The Financial Statements

Previously, we wrote very briefly on how analysts use fundamental analysis to examine stocks. Typically these analysts would first analyze the financial statements of the firm. In the same way, every football team has such "report cards". We shall examine Manchester United's EPL record here.

We have upgraded the Goals Frequency Chart to include the scoring ability of a team over the whole season, past 10 games and past 3 games. You will observe that Man United's scoring ability has fallen over the past few games. Average goals in the whole game have dipped from from 2.1 to 1 for 10 games against 3 games.

We will compare the Goals Frequency Chart to a firm's income statement. An income statement is a financial statement that gives operating results for a specific period. So the Goals Frequency Chart explains how well a team has performed for the whole season, 10 games and 3 games.

Our next post we shall cover more "financial statements" to give a comprehensive picture of a team's past performance.

Fundamental Analysis

If you do a wiki search on analyzing stocks, you will find that there are main 2 schools of thoughts. Fundamental analysis is concerned with analyzing companies Technical analysis studies market and stock trends.

For value investment philosophy, the investor should not be concerned about trends. It explains that one cannot predict trends and secondly, once a trend is established, it will be broken. Thus value investors should concentrate on using fundamental analysis to value stocks.

So what are the basics of fundamental analysis? Using Google Finance, you will find the income statement and balance sheet. Reading these "report cards" are very tedious, so to sort through thousands of companies faster, the stock summary from Google Finance helps you with your decision making.

The value investor will be mostly interested in P/E or price earning ratio and EPS or Earnings Per Share. P/E ratio is simplest way for investors to decide whether the stock is worth researching. You can find the explanations at http://en.wikipedia.org/wiki/P/E_ratio#Interpretation

FUNDAMENTAL ANALYSIS FOR SOCCER BETTING

How do we conduct fundamental analysis for soccer betting? In the same way, we first need to find the "report cards". Then we will need to have some ratios to decide whether a game is researching on. We will reserve this for the next post.

Ignoring Trends

In value investing, Benjamin Graham argues that stock market trends or fads are only short-term.

"Why should future returns of stocks always be the same as their past returns? When every investor comes to believe that stocks are guaranteed to make money in the long run, won't the market end up being wildly overpriced? And once that happens, how can future returns possibly be high?"

Therefore, the true investor should always ignore trends because after a period of time, it will no longer be valid. This is also why books that claim mathematical formulas can win big are never applicable. Formulas are created retrospectively and track trends that do not exist forever.

"The passage of time brings new conditions which the old formula no longer fits."

The truth is formulas do not work on the long-run in stock markets or soccer betting. Theory cannot replace experience and old fashion "Fundamental Analysis".

In our next post, we will discuss using "Fundamental Analysis".

Building a Portfolio for Soccer Betting

"Do not scatter your shot. The great successes of life are made by concentration" Andrew Carnegie


In the commentary of the "Intelligent Investor" by Jason Zweig, most of the richest people in this world have made their fortunes by putting all their investments in one single basket.

On the flipside, he also noted that "Most big fortunes have been by one investment, while no small fortunes have been made this way and not many big fortunes have been kept this way."

We are suggesting that you should make a small fortune in soccer betting by spreading out your bets.

ALLOCATION

In market investments, it is most ideal to spread out in stock and bonds. This is known as allocation. In soccer betting, you first allocate your bets in a few leagues that produce the more consistent outcomes.

For example, if you invest in goals, you will want to choose consistent goal leagues such as Dutch Eredivisie and EPL. If you like picking teams to win, you should focus on a few leagues that have big guns who keep winning.

Next, you set up the % of funds that you want to invest in each league. For each league, you should choose only up to 30% of the best games of each league to bet on.

For example:
Dutch Eredivisie - 50% of funds (3 games)
English Premier League - 30% of funds (3 games)
German Bundesliga - 10% (2 games)
Spanish La Liga - 10% (2 games)

Along the way, you may change your allocation to keep up with trends. As trends will keep changing, never over-invest in one team or over-invest in one league. Unless you are controlling the game, there is no such thing as a sure result

You must have discipline to keep the structure of your portfolio.

Value Investing Strategy: Building A Portfolio

In our research on value investing, we have used a book considered by Warren Buffet as the best book ever written on investment. "The Intelligent Investor" by Benjamin Graham is a must read. BTW we are not advertising for Amazon!

Portfolio theory, which is to hold a mix of investment assets, is used by all professional investors to mitigate risk. In investing terms, risks is the threat where your assets will decline in value. The idea behind portfolio theory is "don't put all your eggs in one basket".

If your portfolio allocation is defensive, your assets will be widely spread across the market, which will reduce the risk of your investments declining in value. In modern portfolios of mutual funds, which are generally defensive, they will likely consist of stocks, bonds and treasury bills.

If your portfolio is more aggressive, you will add more risky assets which are more speculative. Graham suggests that like a gambler you should only limit yourself to max 10% of your portfolio to be speculative assets. Hedge funds would often short the market to earn huge profits.

How will this apply to soccer betting? We will examine the possibilities in our next post.

La Liga Sunday Preview

SUMMARY
Sporting Gijón vs Almería
Racing Santander vs Real Sociedad
Málaga vs Espanyol
Athletic Bilbao vs Villarreal
Valencia vs Sevilla

Serie A Weekend Preview

SUMMARY

Fiorentina vs Roma

Bari vs Chievo

Bologna vs Genoa

Inter vs Lecce

Napoli vs Cagliari

EPL Weekend Preview

SUMMARY

Tottenham vs West Ham (Saturday)
Blackburn vs Blackpool (Saturday)
Manchester United vs Bolton (Saturday)
Stoke City vs Newcastle United (Saturday)
West Brom Albion vs Arsenal (Saturday)
Wigan vs Birmingham (Saturday)
Everton vs Fulham (Saturday)

Dutch Eredivise Weekend Preview

SUMMARY

NAC Breda vs Groningen (Saturday)
Heracles vs Heerenveen (Saturday)
NEC vs De Graafschap (Saturday)
Excelsior vs Twente (Sunday)

Day Trading vs Value Investing: The Danger of Online Brokerages

Value Investing teaches you to spot undervalued assets, buy them low and sell them high. Value Investing requires you to find an opportunity, then do the necessary research such as Fundamental Analysis and understanding the stock's business. After that, you buy the shares and stay patient, not allowing yourself to be affected by the ups and downs of the market.

However, in our internet age, the ease of buying and selling shares through brokerages and betting on sports online websites, makes us ignore the importance of doing research and having patience.

Many become Day Traders or people who buy and sell shares within a single day. They buy at any opportunity and sell at every small profit. For soccer bettors, we are 100% confident that more than once, you have clicked on any random game that you have no idea about, and say "its 50/50 anyway, just go for it".

Professional traders do not do day trading as its proven not to be profitable. Similarly if you are betting to win, you should never engage in such behavior. Use analytical tools and stay patient. A football season is 9 months. Invest to win on the long run.

What is Value Investing?

Value Investing is the buying of shares that are underpriced. To know whether these shares are underpriced, Fundamental Analysis has to be conducted.

Non-finance students may have hard time understanding the above. In simple terms, this means buying low and then selling high. Warren Buffet is perhaps the most famous value investor ever.

WHAT IS AN UNDERVALUED BET?

In the stock markets, there are many methods to value shares that are underpriced. As you graduate from football betting to investing in stocks, you should be keen to understand valuing methods such as P/E ratios, Cash Flow Analysis, Dividend Discount model etc. 

In football betting, every weekend we have been posting statistics that we think would be useful. From the statistics, we analyzed that a bet is undervalued when the probability of winning is greater than the odds. 

For example, if a team were to score 1 goal every 10 minutes, the chance of scoring between 80 - 90 minutes is 11%. If you were to refer to Scoring Minutes Chart and find that a team scores 25% of its goals between 80 - 90 minute, this may be an undervalued bet.

We do believe there are other methods to find undervalued bets. If we find them, we will definitely post them here.

What you need to know about Warren Buffet: Value Investing

So far we have been using Warren Buffet's ideas to find parallels between investing and football betting. However it is important for our readers to note that there are many different types of investment styles that are successful.

Warren Buffet's strategy is called "Value Investing" which was created by his mentor, Benjamin Graham. In the next few weeks, we will explore how to use the concept of value investing in football betting. 

How to Invest Successfully

In Warren Buffet's preface to Benjamin Graham's book (his mentor), The Intelligent Investor, he wrote this:

"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."

Football betting and investing stock is the same in this aspect. Two questions here:

"Do you have a framework for making decisions?" - What is your strategy in making decisions?

"Are you letting emotions corrode the framework?" - Do you stick to the plan even when results are against you?

Sunday Preview: Italian Serie A