Moneyball scouting part 4 - buying the dips

'Buying the dips' is a stock market strategy where you load up on share purchases after significant falls in value. The FTSE 100 share index hit 7000 points in 1999. It didn't reach those heights again until 2017. But at various times the market was as low 3600 points. Someone with £100k worth of shares who bought them in 1999 would only just be breaking even (excluding dividends) whilst someone who used the buying the dips strategy could have doubled their initial investment.

The problem is telling the difference between a dip and a slump.

And the same is true when buying players.

Imagine 2 identical players:

Player 1 has scored 15 goals from 10 xG in their debut season.

Player 2 has scored 7 goals from 10 xG in their debut season.

Who would be worth more at the end of that season? Player 1 for sure.

In the second season, this situation is reversed.

Who is worth more now? The steadily improving Player 2 who has gone from 7 to 15 goals. Or the overhyped Player 1 suffering from a bad case of "second season syndrome" who has been "worked out" by defenders?

Again, both these players are identical.

But real players aren't identical. So how do you tell your Harry Kane slow burners from your Ritchie Humphrey shooting stars that fizzle out?

And how do you tell if a decline or an improvement is due to a system or role change?

Last summer you would have had to pay £60m for Milinkovic-Savic or Leon Bailey after superb goalscoring seasons. This summer they may be £20m less after relatively poor showings. Do you buy the dip, or was last season a massive overperformance?

If you are buying a player on top form off a great season are you planning on using them in exactly the same role? Do you play the same style of football? Mo Salah is great in Liverpool's system which allows him to utilise his strengths. Would he be as great at Cardiff? Almost certainly not. But that doesn't mean the inverse is true and that Josh Murphy or Junior Hoilett would be stars at Liverpool.

But if you are buying the dip with a mid-career player who has failed at a big club do you know why they failed? Buying a player whose stock has fallen could be a good thing if they rediscover that form, but it may be that there is a good reason for that fall in value. Just like a once innovative company who are just dialing in rehashes of their previous bestsellers footballers can get lazy too. That £25m player from Manchester United reserves on £300k a week might not be as hungry to learn as the youngster looking to break into the Premier League big time.

Warren Buffett, the world's most successful investor, has some advice on buying dips.

"The best thing for us is when a great company gets into temporary trouble. The best time to buy is when they are on an operating table"

Telling what is temporary trouble and what is a potential decline is tricky with individuals, more so than companies. You have to avoid the easy narrative of "being found out" or "not wanting it anymore".

Current data helps but as it tends to reflect form it isn't always the best way. I've suggested before looking at old data. Looking at when they previously were on form, what were the factors that enabled them to play well, what has changed? Can you get character references from current teammates or staff?

With youngsters, you are probably more inclined to gamble. Take someone like Pulisic, on this year's form, he isn't a breakout future star. But in the last two seasons, he has looked to be on that trajectory. I'm not sure at £50m whether you would say Chelsea have brought a dip, but they have to believe this is a dip, not a plateau.

But there are plenty of examples of players who have thrived later on in their careers. The "Indian Summer" enjoyed by people like Gordan Strachan, Richard Gough, Andy Gray and Gary McAllister (non Scots get them too) shows that sometimes you just need the right club and manager and form can be rediscovered,

So in summary buying dips is a good strategy but you need to do your research into why the dip has happened and not just accept the narratives.