On 6th February 2018 the Football Index held a trader meet with Lex Van Dam as a guest speaker. Nope, I haven’t heard of him either.
Apparently, he is a Dutch hedge fund manager, investor, and writer specialising in trading in equities, currencies and financial derivatives. Don’t quote me on that, it is just what I picked up from a quick Google search on him.
I didn’t attend the event myself, which was held in London, but I presume it went well as in the 24 hours following the meeting, the ‘Footie Index’ score went up 221 points. Having said that, I believe the traders who attended the event were rewarded with a 20% deposit bonus, so that may have accounted for much of the ‘new’ money invested in the Index.
A lot of this money appeared to go on Neymar who is now up to a staggering £9.42 per share. It is quite depressing to think that at the time I joined the Index last year, I could have picked him up for around £2, but didn’t. At that time, when the Index was limited to just 200 players and before the introduction of performance buzz, my focus was still solely on exciting young prospects and so in ignorant bliss I overlooked investing in Neymar, who at 25, was outside of my ‘investment criteria’. Sigh.
I am often tempted to invest in Neymar even now, and other similarly priced players on the Index such as Sanchez, Kane and Messi, but always talk myself out of it because the current share price presents too much of a risk and, as I don’t have thousands of pounds to invest, I would only be able to buy a relatively small number of shares. Consequently, I would have to invest a fairly significant amount of money in the hope of a small, but perhaps fairly consistent ROI in the form of media or performance buzz related dividends. Any potential dividend gains though, have to be considered against the risk that the share price could drop and mean that I would have to wait for a period of up to three years before I could withdraw my investment without incurring a loss, or worst-case scenario I could be faced with an overall loss at the end of up to a long and painful three year wait.
On that basis, I always reach the conclusion that based on the amount of funds I have at my disposal, my money would be better invested elsewhere and spread across ‘less risky’ players. Consequently, I continue to invest in young prospects who I believe will be subject to a significant share price rise in the future, on account of not only their improved ability, but also their increased popularity as a result. Is this ultimately the right decision though?
I am confident that with the continued increase in popularity of the Index over time, almost every strategy in almost every player, whether it is short term flipping or long-term holding can ultimately be profitable, but the burning question for me is which strategy is likely to produce the biggest return on my investment?
Media Buzz v Performance Buzz
I personally think the introduction of performance related dividends to the Index was a great idea, but I am starting to think that this has clouded many Index traders’ judgment, including my own, as to the best way to invest their money.
Although a performance buzz win will almost always beat a media buzz win in terms of dividend pay-out per share, a performance buzz win is so much harder to achieve and so in my view is a bit of an illusion. Having studied the Index over the last few months, and in particular over the recent January transfer window, it seems far easier to predict a player to win media buzz rather than performance buzz,
For example, last month when Sanchez was linked with a move to Man United he was constantly in the news and he won media buzz for an incredible 18 days consecutively, culminating in £1.05 in dividends per share held. Sanchez is a world class player and of course always will be in with a shout of winning performance buzz when he plays but given that he is a favourite of the English media as well, he is also regularly in the mix to win media buzz which makes him so valuable.
I think it is also worth remembering that whilst the top pay-out is smaller for a media buzz win, at the moment only around half the days over the course of a whole year are performance buzz pay-outs, whereas media buzz dividends are paid every day no matter what and on days where there isn’t a qualifying match for PB, pay-outs are made on the top three most newsworthy players. That for me means that if you’re looking to win consistent dividends from your shares then media buzz should still be considered your ‘bread and butter’ as opposed to performance buzz.
Perhaps this is why traders are still choosing to invest in players like Sanchez and Neymar who, although are now both in excess of £7 to buy which seems quite steep, they always seem to consistently win media buzz dividends, with the occasional added bonus of a performance buzz win, so in the short term almost guarantee at least some form of ROI.
The fact that Neymar is now close to £9.50 a share when 6 months ago the most expensive player on the Index was only around £6 shows not only the growth of the Index, but also the unlimited potential a players’ share price has. £9.42 may seem very expensive now but if say in a years’ time the share price for Neymar is £12.50 then £9.42 would seem like an absolute bargain. It is all relative.
Let’s do some quick maths to try and answer my burning question. Say you had £1,000 to invest. At the moment that would get you 106 shares in Neymar. Say you hold the shares for a year and in February 2019 Neymar is £12.50 per share and has won £2.50 per share overall in dividends. You could in theory cash out your investment with a profit in the region of £590.00.
Alternatively, say you invest that in David Neres for example, who I talked about in my last article, at £1.20 per share. At the moment you could get 833 shares in him for £1,000. Say again, you hold the shares for a year and in February 2019 Neres is £2.50 a share but has only won 5p per share in dividends. You could cash out your investment with a profit in the region of £1,100.00. Although the share price of Neres would have risen nowhere as much Neymar’s, nor will he have won anywhere near as much in dividends, you would still be looking at a significantly better return, almost double, over the course of a year.
That of course all sounds great in theory, but nobody truly knows what will happen to a player’s share price. Neymar could suffer a long-term injury and plummet in price or Neres could fancy a mega move to China, if and when he leaves Ajax. Alternatively, Neymar could drag PSG to the Champions League title and then singlehandedly carry Brazil to win the World Cup in Russia with many media and performance buzz wins along the way. Or Neres, on the back of some mesmerising performances for Ajax could be embroiled in an epic transfer saga with a number of top Premier League clubs before ultimately moving to the Premier League. That’s the beauty of the Index in many ways, it’s based on opinions and everyone has a different opinion.
My own conclusion is that if I am patient enough, in the long run my money is better invested in a potential superstar than a current one, like Neres for example, have I mentioned him?!