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RISK DIVERSIFICATION AND MY TRADING APPROACH

Risk Diversification may sound boring, hence the header image to catch your interest, but for me it's an essential element to ensuring regular returns and portfolio growth on Football Index. Money management is key to successful trading. No matter the trading strategy or setup, the money management paves the road to profitability. Diversification is a way of protecting the capital. This is the number one priority of a trader, regardless of the markets traded.

I love the Benjamin Graham quote, below.

I would advise, to myself if I was starting out, that I buy, hold and top-up on the following. 2 of each defender, midfielder and forward in each of the 5 PB Leagues, largely focusing on Top-5 sides, preferably in Europe, making a portfolio of 30 players more than achievable, and diverse, brimming with quality.

Taking two in each position and league, levels out fixture difficulty somewhat, or if a player has a below-par game or is injured/suspended. It doesn't have to be a concrete rule though. For example, if you are struggling to find a midfielder in Serie-A or La Liga that you like, or a second forward in Ligue 1, then it could be wise to take 2-3 in another league, with a heavy leaning towards the Premier League, due to the additional Media awards, where they dominate. In fact it's probably just worth adding in an additional 10 players from the Premier League top-teams, giving you a portfolio of 40, with room to increase up to 50-60 with other strategies.

I believe that is a great minimum strategy for any trader.

My own trading risk profile is higher than most and I prefer at least twice that amount of players. Currently, I have over 200 players, which is around 50 too many (some were bought for tests, some when I first started out) which I plan on reducing NEXT season, no rush – will wait till the exit points are right along the way.

A great benefit of having a large number of players is that I do have dividend returns almost every day and the growth is continuing in the portfolio, even when cap app reduces. Traders focus way too much on the Price, which is never profit or loss until you close the position and a lot of the time, the direction of the price is outside of your control. Dividends are earnings in your pocket and can be predicted.

MOST TRADERS UNDERESTIMATE THE POWER OF DIVIDENDS AND DIVIDEND REINVESTMENT – I bolded that for a reason!

You can then look at adding in additional diversification strategies and method of analysis and selection. For example, you could implement an IPD-topup system for your 15 core players, based on fixtures analysis. You could focus on 23-27yo's, who are likely top-quality peak or near peak age, dominating and winning Divs in their respective leagues and PB or IPD and then just buy and hold for 3-years. You would make a profit.

You could perhaps look at adding in 4-5 ‘Youth Players' that you think could earn Divs and generate future transfer speculation at big clubs – the likes of Havertz, Haaland etc. That can help with both media and capital appreciation. You could even look at unproven youth Under-23, from non-PB leagues that have caught the eye in some way and play for feeder teams like this list on Wikipedia, or for a team like Salzburg, Ajax etc…and also pay attention to their reserve teams, although it's unlikely most of them will be on the FI system – sort out IPO's and this area of the market could improve markedly.

Basically, if you diversify across position on the field (PB-Wise), by league, and by strategy, then you are giving yourself the best chance for a smooth, consistent profit curve, less of a need to jump in and out of markets/leagues and your players will likely be playing on different game days and times across Europe.  Your volatility will be smoothed out, and although your profits may not be as maximum as they would be with a smaller group of players, you are increasing your enjoyment of the platform by having regular ‘action' and minimising your risk along the way.

It's especially important to diversify, bearing in mind that the market, environment and rules can change at any given moment, as we have witnessed a lot the last few months, first with Covid-19 and then the Matching Engine Phase 1 Order Book implementation. This will continue to be the case, so it's best to be prepared in advance.

I've seen a lot of traders make comments like the bottom end of the market is no longer tradeable, that they are worrying over a drop in capital appreciation over a short-time period, or are stuck with players in Leagues that they can't shift due to widening spreads. They often state that there is no value or liquidity, when what some of them actually mean is that there is nobody to bail them out on cheap buys that go wrong and that they failed to anticipate this when Matching Engine was on the radar. That shows a trader very much focused on short-termism, being ill-prepared, under-diversified and being over-reliant on one strategy, not recognising the cyclical nature of a unique time in football, all the while focusing on the negative aspects of a changing market. It's also an example of how trader's need to adjust strategy as ‘gravy trains' are retired to the great train yard in sky, only to be replaced by a newer, sleaker model, that requires a little more skill, and time, to learn how to operate.

Another essential skill in trading, is adapting and being agile enough to switch and investigate new strategies, especially as a market matures and trading conditions change. It's also important, psychologically as a trader, to focus on the positives and the advantages, in a maturing market and, often ever-changing, environment. This is a very good article on the Financial Markets, as they mature, which I believe Football Index is doing. It still won't be fully matured until Nasdaq Order Book functionality is in place, as it's a phased approach. Trader's should look a little further ahead at the potential, rather than complaining about essential progress, and mourning ‘easy' strategies that no longer work under a market built around trader supply and demand, exactly how a market should operate.

I thought I would look into how we can look at a number of different approaches, to find players worth buying, that can return Divs via multiple revenue streams. Disclaimer: I hold a large chunk of all of these players, but this is not a pump, just presenting the data that I have traded off in recent weeks and months.

MAXIM (Matchday AveragePB XPB In-play Media) STRATEGY

That's a mouthful of a strategy name lol, took me ages as well. It's what I call a combination system, using different methods of analysis to produce a shortlist of premium Dividend returners. It looks at players from one unique angle, in this case, matchday media winners who have earned 4p or more this season from media. That's the starting point – it's what I call an insurance strategy, in that we are targetting media on Matchdays, but can also pick up IPD/PB along the way, and they would also lead to more regular media and capital appreciation.  The thinking is that if a player fails to get the media expected, they will at least return some form of Divs, and also you can find those nuggets (cream rises to the top) that excel across all 3 Dividend fields for occasional multiple paydays, to increase your Yield. This works well with fixture analysis when deciding the timing of the trade, to take full advantage of the additional IPD revenue, something most traders can do to offset drops in Cap App and near PB misses on Matchdays.

Let's start with MatchDay Media winners.

For those who thought Marcus Rashford was the new media king after a few day's stories around his excellent community work, they probably got a swift reminder of what happens when someone does something outstanding on the pitch, whether positive or negative, aka David Luiz being red-carded. I noticed this last season, particularly with Bruno, whose media was endless after he hit the ground running in several games, when transferring to Man Utd.

So, I thought I would look at the main media winners, to see what % of the time, or at least how much of their media, was attributed on MatchDays, compared to media only days. There are a few caveats though, especially so in Europe for games that start later in GMT terms. Often when the match finishes, the journalists are only just starting to write about, usually a Ronaldo or Messi dominant display, and often they don't quite have enough article points firepower to get over the line. However, as we saw with Messi recently, he topped media the following day after a blistering display out of the blocks when winning Star Man in Barcelona's first game back, so the journalists do catch up.

I then look at those players who have returned a decent amount of IPD's, preferably with an IPDPEG (Price Earnings growth) of less than 1, as well as looking at the same for XDivs for PB, while averaging their 3 highest PB scores. I also look at their rankings in the main categories for IPD's like goals and assists, occasionally defender (mainly full backs) for clean sheets.

A result of this is the table below, sorted by Matchday MB £

I've added in comments below the table, so you can see how I analyse that data for a few different players.

MB = Media Divs £
IPD = IPD Divs £
XD = Expected PB Divs £

All 3 of the above are also followed by their Yields.

EGR% = Adapted Earnings Growth Rate

MB PEG = Adapted Media PEG (Price/Earnings Growth figure) (below 1 is considered value at the price, above 1 indicates poor value – you want something close to 0)

IPD PEG = Adapted In-Play Dividends PEG

XPBPEG = Adapted Expected PB Divs PEG

Matchday MB = Media Divs earned on a Matchday £

% Match Days = % of overall Media Divs won on Matchday

AdvPos = Ranking of Player, based on players Top3 (Highest) Avg PB Scores, ranked by sub-position across all players on Index.

First thing to point out, apart from a few obvious examples, Premier League players dominate media! Forwards also are extremely positive for MB, along with midfielders. There are a couple of Centre backs with Van Dijk and Maguire, but they lack capital appreciation.

So, let's look at a few examples, the main ‘hybrids' I believe are highlighted in green, with others of note in yellow, who are perhaps lacking in one of the other main areas of focus.

Let's start with BRUNO FERNANDES. He has returned the most Matchday Media Divs (59p) of anyone. It's ‘only' 38% of his overall media, as a lot was earned in the run-up, and during, his transfer. So it's an indication of how much media he actually attained when he started playing well. All his figures look great, apart from IPD's, but we have to remember he did not have as much opportunity as others to earn Divs, as he joined quite a few months after the season start, so that can be marked up. His media Yield is an excellent and he ranks 5th in Europe amongst Attacking Midfielder/Wingers based on highest 3 PB average score. You can read more about the benefits of looking at a players highest 3 PB score averages in this blog post.

I maintain that the gap between him and Sancho will decrease in price over the next month or so.

LIONEL MESSI is only really lacking in one area, capital appreciation. People don't seem to interested to buy him, when he is actually about the best hybrid out there on the other metrics. 58% of his 57p of media has come on Matchdays, often after a dominating display, where he has likely earned PB and IPD Divs. His price is not nose-diving though, and he will continue to be one of the best earners across the board, from a Div perspective, which more than makes up for a drop in cap app. He is the best second striker/winger in Europe.

PAUL POGBA is interesting. He has been out of action for a while, and clearly that impacts on his figures, but he only needs to turn up for Man United, get a start, come off the bench, etc for that media to start cranking up again. IF he can start putting in the performances on the pitch then he could be an excellent hybrid play, cap app will likely improve BUT that is the gamble. You are banking on him putting in the performances AFTER the initial media on his appearances die down. He could become the Bruno nemesis, or just as easily, finish ‘do a Kimmich' and finish 2nd behind his team-mate in the media. I still hold, as I feel he will attract media over time, and especially so when the EPL stops but he doesn't fit the bill as a hybrid play, just yet.

TIMO WERNER has been crushing media right up until Rashford took over, and the impact of his transfer died down. However, as we can see with the table above, the Premier League dominate media and he only needs to put in a few good performances to catch the headlines again. Meanwhile, he is still the best Centre Forward in Europe, based on Top-3 average PB scores, just hitting his prime, and has a higher IPD return than both Messi and Sancho this season, with 35% of his media coming on Matchdays, that's 65% on media days, and there will be a few more of them when seasons finish with top-3 places up for grabs. RB Leipzig only have a few games left, and it's unlikely he will lineup in the Champions League, but he is not going anywhere and will reward patient holders and those who pick up shares with discounted bids.

MARCUS RASHFORD is in a similar boat to Pogba in many ways, having been out for a while, so his returns are pretty impressive in a curtailed season. If he returns raring to go, expect IPD's, DIVS and media to follow with 46% of his Media Divs coming on Matchdays. I expect his average PB's to improve with more gametime but there could be rotation issues with the Man United forwards over the next month or so.

JADON SANCHO at first glance looks an excellent hybrid play, but I was surprised that only 17% of his media has come on Matchdays. With Dortmund out of the title race, the Bundesliga drawing to a close, and the action hotting up in the other leagues, he is going to find it hard to get some media over the next month or so. When that dies down, I expect his media to pick up. It may present a good opportunity now for profit taking or waiting to top-up at a discount. There is no arguing with his other numbers, wherever he is playing when the leagues resume, although again, he will be facing Pogba and Bruno and Rashford in competition for Matchday media Divs if going to Man United and I fancy him 4th best in that respect.

Those are the main ones I wanted to discuss so I could show my thought process and you can look at the stats of the others, the timing of entry, can come with fixtures analysis, ideally done a few weeks in advance. The ones in yellow usually have something holding them back, at least in the short-term, from being ‘green' – whether it is a low % of matchday Divs, lack of capital appreciation, reduced media, higher PEG's or high positional rankings based on the Top-3 PB Score averages.

How could you better diversify your portfolio?

Who catches your eye from the list above and why?