start producing these brilliant scores every week? These questions turned into investments and his price began to climb again. The craziest part came when the Bournemouth game came around and he did it all over again, another astonishing score of 297 helped him sweep up the dividends and saw him hit new highs of £16.50+.

The question is what happens next? Of course, we can’t be sure, but one thing to note is that Pogba price is one of the most correlated to dividend return on the platform and ultimately it will now come down to his performances. He’s going to need to do something special in games to win media and performance from now on and although he may pick up the odd 5p for a haircut here and there, that won’t be enough to keep him at that price. It’s not out of the question though, should United’s form continue, he’ll likely be at the centre of it somehow.

If I can take a minute to plug the Index though, this is a great example of why this platform is so great. Prices move for so many reasons, many of which you won’t of even considered or we’re in the picture when you bought the player. That’s what I love about it, the amount of luck and accidental profit you can make in cases like this are great, I’m sure many will claim they knew he was going to be great for performance once Jose was gone but if you’d of asked them to back him scoring four goals in two games I don’t think you’d of got much money out of them! The main thing is though, its profit, it’s more dividends being paid out and it’s more money going back into the platform. Did someone say onwards and upwards?

FI Trader

Pogba single handedly moved the Football Index market in December. After the first game under Solskjaer, I highlighted Pogba’s encouraging underlying stats on the Daily post on my site. They suggested he could start adding performance wins to his already very strong media dividends.

It didn’t take long for that to happen and he managed two braces back to back in the next games to set the market on fire. Traders were falling over themselves to sell other players to meet Pogba’s premium price tag.

Since then, his stats have stayed consistent and he should be a regular winner as long as United continue playing attacking football and do not run out of steam. However, he is not going to be scoring two every week so holders should not carry these expectations.

The price has soared and a drop does often follow a sharp rise. I think the next couple of weeks could be a tricky period for him as shinier January transfer targets and returning winter break performance players put pressure on traders to free up funds yet again.

Up next is a tricky away game at Tottenham where he will not be allowed to dominate the game in the same way, and it won’t take much for a few traders to get frustrated.

However, the huge spread means that for long term holders, you might as well just ride this out. I think he will remain one of the biggest dividend returners on the Index for a long time.

Personally, I bought Pogba after the World Cup at £6 and sold at £14, once Mourinho lost that West Ham game in October and things looked dicey. I chose not to go back in when Mourinho was sacked but instead went for other Manchester United targets.

I focus on capital appreciation, so holding big premiums is not part of my strategy right now. However, there will come a time when capital appreciation is harder to find and dividends become more important, so I expect to pick up Pogba at some point in 2019. Perhaps when he gets injured, loses form, or people sell to pick up a new flavour of the month.

FIG

This astronomical rise from Pogba has been nothing short of breathtaking. From about £11.50 to £16.50, about £700,000 went into him in that period (guesstimate).

As discussed on the pod, if you take the average dividend return from the last 5 rolling 12 month periods, it’s £3.95- which is a sensational return. It’s almost 25% of his current price, which is also nothing to be sniffed at.

What happens in the future though? Is this sustainable? Well, it completely depends on his dividend returns going forward- whether that be performance related or media related. One thing I will say is that perhaps, these two things are more correlated than ever. His on the pitch actions have suddenly become more important than ever, not only because he appears to suddenly be a PB returner- but because journalists are suddenly writing about how good he is on the pitch. Considering how happy he now looks, I think it’s fair to say that there will be fewer articles about him wanting to leave United. Similarly, there’s no feud now with the manager. He and OGS seem to get along, and therefore that is no longer present. On the other hand, OGS seems to love him on and off the pitch- which means that those ‘positive’ sentiment articles should score well MB wise.

I think his price will be dictated by perfomances on the pitch, and judging by their fixtures between now and the end of the season, where United play only 2 of the top 6 away from home- it wouldn’t surprise me if he returns a fair whack above that £3.95 average for this next 5/6 months! He definitely has a lot of momentum behind him in terms of market sentiment- but I think traders need to be wary more than ever of perfomances on the pitch. There’s also the fact that United could have a new manager in the summer. Could that play a part in his and future United player prices? Only time can tell!

Transfers

Liam

Transfer windows are always an interesting and volatile time on the index, with lots of chances to make or lose a sizeable amount pretty quickly. This January’s been pretty quiet so far in comparison to last year but we’ve seen a few movements. The potential Chelsea striker profile seems to be a popular one, with Higuain and Cavani already seeing a couple of spikes. Higuain, in particular, has been a good example of a typical trend. His price has been up and down several times already, and it’s a good example of why it’s key not to panic if nothing concrete has been said, the rumours he’s not coming have as much substance as the ones saying he is coming and you just know that it’ll be recycled back into the news in a couple of days and he’ll rise again.

On the flip side though, if a player has risen a lot for a move and it doesn’t go through then it can be best to get out of that position as quickly as possible. We can see a similar scenario if a deal is done quickly and there’s no time for the media to rumble on about it, which we saw happen with Pulisic after it was announced he’d be playing for Chelsea next year.

FI Trader

We have already seen the highs and lows transfer speculation stories can offer. Lozano, Solanke, Higuain, Ramsey and Pulisic to name a few have all flown high only to crash and burn.

With FI’s “Try January” offer now on, this is only going to get more crazy as plenty of new traders have fun throwing £500 around with nothing to lose! (Welcome to any new traders!).

All I have to say about this is play smart, don’t be greedy and don’t hang in the trade too long chasing that last dividend or that little bit more price increase.

You are always just one news flash away from the value tanking. So, if you have made a nice profit speculating on a transfer, be happy to bank and take the win.

Almost all players rising for a transfer story are going to tank back down again. The only ones people may stick in for is a very big transfer of a dividend friendly player incoming to a big EPL club, perhaps a player on the level of Fekir, Werner or Nicolas Pepe.

For anything less than sensational, take your profit and get the hell out.

FIG

I love transfer windows. I really, really do.

I want to highlight two things that I think will cause massive amounts of money to shift in the market.

The first, is Chelsea’s hunt for a number 9. Giroud is aging, on the decline and has 18 months left on his deal whilst Morata…..well he’s just not up to scratch it seems. Therefore, one of the big moves in terms of both in the market and transfer wise is going to be Chelsea going for a headline number 9.

The other, is centre backs. Inter Milan, Juventus, Manchester United, Arsenal, Chelsea, Spurs, Madrid, Bayern Munich all seem to be in for centre backs. It reminds me slightly of June 2016, where Arsenal, Chelsea and United all needed a number 9 (where we saw Lacazette, Morata & Lukaku move for big fees) and I think January and indeed summer 2019 will see many centre backs rise. What you have to do as a trader is 1) figure out who’s most likely to leave this window and 2) after the window, buy those who you think could move on but can also be capable of returning PB wise!

Don’t be greedy, and also don’t be annoyed if you sell someone and they rise. Also, don’t give in to FOMO! If you don’t know what FOMO is or how to avoid it, here’s a video I made a while back that could help. So that’s my 2cents RE: the window, and I wish everyone the best of luck in it!

Volatile Youngsters

Liam

FA cup weekend was always going to be one for the youngsters, and a few of them saw some pretty sizeable movement over the weekend.

The highly anticipated appearance of United’s Tahith Chong finally arrive but left quite the sour taste in some traders mouths. The first part was so predictable, he makes the squad, his price goes up, he comes on as a sub, his price goes up. The next part wasn’t so expected, falling from highs of £4.06 down to £3.16 by the end of Saturday.

I think this was down to a few things, firstly, there were more people than usual involved in the buying of youngsters, because of the hype around him being in the squad, I can imagine there were many, like myself, that bought with no intention of keeping past the final whistle, which exaggerated the rise and fall of his price.

Secondly, I think this first fall started to get people thinking “why do I own him?” This is the problem with players that have no dividend backing, they’re so sentiment based that if sentiment changes, it’s easy for your own view to change very quickly. The other part of this is, if you were holding him, what is there to come to that will now boost his price (ie make you some money) in the near-ish future? He’s been in the squad, he’s made his debut and although it wasn’t a terrible cameo appearance, it was clear there is still a lot to learn and nerves to conquer before he gets anywhere near regular playing time. So what is next to make his price rise, would another sub appearance still cause a rise after what happened to his price when he played Saturday? And if so when will that appearance be, the next round? The fact there’s so many question marks around a player who’s more highly priced than many regulars in his own team, or some of the best in his position around the world makes it look a little more clear why a bit of pressure can crack some holders.

Looking at the bigger picture, does that mean the youth bubble is bursting? I’m not sure, but that’ll certainly get some people thinking. Especially about those ones further up the Index that aren’t getting game time. Will a similar thing happen to Greenwood if he makes an appearance and doesn’t score, for example? It’s all unknown and I’m not saying he will or won’t go up, the same as I’m not saying young players are all going to zero, but I just feel this may have dented the view that young players only go up, you don’t have to sell and it doesn’t matter if they don’t play mentality.

FI Trader

Tahith Chong will be the one on everyone’s mind this weekend but the massive bias towards youth has been going on throughout 2018 and goes well beyond just him.

Nobody wants to miss out on the next global star, right? But we have market positions that are fundamentally unsustainable because right now, the market assumes that every 17+ year old midfield or forward player with a pulse is going to become Ronaldo or Messi. They aren’t.

Perhaps 1 in 10 promising young stars will make it to a big club, win a first team spot and then prove themselves to be dividend suitable. Actually, 1 in 10 is probably quite generous.

The vast majority will end up transferring to lesser clubs or the lower leagues where they will become irrelevant to the Index and have next to zero value.

In a way, the absolute worst thing that can happen to some of these players is to get some first team action! On the pitch you can see that they have a long way to go and nothing kills hype like reality.

However, there *should* be a price bias towards young players. Whilst most will not become a global star, some have a chance to and that is worth something until it is proven wrong.

We need to be well aware of the risk though. A 16–21 year old player is a high risk asset in exactly the same way that a 29+ player is. Both types of player carry a big risk of disappearing into obscurity and going to near zero real value. The Index just hasn’t been around long enough for us to see the first of the hyped youngsters really flop yet.

The bias for young players is too strong, and the bias against older players who can often have 2 years or more left at the top is too harsh and I would expect that to correct over time.

So is it stupid to pursue these hype players? It’s certainly controversial and those who advocate these kinds of trades do often get looked down on as idiots. But it depends on how you are approaching this style of trade.

To make the serious profits without the silly risks we have to be getting on the player very early, well before any major media outlets are pushing the youngster. If you are reading about them about to make their debut in the paper, it is way too late.

As long as we are aware of the risks young players carry, and have every intention of making our exit once the hype starts peaking, I think this is solid strategy and I do this all the time.

If however we are buying into unproven youngsters at £4–5+ in the hope of them heading towards £8- 9 and beyond, my personal opinion is that this is pure lunacy.

Sure, it has worked in recent times in some cases (not all!) but those prices are supported entirely by speculation. It is very easy for these trends to shift and it only takes a few disappointments (i.e Chong) for traders to start looking around and wondering which similar player is next on the chopping block.

In my mind, there is just no sense in carrying those risks in my portfolio. The lion’s share of the profits are available in the £1 to £5 range with significantly lower risk attached. And all it costs you is a bit more effort.

FIG

The reason why many of these youngsters fly is because we haven’t really seen that many burst properly and do a Freddy Adu or Kiko Macheda. Maybe when we see one of these on the Index, finally the bubble will burst? I always encourage people to buy youngsters who actually play, and some of the rises in Chukwueze, Zaniolo, Havertz, Aouar, Bentancur make more sense to me because they’re playing- and even if they don’t win dividends regularly, at least they have the chance. The danger is when there’s players who rise ridiculous amounts with very little chance of divis. For me, this is a bubble within a bubble. New users come on to the platform and unknowingly buy players they think will be good in the ‘future’, akin to the name of owning a ‘share’ on FI. Experienced traders don’t just sit there though, this is an opportunity to profit right? Fill your boots up with some youngsters, and wait for new users to flood in seems to be a worryingly sustainable tactic. With Chong however, we saw how crazy the hype was. A near £1 is absolutely insane, but as Liam quite rightly says- when sentiment turns, so can the tap- the tap being new money coming into this player that has no dividend backing, and no mid term future dividend potential. That tap turns off, and the price plummets. When you have a bubble, within a bubble- it means when the first one bursts- the second bursts twice as quickly.

Research, Resources, Tools & Tips:

• Get French Football did a good top 100 players of 2018 in Ligue 1
• UEFA did a Top 50 players to watch in 2019
• Over on my other podcast the State of Play, we did a Top 10 u23 players to watch in 2019!

Content, Reading & More:

• Ep 62 is now out with FI CEO Adam Cole, CMO Mike Bohan and Product Lead Ciaran Rowan!
• Ep 63: I was joined by Dan and Stewart, the founders of IndexGain. A little plug for myself, you can use the discount code ‘FIG’ at checkout if you’d like 10% off!
• Ep 64: Joined by FI Futures trader, a 100k portfolio man who just loves disruptive products!
• I made this video outlining 5 more top Football Index tips!
• Football Index agree advertising partnership with Notts County! Read the article here
• Check out this awesome Interview I curated with EJ, who has the largest portfolio on FI!
• Trader challenge 19 from our very own FI Trader
• Mike Bohan (FI CMO) was on TalkSport today! Check it out here and go to 12.30–13.00. It starts at around 12.35ish! Enjoy.

I’m really enjoying curating this content on Medium, it’s far more robust than Mailchimp! Although it means it doesn’t fall straight into your laps, I hope you can appreciate that the content is better, if not just from an aesthetic standpoint! Thanks so much for reading! More for you in a fortnight.

Have a great couple weeks trading.