FIC Weekly 09.11.20

Let's be honest, the market makes for quite an uncomfortable viewing right now. Every time I log in, my portfolio has dropped slightly further and I see fewer and fewer shares with instant sell prices. It's not so fun.

What's going wrong?

There has been a number of excellent threads this week explaining all of the problems and my personal favourite was that by fellow Wednesday fan and FIC member - Index Owl.

We discussed this tweet and the current problems with Football Index further on yesterday's podcast which can be found here.

The conclusion was that the current trading mechanisms are not fit for purpose and that Football Index needs to take some responsibility and take action.

The problems largely come down to issues with an oversupply of shares, little incentive to buy at market prices and a mechanism that generally results in downward pressure on prices.

There is of course also a huge amount of psychology behind all of these drops too and the way in which market fluctuations become exaggerated has been explained in a number of past FIC blogs.

Fortunately, it is looking increasingly likely that Football Index will soon change the mechanisms in an effective way. They are clearly aware of the problems and hopefully they will address this properly with big action over the next week or two.

Today's note from Football Index shows that they are definitely working on something. For now, we can only hope it is sufficient in fixing this current mess.

Finding Value Now

Football Index Club has always attempted to focus on finding value. Last month's blog covering lessons learnt from 'The Intelligent Investor' explains why now is a good time to buy because players are now more valuable.

"The market often happily pays more than a share is worth when they are going up and is desperate to dump shares for less than their worth when they are going down." - Benjamin Graham

What is currently more important than ever, especially as there is no longer an instant sell option, is to actually assess the value of shares.

Well, how do you do this?

Value is derived by dividends and so focusing on a player's potential to earn dividends and then considering their age and price is a fairly effective way of assessing a player's value. One way of finding value is by taking the below 3 steps:

  1. Predict future dividends based on past dividend returns

  2. Make relevant adjustments for any changes in a player's dividend potential

  3. Calculate what dividend yield a player should be earning at different age ranges

*It is important to avoid making predictions based purely on extrapolating past data without considering the context of the past data and I believe this is what catches traders out more than anything else.

However, for today's blog, we will be looking at past data and using this to help guide us to certain opportunities and also to just provide us with reassurance of how there truly is great value in the market right now.

Right now the market is being steered downwards by uncertainty and fear, but longer-term I believe that the data on yields will drive prices upwards and once confidence returns, the pace of growth could be quite quick.

What dividend yields should we expect from our holds?

In September 2020, FiBen wrote an excellent blog which included the below graph which shows the recommended dividend yields at different price ranges.

"The line on this graph represents the upper deciles of yield returns at each age, in relation to the median and upper interquartile range. Any player you buy as a long term hold should have, or you predict to have, a return in dividends equal to or above the line on this graph. If you buy a player below this line, who isn’t predicted to rise to it, you are buying players who are by definition not the more undervalued players on the Index. Note, many players in your ports who you think are undervalued may not be represented in this graph – if you believe your player will increase their yield that is absolutely a good reason to buy."

So basically, any player who's yield is much above this line and who's yield is likely to remain much above this line is likely to be a valuable player.

For players over 30, I think the below dividend yields at different ages provide a rough idea of what I would personally expect from such players.

31 – 40%

32 – 45%

33 – 50%

34 – 75%

35 – 100%

Based on the graph from FiBen, my additional age brackets above and also from checking for any transfers to Non-PB leagues - I have created a spreadsheet which shows players who fall above this line.

Value Players Based on Dividend Yields in relation to age

To find players above this line who could be valuable I have used the Index Edge Spreadsheet. Firstly, I found all the players who fall above the line and then removed any players who have since moved to a Non-PB league.

Recent transfers to Non-PB leagues have been removed

Criteria to make the value players spreadsheet:

  • Dividend Yield above the line in the graph above

  • Has not recently moved to a Non-PB league

  • 2+ PB scores over 200

Dividend Yield Excel Spreadsheet

Div Yields 09

Dividend Yield Google Spreadsheet

Top 5 FIC picks

On the spreadsheet, you will also find 5 players highlighted in green. All 5 are under 23 and I think they could all grow a tremendous amount in price over the upcoming seasons as I expect them to both return a considerable amount in dividends and develop as players.

*Click into the profiles below for full analysis.

The 5 players are:

Jadon Sancho

Joao Felix

Alphonso Davies

Christopher Nkunku

Musa Barrow