To date it has been impossible not to make money investing on FI. The growth of the platform has given early investors incredible returns regardless of their trading ability. Just five players in the top 200 are cheaper than they were a year ago.
Meanwhile, there are twenty players who’ve seen a more than 350% increase.
There is good reason to be confident that the platform will continue to grow for the foreseeable future, as long as FI invest in developing their technology and increase dividends at the right times. But at some point the market will stop growing and trading well will be the only way to money.
Even now there is a huge difference between the spectacular returns made by the best traders and the merely good ones made by the mediocre.
There are essentially 3 ways to maximise your returns through trading:
1. React to news quickly.
For time rich traders this is the easiest strategy to follow. As in any market prices move in response to new information. Reacting fastest means you make the most money. A lot of this is obvious – e.g. buying quickest on a goal or some transfer news. Sometimes it’s a bit more subtle.
When news about a major injury or transfer breaks other players will usually benefit from more game time or greater prominence in a team and those players will usually rise.
2. Identify trends in advance.
For traders like me who can’t sit at their computer all day waiting to react to news, the best way to make money is identify trends before they become trends.
The first type of trend relates to changes in player/team performance. For instance I think Leipzig and Sociedad are going to have good seasons this year based on their transfer business, so I’ve bought a lot of their players. Sometimes you don’t even need to predict to benefit from these changes, just spot something early.
Last year Bayer Leverkusen bought in a new manager half way through the season. A few of us spotted he was playing a high possession game that is great for PB dividends and players like Jonathan Tah and Charles Aranguiz saw big rises as more and more people noticed.
Another kind of trend are cyclical ones driven by the calendar. Many people will buy likely summer transfer targets, for instance, in the Spring. Getting in a bit ahead of these trends allows you to benefit from the rises. Go too early though and your money will be stuck in those players for months before you get any movement. One recent cyclical trend I got right was the European under-21 championship. In May I bought a lot of the possible stars, who then all rose in the weeks before the tournament.
The final main type of trend is in asset classes and are probably the hardest to predict because they are most effected by irrational FOMO from other traders. When two or three of a similar type of player all see increases for performance reasons you will then often see their asset class all rise (e.g. young prospects at big six premier league clubs; or defensive midfielders with a high PB baseline; or defenders that take penalties).
This kind of trend is more common with young players because the risk of missing out is strongest with those whose potential is not yet fully known.
3. Trader Influence
More established traders who can convince others they are expert in spotting talent or trends can create artificial increases by pumping players on social media. This tends to not work in the long term as a couple of bad tips can quickly lead to a loss of confidence and a switch to alternative tippers.
For a new trader – reacting quickly, or predicting trends are the only real routes to maximising profit.
To understand how to trade badly you just have to take the flip side of these three tactics.
Reacting late to news or trends once they are in full flow puts you at risk of being the last person to buy before a correction. In January, for instance, there was a very strong trend on young European strikers. As part of this Rafael Leao at Lille and Moise Kean at Juventus, who were playing well, both rapidly increased and it seemed for a few weeks like every goal they scored led to another huge rise. Inevitably though they eventually corrected as traders decided to take profit and their prices dropped 25%.
Equally buying tips off social media without understanding the logic behind that tip could well mean you’re being “pumped” and could get caught out buying a player who’s then sold out from underneath you by the original tipster.
Ultimately the best way to avoid getting caught out, and to spot potential trends in under-priced asset classes, is to have a secure understanding of player value. And this will be the subject of my next blog.
In addition getting the timing wrong on trends can be exacerbated by cognitive biases.
For instance, the work of Daniel Kahneman and other psychologists has shown us the pain of a loss is roughly twice as high as the pleasure of an equivalent gain. This means we are irrationally concerned about avoiding losses. In FI terms this means traders often don’t want to sell players at a loss even if not doing so compounds their original mistake. In a future piece I’ll set out some ways to avoid cognitive biases.