See below for our starter guide to assist building and managing a profitable Football Index player portfolio.
Follow our top 5 tips to be a better investor, to develop good investment habits and balance risk against performance.
1. Diversify, Diversify, Diversify
One of the first bits of advice you will hear when investing in more traditional stocks and shares is to diversify your investment so not to have ‘too many eggs in one basket’. This is even more appropriate when it comes to trading on the index.
To take an extreme example, if the CEO of a public listed company steps down or retires unexpectedly it can move the share price downwards significantly, but there is still some inherent value in the holding. Compare that with a footballer unexpectedly retiring, your investment would then be worthless. This is a very extreme case but it illustrates a point, shares are 100% linked to player game time and performance. Unexpected events can occur to individuals and similarly, you have no control over how a player is going to behave or perform (both on and off the pitch). This means the risk versus traditional forms of investment is accentuated.
The solution? Diversify your player portfolio by as many metrics as possible. Aim to have a mix of at least 25 players in your portfolio and don’t hold more than 10% of portfolio value in any single player. Hold a mix of established proven media dividend earning players as well as some players that are likely to return performance dividends. If a player has the potential to earn both types of dividends then even better, though typically these players make up the very highest priced on the index. Ideally, you want a mixed portfolio in terms of purchase price. A portfolio can certainly include a modest investment in lower-priced potential future break out stars – it only takes one stellar performance or a move to a better team for this type of player investment to rocket. Much like a team on the pitch, you want a mixture of age and experience.
2. Buy the Rumour, Sell the News
‘Buy the rumor, sell the news’ is something that happens in most markets. Sometimes traders trade based on what they believe will occur in a given economic report or event (the rumor). Once the event passes or the report is released (the news), they dump their positions and the market moves. This applies equally to the World of FootballIndex trading. Be wary of buying a player on the trending list or one whose price has already spiked due to, for example, an impending transfer move. It is likely profit taking will occur as traders take their funds and move on to the next opportunity. It should be noted also that a big media dividend earning player that makes a move from the Premier League to a league overseas will likely inhibit his future ability to generate headlines (media buzz is heavily skewed towards English based players ) and thus his price will likely drop further once the hype dies down.
3. Don’t Overtrade
Overtrading means more commission costs and (if instant selling) more spread costs. The best way to avoid overtrading is to realise that playing the index is sometimes a marathon, rather than a sprint. Over the short term you’ll have good days and bad days, but long term, assuming you trade sensibly, have done your homework and have confidence in your player investments, you will find that it is possible to accept short-term losses, not to panic and over the mid to long-term seriously grow your capital.
4. Do Your Research
We can’t stress this enough, do your own research and make your own investment decisions. For every player you’re planning to invest in, you should be fully aware of both of the upside and potential downside of making said investment. Certainly don’t blindly follow other traders tips. This shouldn’t mean you don’t listen to other traders opinions but don’t be intimidated either and have confidence in your own planned/ existing player holdings.
Several factors need to be considered when making a player purchase, too many to mention here, but they include age, match fitness, minutes played, upcoming fixture difficulty and of course previous performance. This means researching previous performance buzz scores (both average and peak) as well as both media and performance dividends accrued to date. See an example of how to research players to buy on FootballIndex utilising BuzzBot, IndexGains own research assistant. BuzzPro is a suite of online reports available on our website, designed to allow you to make more informed trading decisions using player data and match stats to enable in-depth player and team research. Learn more about what BuzzBot and BuzzPro can do for your research.
5. Trading Psychology
In regards to trading psychology, this is probably the hardest aspect to master.
In reality, it is far easier to digest the various economic theories and master trading fundamentals than it is to actually recognize and change your own behaviours.
Loss aversion is an interesting one in both the financial and gambling markets. Somebody may claim that they are risk averse, when in reality they are ‘loss averse’, and actually take on more risk in order to avoid a loss.
There is an asymmetric relationship between how we react to losses and how we react to gains, such that we feel losses much more than gains. We see this manifest itself where people will keep a losing position open in the hope that it will turn around, but at risk of making a larger loss, yet the same person will close a winning position early and lock in a reduced profit. There is nothing necessarily wrong in locking in small profits and risking large losses, as things should be evaluated on a case by case basis, but behaviours such as this can distort and erode the value you find elsewhere.
Accept that sometimes, things will go wrong and that you can’t win them all and focus on playing the long game. Aim to construct your portfolio so that you can weather the bad runs, concentrate rigorously on finding value, try to be aware of any behavioural biases that may be affecting your decisions, and try to develop a Zen-like attitude to the sometimes seemingly randomness of short-term price action. Most importantly always do your own research and you will then be well on the way to becoming a successful investor in the world of football trading.