The Myth of Buy Low, Sell High by Peter O’Neil

(Peter O’Neil will be contributing fantasy baseball columns from time to time.)

In early May fantasy guru Ron Shandler published a list of 10 hot starters, among them Fred Lewis and Kyle Lohse, and proposed trading them for another 10 out-of-the-gate stumblers. That list included fantasy favorites Robinson Cano and Roy Oswalt.

“I am trading away 28 HRs and a .355 batting average for 8 HRs and a .172 batting average. Heading out is a 1.94 ERA; coming in is a 5.61 ERA. I’d have to be completely out of my mind, right?” Shandler wrote on his site.

“We’ll check back in October.”

The point of this column was to wisely and usefully stress the importance of being patient with slow starters. He was also urging subscribers to follow the old stock market adage: Buy low, sell high, which he said is not something “that fantasy leaguers do easily.”

Really? As an owner of red-hot Fred Lewis at the time, I began a thread on his website¹s forum under the title of this column ­ The Myth of Buy Low, Sell High.

“I can’t count how many times in the last two weeks I’ve floated Lewis’s name in trade talks. Zero interest. If anyone took him it would be as a throw-in,” I wrote.

“You regularly see on this and other sites a reference to a player: Sell high; to another, Buy low.
But where are all the guys doing these deals? It reminds me of a saying from high school I once heard: Everyone is getting laid except the girls. In my experience these trades almost never happen. And when they do, and the results are as predicted, that newby has learned his lesson and never does it again. The shark who pulled off the heist gets a bad reputation and it
becomes harder and harder for him to make deals.

“So in fact I suspect that at minimum nine owners out of 10 would take the team of established stars, like Oswalt and Cano, over the other list.”

The debate began with someone helpfully explaining that curious imbalance I noted involving high school boys and girls: “Guys were getting sex hand over fist.”

As the debate turned more serious, several agreed with my point. The classic buy-low, sell-high trade “still doesn’t happen in my league. Ever,” one poster wrote.

“Candidates you think you can ‘sell high’ are perceived by everyone else as players that will revert to their original projections. Candidates you think you can ‘buy low’ are held by their owners because they’re just slumping.”

Another poster was one of several who argued that my basic “myth” argument was flawed.
“Nearly every day, I read of a lopsided trade completed by a poster on these forums that provides a counter-example to the notion that buy low, sell high trades are only a myth. Some of us say it isn’t happening in our leagues, but clearly it happens in many leagues.”

The last post I’ll cite came from someone who also challenged my argument, but also made the point that is fundamental in this debate. “With the internet making all sorts of secondary stats easily available as well as tons of expert analyses, owners are smarter than they have been in
the past. And most of us are hardcore-type rotogeeks who choose not to play in leagues with unsophisticated owners, anyway.”

So I considered these responses in early May as I started crafting an earlier draft of this column which led to the final product you¹re reading now. I made the point that one might have to start being counter-intuitive and contemplate taking advantage of the fact that hot starters’ values are
discounted, while the slow-starting superstars like Miguel Cabrera are always assumed to be on the verge of a huge breakout.

“If your player has started slowly, and you see a valid reason to question whether touts were right to hand him such lofty projections, it might not hurt to put feelers out that you’re ready to trade,” I wrote.

“You should have absolute faith that with quality players, the sharks will smell blood when think they have a shot at getting these players at 50 cents on the dollar. You shouldn’t sell them that low, but it may indeed be a wise move to trade at a slight discount or even no discount at all ­ particularly if it means getting back break-out player who might not turn out to be a
flop after all.”

Early in the 2007 season, when Michael Young was off to a miserable start and I was desperate for a shortstop, I offered to the owner my recently-acquired free agents who had started strong ­ Josh Hamilton and closer Al Reyes. I also gave him Juan Uribe, but he could have easily
received my struggling Troy Tulowitzki had he just asked. I was going to waive Tulo but instead, after the Young trade, dealt him for a useless middle reliever.

This was a classic buy-low (Young’s price presumably being deflated) and sell-high (I paid next to nothing for these three players). In fact, it turned out that I gave away a closer and an emerging stud OF in exchange for a modest downgrade at SS. Even then I had to twist the guy’s arm to give up Young, his third-round pick.

My point here is that even when you get someone to agree to a deal like this, you always have to discount severely the current value and future potential of your hot starters in order to overcome the overwhelming skepticism about April surprises. Everyone recognizes a buy-low, sell-high
deal and the last thing anyone wants is to be fingered by leaguemates as the Nervous Nellie who panicked and sold a costly pick to the league shark.

So you have to seriously wonder if it’s better to be on the sell-low side of the ledger sometimes. More recently I read of a sell low trade in which someone dealt slow-starting Corey Hart in early May for Casey Kotchman and George Sherrill. But did he really sell low? Hart started slowly in the power department, raising doubts about pre-season projections of a 25-25 or 30-30
season, though has recently picked up the pace. Still, I think the Hart owner got close to full value: ­ a closer and a solid emerging first baseman. Hart has only had one great season in the bigs, and the 2007 year was powered by two huge months.

Then in mid-May managing editor Ray Murphy produced a column titled: Buy High, Sell Low.

“The advice is ubiquitous at this time of year, both here and at other sites: ‘He’s a good buy-low candidate.’ ‘Sell high while you can,’ Murphy wrote.

“Some would say the words have lost all meaning, as executing this strategy is now impossible in all but the most elementary of leagues,” he said, citing the thread I started.

Murphy, who had never been exposed to my unpublished argument about the potential wisdom of selling low, suggested that owners consider turning the strategy “on its ear” and went on to identify “buy high” candidates whose fast starts were indeed legitimate, including Kerry Wood. (Potentially, and this is my point rather than his, these buy-high candidates could come at a
slight discount because owners might have their own doubts about the players’ ability to sustain their current performance level.)

Murphy’s readers were also advised to consider “selling low” on some slow starters that he didn’t think have either the skills or opportunity to turn it around, like HQ spring training favorite Jason Kubel.

So is buy low, sell high really a myth? Not completely. We¹re all human, so many of us are prone to eventually getting impatient with an underperformer, making us more inclined to sell. And it’s natural to become euphoric when a sleeper pick emerges as an April-May all-star. These emotions remain dynamics in any trade considerations, just as fear and greed will always be
factors in the stock market.

But I think it’s important not to beat yourself up because a fantasy expert declares smugly that it’s too late, you¹ve missed a golden opportunity to sell high on or buy low on a particular player. Because increasingly that opportunity isn’t really there, or isn’t particularly golden if it is.


(Peter O¹Neil, who covers Europe from Paris for a Canadian news agency, is a
former stock market columnist for the Financial Times of Canada. He won the
2007 Rotoman¹s Regulars non-keeper title and is multiple winner of the Brian
Baskin¹s Fantasy Baseball Pool based in Ottawa.)

3 thoughts on “The Myth of Buy Low, Sell High by Peter O’Neil”

  1. Thanks for making a point I’ve made repeatedly at my own site. You’re not going to “sell high” on a marginal player unless other owners are convinced he’s a good player. And, if other owners are convinced he’s a good player, it’s not because they’re stupid, but because there are enough data points and Internet experts pointing out that he’s a good player and that the trendlines are in his favor.

  2. Looking back at this makes me think about Cliff Lee. If you sold “high” on Lee on May 15, chances are you still sold too low, since now one was paying you for the 0.60 ERA (or whatever it actually was) he put up through his first six starts.

  3. not sure if you’ll ever see this Mike but great point on Lee because in Shandler’s post-mortem it turned out that his list of overperformers who you should sell high on actually outperformed — by a huge margin — the underperformers he was suggesting last may we invest in. One of those overperformers was Lee.

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