This week, I got a great email from a newer trader asking for thoughts on “flipping”. Needless to say, he had been pretty badly burned. So here is my view on this exciting and often hated tactic.
To Flip, or not to Flip.
‘Flipping’ has been a pretty hot topic recently on social media. To briefly explain the term, this means buying a player and hoping to sell him on quickly and make a fast buck. Often, the player is built on hype and has no long term value. It can be pretty exciting if you pull it off.
And absolutely infuriating if you are on the wrong end of it.
The idea behind flipping is known in trading as ‘the greater fool theory’. This school of thought says you don’t really need to buy good long term assets. You just need to buy things inexperienced people are likely to buy and then sell it to them. You take a nice profit and leave the johnny come latelys carrying some very heavy bags.Is it profitable?
Is it profitable?
It can be, definitely. It does require a lot of constant attention, experience, knowledge and good instincts for where the market is going. If you are relatively new, wait until you have a good feel for the market before you attempt it.
Is flipping ‘wrong’ or unsporting?
It does feel a little grubby in my opinion as you are just mugging the inexperienced. But there is no point dwelling on this. It is just a reality of human nature and markets. It happens in every form of trading and it will not go away. It’s part of the game and you just have to understand it and either profit from it or at least protect yourself from it.The Spread
It can be very risky as if your prediction does not come off, you can have to swallow some eye watering losses as you will be well aware there is no real value in holding your asset. It is better to attempt flips on players that might offer long term value so you keep an option of holding open if your flip does not go to plan.Is flipping ‘wrong’ or unsporting?
The Index do offer some protection for inexperienced or recreational players in the form of the spread. The spread is the difference between the buy and instant sell price. This is very frustrating particularly for short term traders as it makes a quick sale harder and chews up your profits.
Overall, I think the spread is a good thing. I think of it like sustainable fishing. If we serious traders are constantly cleaning out new and recreational players, the Index won’t grow. We need them to stick around to make money in the long term. In online poker, I make sure I only bet serious money when I have a 90% or greater chance of winning, and I am usually facing a weak or recreational player when I do. So I usually win big, but 1 in 10 times I lose my whole stack. Most people would be angry at this unfair twist of fate. But this is the wrong mind set.
This unexpected and thrilling win is the reason bad players keep playing poker. Without paying this tax, I wouldn’t make money overall because most of my profits come from bad players. So it is in all of our interests for new players to get a bit of protection and have a reason to stick around.How to Flip the Flippers
How to Flip the Flippers
There is a clear food chain in trading. The earlier you buy, the higher up you are. Long term traders are at the top because we tend to buy our assets earlier than most when there is little or no hype or when everyone is mass selling which is even better. Probably before the hype picks up, good flippers jump on followed by the inexperienced money (the greater fools) as the hype is peaking.
When I have decided a player I own is now over valued, I’ll look for an opportunity to sell. This is ideally when others see a reason to buy him, such as before a big European final. Flippers take profits because they sell to the greater fools. But I am selling to both the greater fools and the flippers, so I make the most money on the trade.
Of course, because 90% of the time I only buy assets with hard facts underpinning their value, I do miss out on some good flips. But I hardly ever lose money if things go bad either. This just suits my style, I don’t want to be constantly clicking refresh on my browser all day waiting for a moment to sell, I’ve got other stuff to be doing. Some good traders do flip and they make a good amount of money, so I am in no way doing it down, it is a personal preference thing. I do indulge in a little flipping a few times a season when I am confident it will pay off however.Protecting yourself from flippers
Protecting yourself from flippers
So how do you make sure you don’t get flipped? First of all, resist that urge to buy a player who is rising sharply in value. Just don’t do it, you will lose money this way in the long term. Very occasionally, if a players underlying stats are solid and he has gone up in price, he might still offer good value. But the vast majority of the time they don’t. How often do we see yesterday’s most popular player become today’s cut and run? Buy him then if you remain keen.
Second of all, do your research. If you can be confident that your player is a great long term pick and you can be patient, you are bullet proof against flippers. If I buy a statistically good player at what I consider a value price, people can mass sell him all they want, I won’t care. I’ll be happy to hold and the chances are the people panic selling or flipping him now will be the same ones buying him from me at an inflated price later on.
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