Monday, May 26, 2008

The Big Hurt as undervalued stock--Moneyball, cont.

The Oakland A's have established a reputation as a heterodox organization ever since Michael Lewis wrote Moneyball, which focuses on the market-oriented, stats-driven model advanced by GM Billy Beane. Earlier today sports blog Athletics Nation posted an interview with Beane, who's recently been looking like a magician again: 
Blez: Would you had made the decision to bring Frank [Thomas] back if the team hadn’t gotten off to a pretty good start?

Beane: Yeah, I think so. Our history suggests that if you can make incremental improvements, you should. Yeah, it’s hard to imagine not being interested in Frank.
The A's traded two of their best players in the off-season--Dan Haren, and Nick Swisher. 2008 was supposed to be a "rebuilding" year, so if they hadn't won early and often, conventional wisdom dictated that they should have avoided signing an aging slugger who may only play part of one season. But when the roster is viewed like a stock portfolio, the market for players appears fluid, and the distinctions between "rebuilding" and "competing" seasons instantly blur. Beane is saying here that Thomas may not be an appreciating asset, but he was still undervalued by the market and therefore worth adding to the portfolio, regardless of whether the team can make a run at the playoffs. The dividend? In 27 games with the team this year, Thomas has hit 4 home runs, and sports a .921 OPS, fifth best in the American League, while the A's pay Thomas a pro-rated amount of the league minimum $400,000. Notably, the Blue Jays, who inexplicably released Thomas in April, will pay most of his $8 million salary. Additions like Thomas, motivated by this incremental approach, help explain why the A's have won so many games in recent years even though they've consistently traded away or declined to re-sign their top players (Jason Giambi, Miguel Tejada, Tim Hudson, etc.), who demand top dollar--and largely on the basis of past performance. In short, Beane has bought low and sold high repeatedly and systematically, and as a result the A's have won more games this decade than every team in the league except the Yankees (whose team payroll is routinely two-to-four times larger than Oakland's).


Joe said...

The moneyball strategy - as it relates to investing - is a great one if the goal is consistent value. However, as with investing, selling your winners early preserves and ratchets profits at the expense of the occasional "home run". In the case of the stock market that may mean the 20-bagger small cap...can we not consider a World Series ring to be a proper analogy?

So in evaluating the success of the Moneyball Strategy, maybe we should identify the goal: steady but unspectacular success or the infrequent but ever-satisfying championship.

Anonymous said...


Perfectly said.

Who cares if you win 70 games a year forever?

Sports are like sex, not matter how good it is, its pointless without the climax.


David Archer said...

Thanks for the comments. A few thoughts:
First, Oakland's management faces financial constraints while teams like the Yankees and Red Sox can spend freely. A 20-bagger isn't much of an option when you have a limited amount of money to throw around and superstars like Johann Santana are simply not on the radar.
Secondly, the goal is, indeed, to win it all, but you have to remember that the playoffs are a big crap shoot. The Yankees ostensibly go for la petite mort every year, and yet, they haven't won a World Series since 2000.
So I think full seasons, considered with factors such as run differentials, provide a more comprehensive picture of how well a team's "system" works than looking for WS trophies.

Nick said...

could you please comment on the "climax" analogy?

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