The one thing I wish I knew before I started FI

Being able to properly value a player is the bread and butter of an investor on FI.

Good valuation work will let you identify undervalued players before anyone else, and it will give you confidence in your trading.

It’s especially important in your big holds. If you’re going to go big on a player, you better know for sure that you’re getting good value for your money.

It’s also something that I don’t see a lot of traders doing. Traders will buy players because they “think he’s undervalued” but don’t know where they value the player at. Sure, he might be undervalued now, but at what point does he become overvalued? If you’re not sure of his value, will you panic if his price drops?

In short, player valuation will give you certainty in your trades which is something the platform seems very short of in the current situation.

There are two methods of valuation which I like to use so lets get into it:

Method 1: Rational valuation

In FI, the only thing giving your holds real life value are dividends. Therefore, the rational value or the true value of a player is the money that they will return in dividends over the remainder of their career.

Currently, you can only hold bets for 3 years maximum, but when you sell at the end, the player will still retain his ability to return dividends for the years after, so they will still retain value.

It’s obviously pretty hard to accurately predict and takes a lot of research, but if done right can be a really accurate valuation method which gives you a lot of confidence.

It’s often done by looking at previous performance, and trying to predict future performance, taking into account other factors which you think might affect returns.

To give you an example, lets look at Kevin De Bruyne:

Embed from Getty Images

Last season, he returned 84p in PB dividends, and 7p in media dividends. It might be safe to assume he’d return similar amounts (before accounting for the dividends increase) in the future but there are some other factors to consider.

First of all, he’s been very unlucky in terms of actual dividends, compared to predicted dividends. His xdivs for PB last season was actually 96p instead of 84p. If you don’t understand xdivs, take a look at this article from indexgain: https://indexgain.co.uk/2020/02/07/xdivs-explained/

Now, he may be unlucky again and underperform, or he could actually end up being lucky and overperform his xdivs. So, to keep it simple, we’ll say that we expect him to meet his xdivs score and return 96p of PB.

At this point, you can factor in other elements which you think may affect his score. These can include new signings, changes in tactics, age and whatever else you think may affect his future PB output.

For example, we might say pep changing to a 4231 increases De Bruyne’s scores as he’s even more involved in the build up play, as shown by his monster 271 score against Wolverhampton with only 1 assist. We might therefore estimate around a 5% increase in dividends.

This is obviously pretty hard to predict, and almost impossible to value correctly. This is why being able to predict changes like these separates good traders from the great.

To keep things simple, we’ll avoid predicting the effects of factors such as the change in formation and say that he’ll return similar scores to last year. We can also assume that his media appeal hasn’t changed either so he’s not going to be winning MB at vastly different rates.

We can multiply the expected 96p in PB returns by 1.9 as there was around a 90% increase in PB payouts across the matchdays and we can multiply the 7p media returns by 1.33.

This gives us around £1.82 in PB returns and 9p in MB returns so £1.91 for the season.

Currently, he’s 29 years old so if we estimate that he’ll be returning the same amount and playing in a PB league until 33 that gives us 4 years worth of dividends lefts. £1.91 x 4 = £7.64 worth of dividends left.

If we estimate his IPD return to be 10p and TOTM return to be around 40p over the 4 years, it gives us £8.14 as his value.

At the time of writing, his buy price is at £6.50 which means that according to these calculations, he’s undervalued.

It’s important to note, however, that these types of calculations are very subjective. There’s no guarantee that he’s going to be playing at this level in a PB league until 33, it’s just an educated guess based on his quality and playing style. He might leave to join Genk at 31 leaving him void of PB. On the other hand he might do a Ronaldo and refuse to age while continuing to put up ridiculous scores.

Of course, I can’t even begin to describe the number of other factors which can affect his PB output, but factoring in some of the biggest variable can make a big difference to your valuation.

Predicting future dividends also gets harder to do, the further along you try to predict – a bit like the weather, which is why it’s so difficult to accurately value a young player.

This was just intended to be used as an example of valuing a player. It’s definitely not 100% accurate and I wouldn’t recommend any by shares of KDB of the back of this post.

method 2: Comparative valuation

This one is a bit more straightforward to do, and as the name suggests, involves comparing players.

I would recommend this more for beginners who wouldn’t be confident doing a rational valuation, but as you become more experienced, you should definitely be doing more rational valuation.

It usually works best when you compare two players who are of similar price, and having a larger sample size to compare will often give you the best results.

So lets look at KDB again. In this instance, lets compare him to Joshua Kimmich as he’s a similar price.

If we look at their past dividends win, and estimate them to return similar amounts, then we can see KDB returns about 20% more than Kimmich per year.

This is obviously in De bruyne’s favour but on the other hand, Kimmich is 4 years younger which more than makes up for this 20% difference. With this, you have now estimated that Kimmich is better value than De bruyne.

If (theoretically) we did valuation work before and estimated that De bruyne was priced fairly, then we can also work out where we value Kimmich at:

De bruyne’s Price/Number of dividend years left = dividends per year for KDB

If we divide this by 1.2 (as KDB earn 20% more divs per year) then multiply that by the number of dividends years we estimate Kimmich to have, then we have our estimated value for Joshua Kimmich.

As we can see, it does work best when you’ve already valued one player, but if you have a lot of players around the same price, you can fairly accurately find players who are really good value, even if you won’t have an exact number.

One thing to be wary of, is using young players as comparison. A lot of the value in youngsters come from their potential to earn dividends, rather than their proven dividend return. This will have been calculated in their rational value, but means that they should be avoided as benchmarks in comparative valuation.

Final thoughts

In theory dividends are the only thing that underpins value, so the rational value of a player should be their price. However, the actual price is determined by traders, so there will be a lot of biases which will affect the actual price.

There are too many biases which affect traders, so I will have to keep that as a separate post.

The point is, the market price, won’t always reflect the player value. One bad game or a small injury can see players drop when their value hasn’t changed. This is why you need to be confident in your holds and in your valuation work.

Happy trading

DJ

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