By Brendan Poots, of Priomha Capital
Leave emotion at the door and profit from sport
With rogue traders predicting doom, US unemployment on the increase, China slowing down, the Euro about to collapse and gold even on the slide is there any safe haven for our hard earned dollar?
The answer to that is an unequivocal yes, but one needs to think a bit differently, put their associated biases to one side and be open minded. The ultimate recession proof and uncorrelated investment is something that is familiar to everyone – it is just that most have not realized it… Sport.
It took a World War to stop the Olympics, so rest assured a few jitters on the stock market and a rise in unemployment will not see any sport ceased just yet.
Warren Buffet, the Sage from Omaha, has been often quoted as saying, “Invest in what you know”. Speak to a soldier in a far off land fighting to protect our shores, or a house-wife in the middle of her daily routine and she will understand the concept of sport – winning and losing. It is the easiest concept to understand, far simpler than the CFDs, CDOs, LBOs and VC investing that a lot of our hard earned dollars have been used on in recent times.
This weekend in Australia sees the most popular winter sport reach its conclusion. It is akin to the Superbowl, the World Series, NBA play offs and Stanley Cup all rolled into one. In short the AFL Grand Final will bring the country to a standstill. Everyone has an opinion, emotions will run high and as is the want of most Australians, everyone will have a bet on the outcome of the match. The amounts invested on this match will be equivalent to a small African nation GDP and 99% of this money will be money invested with emotion, no analysis, and “for a bit of fun”.
If you can remove yourself from the 99%, invest without emotion and undertake some analysis you can make a little or a lot of money – and that is when investing on sport really “is a lot of fun”. That is the premise upon which Priomha Capital was formed. It is the World's best performing Sports Hedge Fund with its flagship CLONEY Fund up over +90% since inception two years ago.
The protagonists in the AFL Grand Final this year are Collingwood and Geelong. This wont mean much to anyone outside of Australia, but to put it in perspective, Collingwood are the New York Yankees or Manchester United of the AFL, while Geelong are akin to the Kansas City Royals. They a small town team, that just so happens to be very good this year (Geelong fans, don't ridicule me for this analogy!). Collingwood fans baptize their children in the teams black and white striped shirts and many a divorce has originated from a desire to support anyone but Collingwood. In short, Collingwood fans are the most vocal, supportive and one-eyed in Australian sport. And herein represents the opportunity for the 1% who chose to elevate themselves from the emotion associated with such personal bias.
Collingwood has played Geelong twice this year – each time they have been beaten - the second time, only a few weeks ago by 100pts (akin to the mercy rule being applied in baseball). Geelong should be favourites for the match but as the markets opened they were paying as much as $2.26 compared to Collingwood at $1.76. Enter the emotionless investor.
The early markets were clearly wrong, biased towards the support and emotion of Collingwood. The early part of the week will see support for Geelong from the non-Collingwood fans and as such their price will come down and Collingwood's will increase….but we are only at Wednesday. Come Thursday, Friday and the morning of the match on Saturday, the Collingwood fans, armed with one eye in the middle of their forehead, black and white face paint and their pay-packet under their arm will back their beloved team. The Collingwood team's odds will decrease and the Geelong price will increase.
This is the perfect storm for Priomha.
We have outlined below how we have traded on this match – based on no emotion, some in depth analysis and with a good deal of common sense.
Priomha Trades
One week before the match – Geelong @ $2.10, Collingwood @ $1.86
Trade 1: $200 on GEELONG TO WIN @ $2.10 (average price)
Potential profit of $220 if Geelong win, Potential loss of $200 if Geelong lose
Wednesday Trade – Geelong @ $1.86, Collingwood @ $2.10
Trade #2: LAY (or “short”) GEELONG for $225 @ $1.86
Potential profit of $225 if Geelong lose, potential loss of $193.50 if Geelong win
CURRENT POSITION
Outcome #1 - GEELONG WIN: $220 (trade #1) - $193.50 (trade #2): PROFIT = $26.50
Outcome #2 – GEELONG LOSE: -$200 (trade #1) + $225 (trade #2): PROFIT = $25.00
As we sit here on Wednesday morning, over three days before the match, we have a profit of at least $25 guaranteed. That is enough to order a good-sized pizza and a six-pack of your favourite beer to be delivered on Saturday afternoon in time for the match. Rest assured, both the pizza and the beer will taste that little bit better knowing that the one-eyed Collingwood fans have paid for them. Add to that the fact that you don't care who wins you can spend the Saturday relaxed and enjoying the “show”.
If free pizza and beer are a little low-brow, then one could have easily upped the ante with the trades so that one could spend the latter half of the week looking for a new timepiece, holiday or similar. Additionally, one could spend the rest of the week, using guaranteed profits to trade in and out of positions as each opportunity surfaced. For Priomha at least, we will take the beer and pizza, as we need to start researching this weekend's English Premier League matches.
Equipped with the right approach, the correct mindset and a little bit of common sense trading on sport can be highly profitable and represent an invaluable addition to your portfolio. Too emotional or not enough time for analysis – give Priomha a call.
As Warren Buffet proclaimed, “Invest in what you know”… Priomha knows sport. © 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
