Thursday, October 02, 2003
Investing in Beane Futures
Or, extracting the Money from Moneyball...
Steve Galbraith, Chief Investment Officer at Morgan Stanley and Red Sox fan, has published a report about investing, "Searching for the Financial Equivalent of a Walk," using theories from Michael Lewis' baseball book, Moneyball.
You can imagine Galbraith probably isn't too excited about discussing anything to do with the A's this morning, but here are some excerpts from his report:
The book revolves around the seemingly inexplicable success of the Oakland A's, who, in finance terms, consistently and significantly outperform the market with players (stocks) that other teams (investors) deem rejects. The added twist to the story is that the A's General Manager, Billy Beane, was a former wunderkind whom scouts once viewed as a can't-miss propsect - a kind of Enron of the sandlot if you will...
The beauty of the baseball-team-as-stock-portfolio analog is that, as with money management, both growth and value styles have shown an ability to win. As much as we hate to admit it, the Yankees, with their absurdly high-P/E players, have consistently outperformed the market. In contrast, the Mets, with equally high P/E's, have massively underperformed. Conversely, the A's, made up of players trading below book value, have continued to shine, while Tigers fans seem to be getting just what their management is paying for - the 1962 Mets...
Nevertheless, Galbraith writes that growth stocks are the "financial equivalent of a .280 hitter with a .290 on-base percentage." (Looks like Tampa Bay's Carl Crawford is your growth stock of the year.)
Everybody "knows" the bullet-tossing prom king will be a success, so scouts overpay for him. Investors similarly fixating on growth rates are often playing in a picked-over field. If high degrees of success have already been achieved or are forecast, where's the upside...
What is an even more obvious way of underperforming than drafting a strapping slugger who runs a 4.40 40-yard dash or a company that has achieved wonderful recent success in increasing earnings. How about buying a stock that has just gone up - a lot...
In baseball terms, walks = success. But walks are boring. Walks are passive. Walks do not illicit oohs. As such, walks are grossly undervalued ... Price to earnings, price to sales, and yup, even price to book are the financial equivalents of walks. Again, if one were to buy systematically the cheapest quintile of sotcks on these metrics while selling short the dearest, one might enjoy an early retirement...
Moneyball has confirmed to us that baseball is not only a metaphor for life, but also for finance. Just as being a Red Sox fan prepares one much better for the realities of life than being a Yankees fan, understanding the nuances of baseball can translate to the nuances of investing. In both fields, sizzle is vastly overrated. In an era characterized by corked bats and corked financial statements, give us steak, give us walks, give us cheap stocks.
The thing about this report is, the people who would really benefit from it are baseball team officials - and certainly the media covering those teams - more so than your average investor. Many baseball insiders have misinterpreted Moneyball (assuming they read it at all), thinking it a book merely about the virtues of on-base percentage, rather than what it is - in fact, a book about making good investments.
Perhaps this report is a way to get them to understand. It's about value. The name of the game is not always the names of the game.
Round about midnight last night, Ramon Hernandez pulled an R.J. Reynolds to win Game 1 of the Boston-Oakland playoff series for the A's.
100 Touch 'Em Alls
Six Dodgers made ESPN.com's list of the 100 Greatest Home Runs of All Time.
As of this writing, in a poll on ESPN's site, Gibson's home run was leading as the greatest of all time - but not as the greatest World Series home run of all time. Just shows you the vagaries of plurality voting - recall proponents take note.
- 99) Dick Nen: 1963 pennant race
Sept. 18, 1963: Nen's 9th-inning, pinch-hit HR ties the game for the Dodgers against pennant-race rival St. Louis. The Dodgers go on to win in 13 innings. It is Nen's only hit of the season.
- 86) Steve Yeager: Game 5, 1981 World Series
Oct. 25, 1981: With the series tied 2-2, Dodgers Pedro Guerrero and Yeager hit back-to-back homers off the Yankees' Ron Guidry for a 2-1 victory. The Dodgers win the series in six games.
- 79) Shawn Green's 4th HR in one day
May 23, 2002: Green's HR in the 9th at Miller Park caps a 6-for-6 day, sets a record with 19 total bases (he also doubles and singles) and ties a record with six runs scored.
- 55) Mike Scioscia: Game 4, 1988 NLCS
Oct. 9, 1988: Doc Gooden leads 4-2 in the 9th when Scioscia -- with just three HRs in '88 -- ties the game with a two-run shot. Dodgers win the game in 12 and the series in 7.
- 27) Rick Monday: Game 5, 1981 NLCS
Oct. 19, 1981: Monday sends the Dodgers to the World Series with his ninth-inning solo shot off Montreal's Steve Rogers for a 2-1 win.
- 8) Kirk Gibson: Game 1, 1988 World Series
Oct. 15, 1988: The great Vin Scully: "All year long they looked to him (Kirk Gibson) to light the fire and all year long he answered the demands. High flyball into right field. She is gone! [pause] In a year that has been so improbable, the impossible has happened." Indeed. A 4-3 A's lead turns into a 5-4 Dodgers stunner.
On the other hand, Dodger pitchers were on the wrong end of 11 of the top 100: Nos. 96, 95 (sort of) 70, 63 (sort of), 45, 31, 21, 16, 13, 9, 3 and 2.
Rather than further abuse fair use privileges and print them all here, I'll let you try to guess what they were. Hint: Chan Ho Park leads all pitchers by having allowed three of the 100.
Wednesday, October 01, 2003
The Dodger Playoffs
It was our kind of baseball - without us.
The postseason opened Tuesday with three taut playoff games, with scores of 3-1, 2-0 and 4-2.
The six teams that played combined for 36 hits. They combined for one home run.
Three of the six teams delivered three hits apiece.
Cubs pitcher Kerry Wood had the only double in Atlanta, one of two extra-base hits in that game.
Edgardo Alfonzo had the only extra-base hit in the Marlins-Giants game.
Tuesday, September 30, 2003
This was published Friday, but in case you haven't seen it, Allen Barra explodes the myth that there is no competition in baseball on Slate.
Dodger 2003 OPS by Batting Slot (with League Rank)
No. 1 batters: .622 (16th)
No. 2 batters: .609 (16th)
No. 3 batters: .804 (12th)
No. 4 batters: .757 (16th)
No. 5 batters: .785 (10th)
No. 6 batters: .645 (16th)
No. 7 batters: .731 (7th)
No. 8 batters: .633 (13th)
No. 9 batters: .416 (15th)
Dodger 2003 OPS by Position (with League Rank)
Pitchers: .305 (11th)
Catchers: .732 (8th)
First basemen: .710 (15th)
Second basemen: .703 (13th)
Third basemen: .702 (12th)
Shortstops: .576 (16th)
Left fielders: .646 (16th)
Center fielders: .682 (14th)
Right fielders: .809 (9th)
If you are last in the league in offensive production at two positions, and if one of those positions provides great defensive value, then you need to priortize finding someone for the other position.
Ceasr Izturis is an offensive liability - perhaps so big an offensive liability that his outstanding defense cannot compensate. But before the Dodgers find a new shortstop, they had first better find a good-hitting left fielder (one that could legitimately bat fourth in the lineup would be nice).
And if Shawn Green is moving to first base, then the team's next mission is to find a good-hitting right fielder.
And unless those two new outfielders are poor defensive players, the Dodgers' third priority should be to find a better-hitting center fielder.
Dave Roberts? He had an OPS of .638 last season. Factor in his 40 stolen bases and 14 caught stealing, and you would add 26 total bases to his offense, giving him an OPS of .704. Not enough. To put it in perspective, Roberts (.248 EQA) had a poorer season than Tom Goodwin (.256 EQA).
Jolbert Cabrera? He had a good season for the Dodgers, but his OPS in part-time duty was .775. He was hit by 10 pitches, but walked 17 times all year. Dave Roberts and Jolbert Cabrera would give you a great bench.
Start in the outfield with some real solutions. Then, and only then, try to improve the infield, whose defense at least can help the pitching staff maintain its excellence.
And by the way, Paul Lo Duca should stay at catcher. The Dodgers just need to show more confidence in their backup catchers, who also hit adequately for the position.
For the Love of the Game (And a Good Haircut)
No better way to enter baseball's second season than to read this story by Alex Belth at Bronx Banter.
Branching Out, Time Permitting
If you're interested in reading my thoughts about my other area of pseudo-expertise, go to TV Thoughts. It's something I've been wanting to do, but will no doubt roll out as haphazardly as someone driving a stick shift for the first time. Feedback is welcome for this work-in-progress.
Monday, September 29, 2003
Unhealthy Climate, Revisited
Mike Branom writes:
I'd like to register a complaint against the Dodger training staff. (I believe you have made similar comments.) Doesn't it seem to you that an above-average number of medical controversies seem to befall our boys in blue? Green's shoulder, McGriff's groin, Perez's finger, Beltre's appendix, the various - and expensive - disabilities of Brown and Dreifort.
Somewhere, within the nexus of players-trainers-coaches, is a dysfunction. Does Jim Tracy throw his top players on the field, no matter how poor their health? (Wow - imagine quiet ol' Jim, acting like Bear Bryant.) Is Stan Johnston's crew simply bad, misdiagnosing injuries? Budget cutbacks in the trainer's office? (Think "Major League," with the jury-rigged whirlpool. Also, Marge Schott's 14-year reich in Cincinnati had penny-wise pound-foolish training staff; remember the scandal over Eric Davis' lacerated kidney in the 1990 World Series?)
Is there mistrust between the players and Johnston, where they'd rather lie? The first man I'd like to testify on this topic is Odalis Perez.
Johnston, going off the media guide, is an organizational soldier, but behind the lines, if I may stretch the metaphor. He started with the Great Falls team in 1985 and has worked his way up the chain: Bakersfield, Albuquerque and assistant in The Show. I'm not going to lay everything at Johnston's feet - who knows what's happening behind closed doors. But this is a matter that needs to be addressed in the offseason. Will Dan Evans do it? This is his second year as Johnston's boss, so he should have formed an opinion by now. If the team is sold, with the new owners even look in that direction, or will they be too busy hiring architects and contractors so they can cram housing into Chavez Ravine, or lobbying for a downtown stadium? Good organizations are proactive about the health of their players - end of story.
Does an above-average number of medical controversies seem to befall our boys in blue? If you take the question literally - addressing not medical ailments, but medical controversies, than perhaps the answer is yes.
Mike is right in that I am worried that Dodger management reacts emotionally to player injuries. As I wrote recently about the Odalis Perez situation, I fear that the Dodgers have created a climate where you become suspect if you complain about an injury that they don't take seriously.
Will Carroll has made it pretty clear on Baseball Prospectus that injuries are not bad luck - but as manageable as any other aspect of the game. There may be only so much you can do with a Darren Dreifort - and for that matter, Johnston and his colleagues may deserve praise just for getting a couple months out of Dreifort this year - but yes, the fact that there is repeated second-guessing about evaluation of injuries concerns me.
And yes, I don't expect that the organization is going to pay any attention to this concern during the offseason.
P.S. Mike also passed along this link to a December 2002 article about former Dodger Onan Masaoka, who decided to walk away from the major leagues at age 25 rather than become the Hawaiian Jesse Orosco. He is going to college for a degree in communications while volunteering as a pitching coach.
With Nothing Left to Root For but a Cubs-Red Sox World Series...
... because it would be the greatest sports matchup in history, some more random Dodger notes:
Allowing 34 runs in their final five games, the Dodgers let their team ERA swell to 3.16 for the season. They still led the league by more than half a run, but it wasn't a strong finish to say the least...
Guillermo Mota entered Sunday's game in the eighth inning, and Todd Linden struck out to end the eighth. But that strikeout came against Paul Quantrill, leaving Mota with 99 strikeouts and denying the Dodgers two 100-K relievers...
Shawn Green led the Dodgers with a .280 batting average, the lowest to lead the team in Los Angeles Dodger history. Adrian Beltre's 23 home runs were the lowest to lead the team since Eric Karros' 20 in 1992. Green's 85 RBI were the lowest to lead the team since Mike Marshall's 82 in 1988 - although special mention should go to 1986, when Bill Madlock led the Dodgers with only 60...
The Dodgers have finished with a record above .500 in seven of their past eight seasons, their best stretch since 1976-83...
The Times writes today that the Dodgers may want Green to move to first base. Nothing wrong with getting the increasingly clumsy Green out of right field, but the newspaper adds that the rationale might include the Dodgers resigning Jeromy Burnitz amd moving him to right. As a Dodger, Burnitz had an on-base percentage 30 points lower than Cesar Izturis and a slugging percentage 33 points lower than Beltre. Whatever Burnitz seemed to have solved in the first half of the season with the Mets, he apparently lost when he moved West. However, I'll take a closer at Burnitz later this week.
2004 Dodger Schedule
MLB.com has posted the tentative 2004 Dodger schedule here. According to this schedule, the Dodgers open the season April 5 at home against San Diego, and finish the season at home October 3 against San Francisco.
The first regular season games against the New York Yankees at Dodger Stadium are slated for the weekend of June 18-20.
Interesting to note that while every other opponent is listed by location name, the Expos are listed by team nickname. Guess MLB doesn't believe that it's safe to call the team Montreal for next season, but is confident enough to call them the Expos.
Maybe we should focus on finding the perfect city for that nickname. Could anything make more sense than to have a team called the Expos play in our local underused sports facility in Exposition Park? Los Angeles Expos, anyone?