This week I did an interview hosted by Football Index Guide which can be found here. However, I missed out a question asked on Twitter! It’s a good one (although a very tough one to answer) so I’ll make it today’s topic instead.
I find this a tough question and before I answer it I have to set out some thinking on the topic in general. I also feel like I need to tap into 17-21 year old values too.
See, the biggest collective myth on the Football Index right now is that younger players are worth more. They aren’t. Particularly in the 17-21 year old range prices are way above rational value. But as long as there are enough people willing to believe this myth and bet their money on it, it will stay profitable.
And whilst I am dead set against chasing players that are already over bought, there is no sense in fighting the trends – you have to make them work for you. To me this means getting out ahead of them rather than following them but that’s an aside.
Now, young players will always have some form of premium attached to them. 99% of them will not be Messi or Neymar (and I get sick of that overused and lazy comparison) but a handful of them do have that kind of potential and that will always be worth something until proven otherwise. But it’s not worth nearly as much as the market currently believes.
I mention all this because market prices are not so much dictated by yields right now as they are trends. Age is just amongst the strongest of those trends. And, trends will rise and fall over time and the extreme preference for youth will eventually fade (and not necessarily gently).
In a more rational world, it would be the 24-27 year old age group that were given the premium. They are old enough to be established at a big club, we will have a lot of information about them to tell us about their likely dividend yield and they are at or nearing their best years whilst retaining some resale value. After 27, the risk of decline will start weighing on the price to an extent.
The fear of old age is a rationale one. But it is probably overstated in the market. Which is interesting since many people have a wilful blindness to the risk inherent in an 17-21 year old player. People seem to think they are buying an asset that can last forever. But we all know how high the failure rate of the “next Neymar” types is. Very few make it, most will end up being irrelevant to the Football Index and plying their trade at minor clubs
So, back to the actual question. We are gradually moving towards an FI future where dividends will have to make up an increasing portion of profits as opposed to the sugar rush capital appreciation we are seeing as the platform matures. But there will still be varying strategies.
I will probably never be a “buy ’em and hold ’em” forever trader. I specialise in finding value early before others catch on and I adapt my strategy depending on the trends and phase of the season. So, I’ll be looking for undervalued players who win dividends and then get capital appreciation off the back of it.
But for a trader who is focused on an annual yield, I would want at absolute minimum a near guaranteed 10% to account for the risk of holding money in a gambling platform rather than a bank. And on top of that, at least the prospect of a 10-20% increase in capital value.
It’s hard to give exact numbers because age is just one trend and factor amongst many. The best I can do is say that in the question, the 23 year old would definitely get the premium price as they are in the sweet spot. Young, but old enough to be established, reliable and have resale value.
After 28, I’d be prepared to pay significantly less as the future resale value will be weaker and the risk of decline can set in. And then again at 31, I’d need a significant discount to get me interested.
However, I do expect that over time the market is going to realise that players over 28 often have many of their best years to come and they are not as toxic as the market currently believes.
This new IPO has made quite an impression on the market.
These days, with most relevant players already on FI, it’s quite rare that an IPO isn’t absolute dross designed to just pack out the number of players on FI (and therefore the number of horses in the match day race) or an extremely long range youth prospect that won’t be serious for years.
I review the IPO’s before they are added to the market in my members area and I highlighted Guilherme as a rare exception on Wednesday.
For anyone who read my comments on strategy from the FIG interview (link in the intro) this is an example of being “Tight Aggressive”. Guilherme looked a slam dunk for me because he has all the right ingredients so I went big on him. Better one quality IPO than 4 garbage ones.
He’s got performance quality. He’s got hype (he would probably be a Real Madrid and Brazil player already if not for a big injury). And he fits most market trends well.
So it’s going to attract all kinds of buyers, not just the usual pump and dump crowd who throw money at any IPO with a pulse with no idea whether they are good or not.
It’s not all plain sailing. He is recovering from a serious injury and may be back in 4 weeks where he may have time to put himself back in the shop window for a transfer. Lots to do then. But there is no doubting his potential quality both on and off the Index.
Much talk of a move if Fulham now go down as expected. And with some justification.
Many will point to his awful performance scores but actually he is showing some performance friendly underlying stats and with a better platform to shine from he could be a decent player.
So there is cause for optimism however, as per usual, the price runs well ahead of that.
The existing price was based on the hope that things would improve when he was under £4. Then, when prospects do improve as expected, people think that is a reason that he is now worth more. Nope, because that hype and hope was already priced in.
Probably won’t stop people buying though because he fits the trend and has some FI suitability. For me though, the best value is gone.
I was critical of the huge Leao rise at the time because of his very limited FI suitability.
He has tanked by nearly £1 in the last couple of weeks.
This is a symptom of a common error / mania on FI which is the search for “the next…”. Leao was touted as the next Nicolas Pepe but they are nothing alike in terms of FI quality. Same team maybe, and nobody can say Leao is not a talent. But he is nowhere near as FI suitable.
This sort of player is the easiest kind of trap for people to fall into because with the Pepe comparisons and his strong goal scoring record it is easy to believe the hype.