Football INDEX Insight: Portfolios for Dummies
Knowing where to start when assembling your portfolio on Football INDEX of money making superstars can be a daunting business for a newcomer to the platform, especially if you have little or no prior experience of market trading/investing.
Therefore, I thought it might be useful to assemble a simple little guide that might help you make your first buys, and hopefully lead to your first profits.
Have a Strategy
Having a game plan is important for any football manager, and being able to execute that game plan can often be the difference between winning and losing on the pitch. The same applies to investing, and therefore to your portfolio on Football Index (FI).
To work out your strategy you need to first know what your aims are, what you are trying to achieve, how much money you are willing to risk and what level of risk is acceptable to you.
Each person has a unique approach as each person has a unique set of aims and requirements. For me, while I take my investments on FI very seriously, I see it as more of an opportunity for a bit of fun, and to generate some semi-passive growth on a small proportion of my overall investment portfolio.
I am not here to win millions, buy a beamer and drive off into the sunset. Not yet anyway. I also don’t want to spend hours on end buying and selling players day in day out, known as ‘flipping’ on the forums, or what you might have heard of as ‘day trading’. Therefore my strategy is to generally avoid the hoo-ha surrounding big player rises and falls, re-allocating assets game day to game day fantasy football style, and instead stick with a longer term reduced risk approach.
However, as most of the value in players is driven by the media and performance buzz payouts (called dividends, it means you get money if a player you hold shares in finishes top of the live rankings that day), the most expensive players are those who occupy a lot of media attention (Media Buzz/MB) and those who consistently perform very well according to Opta statistics (Performance Buzz/PB)
Therefore, if you want a chance at making respectable profits on FI then you need to allocate a certain percentage of your portfolio to these top players regardless of what your strategy is. But this is a risky game, and nobody wants to blow a few hundred quid in their first few weeks.
Having worked out what you are aiming to achieve from FI, you can start thinking about how you are going to allocate your cash. The general rule of thumb in the investing world is to have 20% of any portfolio supported by low yield, but dependable, ‘bond assets’ that can lessen the blow in times of trouble.
On FI there is no ‘bond’ asset class, as there are no bonds. However, taking a quick look down the ‘squad players’ list, you will see some players who’s general trends are of slow and steady growth. These players will allow you to continue seeing green on your portfolio during volatile months where big name players experience sharp peaks and troughs.
The other 80% is to some degree up to you. If you are new to investing and/or new to the FI platform I would advise against putting all of that 80% on top 10 players targeting dividends. Instead, a more considered approach, for example, would be to have 30% put towards players you will hold for the medium term (a month to a year max). These are often players who are looking at transfers to big clubs in the coming windows or are in line for a major tournaments such as the World Cup or Champions League, who you are hoping to cash in on as their moment in the spotlight begins to fade.
Then you may want to put 50% towards the players expected to be earning regular and consistent dividends. Their values are often volatile so don’t panic when Salah sheds 10% in the space of two days, he’ll bounce back up. Unless you are up all day and all night, by the time you realise the players price is plummeting it is probably too late for you, don’t panic, just sit it out.
Ah yes the boring bit, research research research. It is claimed that Warren Buffet spends eight hours a day researching the companies he invests in. This might seem daunting, but simply put, don’t just buy a player you heard a random rumour about, and definitely don’t just buy a player because he’s trending.
If you believe in a player’s ability to achieve your goals as part of your portfolio, then you can consider investing in them. You also want to consider the risk of investing in certain players and whether that risk is acceptable to you. Try and sleep on a decision instead of rashly jumping into a buy, I’ve bought on a whim before and they are always the ones that cost you!
Researching not just a players potential, but also how they perform on FI is so important. In that 50% of your portfolio where you might be targeting dividend payouts, expect that these players are going to experience sharp increases and decreases in price.
Knowing the players current performance, their standing within their current team and with their manager, what has been said about them in the media, links with big transfers and selection for top ranking national teams at major tournaments are all things you might want to consider.
I would recommend creating a checklist that you can tick off when researching a player, if a player ticks enough of the boxes that you want, then an investment is a reasonable option. Of course what you put on that checklist is up to you.
Portfolio Size Example
Finally, the number of players you have in your portfolio can be a difficult problem to tackle. This largely depends on the amount of cash you have available. As an absolute minimum I would recommend purchasing 10 shares in one player. Anything less than that is relatively pointless, although obviously it depends on how much you have to play with. There are some big timers who say their minimum buy order is 100 shares, frankly most of us don’t have the money for that.
The key when starting out is to keep it as simple as possible. For the sake of simplicity let’s say you have deposited £500 (the amount of FI’s initial risk free week long offer) and you don’t know how to spend it. If we are to follow the example of the 20/30/50 split we discussed earlier then your allocation might look like the following:
£100/20% will be spent on those long term holds that support a baseline rate of growth in your portfolio.
Lets say the average price of these types of players is about £1…ish.
With a minimum position of 10 shares you are looking at about 10 players here. Of course you may go for 5 players with 20 shares each, 4 players with 25 or any other split.
Diversification in this section is important again. The more diversified you are, the safer you are, so try spread the shares across a few different players.
£150/30% will then be spent on players you are expecting to hold for the short-medium term.
Let’s say the average price of these players is about £3. At a minimum of 10 shares per player you are looking at about 5 players here that you are expecting to turnover for a sizeable profit.
This is where the solid research really pays off!!!
Expect fluctuations, but the general trend at this stage of FI’s life is up.
Deciding when to sell is the topic of another article.
Again as newbies we are not looking at quick ‘flips’ or ‘day trading’, we are looking at making medium-long term gains and riding out the volatility on the way up.
The term ‘maximising profits’ will be bandied about, don’t worry about that just yet. Trying to ‘maximise profits’ with a constant repetition of buy low sell high is a difficult game and best left to the more experienced heads.
The final £250/50% is for the big guns. The top ranking players who are earning dividends regularly.
As dividends are paid per share you want as many shares in an individual player as possible.
Of course the risk here in the short term can be scary, if you go big on 1 player you are likely to have days when your profits start shrinking very considerably.
Try and buy these players after they have suffered a recent fall, as long as you believe they are going to provide value again in the near future.
If we say the average price here is around £7, you are looking at around 35 shares to play with.
Depending on how acceptable risk is to you, and how confident you are in your ability to ride out the volatility of the top players, will dictate how many shares you allocate per player.
As an initial investment maybe look for 2-3 players you think can regularly bank you dividend payouts.
You may wish to change the weighting of your portfolio based on your acceptance to risk. The 20/30/50 split is just an example, and one that I use personally because it suits my needs. But those needs are unique to me, and may not suit you. So take the time to work out what you want/need, you may even want to invert to a 50/30/20 split, it’s up to you.
I hope this guide will help you to get an idea of how you might want to structure your portfolio for the first time. This is not a be all and end all, and I don’t claim to know more than what I know, if that makes sense…
Anyway keep learning, be smart, and happy trading!
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Written by Chris Wyles.