Tricks of the trade: Second Edition with Stamford

Welcome to this week’s edition of Tricks of the Trade. In this edition, I caught up with notorious rat-catcher Stamford, who I’m sure many of you follow or have seen in and around the Football Index Twitter community. He’s one of the old guard in terms of being on the platform since the near-beginning and for as long as I’ve known him, he has stood strong on his strategy of believing in the platform and buying to hold and there’s no denying how profitable it has been for him!

He has provided me with some incredibly comprehensive answers, offering food for thought for all traders and some great lessons for new traders too! Here’s what he had to say:

How long have you been on the platform now, seems like it has been a while?

Stamford: Hi all, I’m certainly not one of the originals but I have been involved in the Index since late 2016 and begun seriously investing over the course of 2017. For some context, my net deposits are in the region of £35,000 and my portfolio has grown well in excess of 6 figures with a dividend haul of over £30,000. Some big numbers there, but as with most traders, I didn’t lump in all in one go. My investment grew in line with my confidence in the product and that’s something which bodes extremely well for the immediate future of the Index with the volume of new sign ups we have seen recently. I fully expect that as their confidence in the Index grows, their investments will too, and that’s extremely promising for the future.

Football Index has grown an estimated 700% since November 2017

How would you describe your strategy in your own words?

Stamford: My strategy is largely geared towards the long term with low-medium risk and heavily focused on dividends. I am very much an advocate of accruing dividends and using them to compound gains which has been key to my success. There are a few important things here, time, risk and dividends. Let me explain each a little further:

Time – Let us be clear, you can earn more money with a more mobile strategy. However, the more mobile you are, the more of your time this will command, and this won’t be suitable or profitable for everyone. My advice has always been to trade to your lifestyle and you will enjoy the Index more for it. Personally, I can think of nothing worse than sitting there with my laptop open trying to flip players in-play rather than enjoy the game and watch your well-researched picks deliver returns over the course of a season, or in many cases, over the course of 3 years. My time is the most treasured resource in my life, and I spend a large amount of it out of the country where trading is just not possible (I do enjoy committing part of it to winding the flipper rats up on twitter though!). It’s for this reason that I have adopted a low maintenance strategy and I rarely get involved with short term trades, and absolutely avoid in-play trading. I’ve tried it and I’m simply useless at it. That said it is key to understanding the Index as it will help you enter and exit trades more effectively.

If you are one of my lovingly coined flipper rats, do read on because it’s important you understand other strategies as much as your own to build a broader understanding of behaviour and you will be a better trader for it too.

Risk – This largely depends on your strategy. Firstly, given your stake can’t be wiped completely off the table on FI, you are inherently making a lower risk bet than many of the options available at the bookies. Good choice. So how can you address risk on FI?

  • Diversification. This largely depends on your portfolio size. Whilst you shouldn’t spread your net too wide, you should also be aware that the fewer players you hold, the higher your risk. I can’t put numbers on this as there are simply too many variables. But as your portfolio grows, you will be able to reduce your risk by investing in more players in sufficient volume to make it worth you investing in them. I have been guilty in the past of owning too many players and tracking your portfolio becomes increasingly more difficult, FI don’t make it easy for us to track now and this is something I expect them to improve on soon.
  • Exposure. The more you have in one trade, the higher your exposure to price movement. Personally, I like to keep my exposure on any one trade below 10% of my portfolio value and I will change my exposure on certain trades if there’s a fundamental change to their circumstances.
  • Hedging. You can mitigate risk by hedging your bet by owning similar players to protect yourself against injury. Owning Son to mitigate an injury to Kane is a prime example. Son will sit dormant at a fraction of the price in Kane, any fall in Kane can easily be offset by an increase in Son. If you are not online when the injury happens, the gain in one is going to protect you against the fall in the other and then you can just flip the profits from the peak in one into the dip in the other. Simple – I don’t own Kane but you can see how their price moved as a pair on the injury around the 12th Jan.

  • Age. Well this is currently a hot topic. Let me be very clear, owning very young AND very old players does involve risk. Young players may wind up as complete flops and older players could suffer career-ending injuries and in general, decrease in involvement and influence. There are of course exceptions, Mbappe and Ronaldo being the most obvious. One is an undoubtedly proven 20 year old and the other a fighting-for-fitness almost 34 year old (watch out on this one though). The current market sentiment on both groups is without doubt grossly overstated at the moment and it is fundamental that new traders in particular understand that youth does not mean low risk. For me, as a young player’s price approaches that of a comparable player at a similar club and ability (a player whose price is at maturity), then the risk increases massively, and price rises beyond this are fuelled both by FOMO and a lack of understanding/appreciation of their longevity on the Index. There are a lot of seasoned traders currently riding and fuelling this and they will trade out of these positions. It is the new traders that will feel the sharp end of the stick if they are not careful. From my personal strategy perspective, the few very young and very old players I hold are in small volume to mitigate my exposure. Trends should not be ignored but they are trends and the next won’t be far away.

Dividends – Wow, well this is rather a bone of contention for me on the Index currently. So why are dividends important? Fundamentally, this is the only thing that underpins a players value. Given FI is based on trading virtual shares within a set of game rules, the only thing that gives one player value over another is that one will return more dividends than another based on those defined rules – otherwise we may as well just be trading different coloured balls, and that just wouldn’t work long term. Earned dividends are a means of partially cashing out your bet each time they are awarded. Its cash in your bank to do with as you please, its no longer at the mercy of the market and its not subject to spreads or commission, its all yours. The yields of some of the top dividend earners are very impressive, Ronaldo £5.94, Pogba £5.52, Neymar £4.36, Salah £4.23 and Messi £4.04, all in just 17 months and excluding In Play Dividends. Cumulative dividends are both under-represented, underappreciated and misunderstood on FI and new users have not yet seen the consistency of some of these dividend returns. So why is the market currently neglecting dividends in favour of speculation?

  • Market Sentiment. Capital appreciation trade for trade is usually the biggest earner and that is commanding the focus of the market fuelled by both new and old traders, including me. Most would apportion this speculative market to new traders who do not fully understand or have not experienced the game rules and how that effects ones dividend returns. The truth is, we are all as bad as each other. Those seasoned traders that do understand the rules are quite rightly taking advantage of those that don’t and in doing so fuel the fire, snowballing the speculation. I can’t blame anyone for getting involved, but it can’t last. We’ve seen speculative markets before and value always comes back to the only thing that can maintain a players price long term, dividends.
  • Comparative value. Mbappe’ price is the sole reason many of the speculative trades are the price they are. Mbappe is a proven product and is widely regarded to be in the very top tier of Footballs next breed of global superstars. As such, his price is partly speculative, but it is endorsed by dividends and the promise of future dividends. This has set the bar for other players yet to make those markers both in Football and in returns based on FIs game-rules. Just because Mbappe is X does not mean another player in very different circumstances is also worth X and when dividends do start to make an impact on trading decisions these comparisons will be revealed, and their price will be unsustainable.
  • Reality. FI does not accurately reflect reality and it is also not Fantasy Football. New traders need to understand this. Dividends are based on a set of game rules and unless people read and understand the rules then they are betting on a different rule set. Unless this is understood then investment is not targeted towards those players that are good for dividend returns, rather investment is targeted towards the reality of football or Fantasy Football rules. FI won’t mind the current market sentiment one bit, and it shows. Low dividend pay-outs are good news for them, and they are more than happy to sell you a virtual share for £5 and slowly remove themselves from the market with only a very small dividend exposure. A great business model but, it’s doing the product an injustice. The closer FI can align the game rules to reality the better, and that will undoubtedly increase the appeal of this product to a wider audience.

  • Dividend representation. FI have for some time neglected the representation of dividends in favour of demonstrating capital appreciation. Take Jadon Sancho for example, what a pump from FI that was, and the pay-out – a mere 7p. However, there are some things they are doing. The IOS update that will include dividends earned per player on the portfolio page to match the Android is on the way and when that happens, I strongly believe traders will pay more attention to it. I’ve said before that the TV advert doesn’t even mention dividends and to FIs credit Mike has given more examples of dividend wins with Pogba on the latest round of Talk Sport ads. The data site FI will be launching is not too far away and European Football treble pay-outs are also coming up. When these stars align new traders will learn the importance of dividends and how that in turn drives prices. However, more needs to be done to educate and represent dividends but I won’t hold my breath.

You’ve often preached about not paying commission as a positive of holding, but holding over a long period requires longevity in the platform, which in turn requires Football Index to make a profit (via commission) in effect if everyone followed your strategy the whole thing would surely fold? What are your thoughts on this? 

Stamford: FI will not function if everyone had my strategy. For some context for every £1 earnt in dividends I pay out approximately 7.5p in commission in return. This figure is surprisingly consistent in my portfolio over most months. However, FI needs people like me just as it needs flippers. More passive accounts provide stability and a cushion for many of the flippers. Additionally, over time, as the index grows, passive accounts slowly build up the base price of players, which in turn, increases the commission for FI. I’ve always said liquidity is essential to FI but volatility is not. FI are acutely aware that the success of this platform is built on a delicate playoff between the two and they will act if the market swings too far one way or the other. Overtrading is one sure way to kill your profits in commission. Those who don’t know the merits between market selling and instant selling then watch some content on it. It’s essential you understand the difference.

What’re you’re thoughts on In play dividends? Are you a fan? Have you earned much from it?

Stamford: I like in play dividends, but I don’t trade them. However, it does represent a good opportunity from a strategy perspective to time your entry and exits into long term positions, so I do pay attention to them. I don’t earn a lot in them and I see it very much as a bonus, but I like that they give more value to more players. What’s more is FI are shedding out all this extra cash in DIVIDENDS which are largely reinvested so that’s good for everyone. FI have learned a lot from the integration from the in-play dividends and I think they are stronger company for it, particularly from a customer engagement perspective. I will leave that there!

You’re thoughts on 2019 for the platform and any changes in strategy?

Stamford: As I eluded to earlier, the influx of new traders we have seen in January will undoubtedly lead to further investment as their positive experiences are rewarded. I expect Q1 and Q2 to be very strong with European football sharpening the focus on the pitch and engaging traders in high dividend reduced player pool trading. The share split will also offer traders opportunities to diversify their portfolios and you only need to look as far as the football index Facebook group to confirm that this is how the split is being interpreted. My personal plans for the Summer are largely to keep only those players with a strong transfer behind them. I learnt a lot from the World Cup and players that didn’t have the promise of strong World Cup involvement fell much more than those that did. I anticipate this being similar with players without the backing of strong media links through the Summer transfer window. I think it’s going to be a very busy Summer transfer market and I expect to see a lot more action than we have this January which has perhaps lulled traders into a false sense of security on how volatile these times can be. I don’t think it will be the transfer volatility of old though, the market is so much bigger than it was a year ago and that will provide some cushioning to the dips as some patient traders prepare for the new season. Order books – I’ve kind of lost interest in this until I know more. Dividend increase in 2019? I would be surprised if there wasn’t in some form.

Who is your favourite/best hold and why?

Stamford: Anyone who returns me some of these dividends. Unfortunately, I don’t have Android so I will have to wait until I know who my most profitable trade is, but I’m pretty sure it will be Pogba or Neymar. I think many forget the profit formula on Football Index is:

Profit = Sell Price – Buy Price – Commission + DIVIDENDS

I’m happy to take any question via DM to my twitter handle @Lukey0625

Very best of luck to you all!

Stamford

In case you missed last weeks edition with Big Don and his 1000+ player portfolio catch it here

If you’re new to Football Index and want to continue to learn the ropes, check out my free guide here!

I hope this article has been as interesting and useful to you as it was for me. We’ll be back next week with another top traders story!

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