How Buy-Price History tells us more than we think...

Updated: Jun 29, 2020

Going back to basics once in a while makes you truly consider the strength of your portfolio and prospective investments. The Football Index offers thousands of unique investment opportunities. There are Three Mechanisms to make money; Performance of the Player (Performance Buzz dividends and In-Play dividends), Media Attention (Media Dividends) and Share Price Increase (buy low, sell high). All interact with each other to play a part in what traders consider good value.

There are a host of reasons for a player's value at any given time. Given the market is based on Supply and Demand, the first assumption we make is that players with higher value are in higher demand. This principle is assumed largely on the basis that the more expensive players are strong dividend winners, or will likely be one day.

That said, a current player value is not the only thing to consider in terms of their demand. Value can vary based on the players historical value and current price certainly doesn't indicate that they are a better investment.

The IPO (Initial Player Offering) is different for players that are being added to the index each week. In other words, the starting values for players are different, and set by the index. To demonstrate this, let's say Player A is IPO'd at £0.70 and Player B £1.40. After six months on the index, they both sit at £2. On the surface they're both the same value suggesting they are as equally as in demand. However, the number of people that have actually bought and currently hold Player A will be higher than Player B. This would indicate Player A is far more in demand and therefore already more invested in.

Generally speaking, the more hyped a player is BEFORE they IPO, the greater their IPO price is. English and super club academy players tend to enter at the high end. Foreign and Ineligible PB league players tend to enter at the budget end. There are, of course, exceptions.

Crucially, it is Football Index who set the price of the player's IPO.

Let's breakdown how this looks right now on the index.

Ansu Fati, Football Index Investment.

Ansu Fati, IPO £2.90, Current Value £4.20, Price increase £1.30 (44%).

Jude Bellingham, IPO £1.95. Current Value £.4.61. Price increase £2.66 (136%).

Mohamed Ihattaren, IPO £1.20. Current Value £3.00. Price increase £1.80 (150%)

The above demonstrates our argument nicely. Despite the fact that Fati is considerably more expensive than Ihattaren, he is not as 'in-demand' this season. At a glance, even an experienced trader would assume more people hold Fati because he has a considerably higher current value, but his price has increased £0.50 less than Ihattaren since they were IPO'd.

On that basis, given Fati has only grown 44% in his short life on the Index, compared to Ihattaren's 150%, which player do you think is in greater demand right now? Which player is actually held by more traders? Is the reason Fati is not as in demand because the IPO price was too high? By our reckoning, fewer people hold him.

Keep in mind our assumption that fewer people hold Fati compared to Ihattaren. It's worth reminding ourselves why people invest in these players in the first place; potential to perform well on the pitch, potential media hype, and value increase through demand. The final point, the value increase, is likely to be in play in both of these players - the 'wonderkid flip'. Buy a youngster at a low price, sell him when it's high.

More people have bought Ihattaren, so more people are likely to flip. If more people are prepared to flip, there's a greater chance that the price will crash. So, Ihattaren is a riskier purchase when isolating this calculation. Fati has fewer people holding, so there's a lower crash potential, despite the fact that he is more expensive. Fati's only got 44% (£1.30) to fall down, Ihattaren has a slope of 150% (£1.80).

We're absolutely not arguing in this case that one player is better than the other, or a better investment for that matter. We are demonstrating purely through price history rather than player analysis, or the spread, how much risk there could entail in investing.

Use this as a valuable tool when comparing the value of prospective investments. As the Wonderkid potential is having a huge influence on the market, it's certainly a tool worth considering when weighing up an investment outside of the standard analysis of the player's ability on the pitch and in the papers.

Take home message: Looking at a long-term price history, including the IPO, is as informative of risk of investment as any trend or current value comparison.

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Football Index Gurus | United Kingdom