2011-2012 Offseason Thread

[Emmz]

The risk is about performance as it always is with an asset. If you were legitimately not trolling' date=' I apologize. You have been here a long time, so I had assumed that you had participated in one of the many threads where I debated this misnomer of "low risk/high reward". Research the threads. I'm not interested in going through it again. Terry Ryan is correct in his characterization. What he has said is 180 degrees from what Theo used to say. One of them has to be wrong. I've always debated the point that Theo was wrong. If anyone thinks Terry Ryan is wrong, post your reasons.[/quote']

 

The performance doesn't even factor with a minor league deal. You're not relying on them to be a contributor. I even said I think he's right this time, but because Zumaya is just that big of an injury risk. Mostly though, the performance is the reward, not the risk. Performance only factors as a high risk if they're not very good, and then the reward is low. If that's just not a valid argument to you, then I'll just say agree to disagree.

[Bellhorn04]

It seems to me Terry Ryan was saying high risk of failure, high reward if successful. And he was leaving out the financial part altogether. How much money did they lose with Zumaya?

[Bellhorn04]

Billy Beane calls the A's acquisition of Manny Ramirez low risk, high reward.

[Emmz]

1 year, 800k iirc.

[SoxFanForsyth]

It seems to me Terry Ryan was saying high risk of failure' date=' high reward if successful. And he was leaving out the financial part altogether. How much money did they lose with Zumaya?[/quote']

 

850k. Practically nothing. It's just a difference of definition. When I say "Low risk, high reward", I mean they have invested practically nothing and could get an elite RP in return. The reason he's a low risk player is because he's hurt. If he was not injured, he would be a $6-8mm relief pitcher.

[Emmz]

Billy Beane calls the A's acquisition of Manny Ramirez low risk' date=' high reward.[/quote']

 

Low monetary risk, not any legit injury risks, and a very high ceiling of success. Sounds right. Esp. For a minor league deal.

[The Boomer]

The risk is about performance as it always is with an asset. If you were legitimately not trolling' date=' I apologize. You have been here a long time, so I had assumed that you had participated in one of the many threads where I debated this misnomer of "low risk/high reward". Research the threads. I'm not interested in going through it again. Terry Ryan is correct in his characterization. What he has said is 180 degrees from what Theo used to say. One of them has to be wrong. I've always debated the point that Theo was wrong. If anyone thinks Terry Ryan is wrong, post your reasons.[/quote']

 

I think in general you are right, the term "low risk-high reward" is an impossibility if you take it literally. I don't want to restart a discussion that has already occurred many times, but I always thought that Theo meant it as "relatively low risk-relatively high reward". Most of the time he appeared to use it when comparing options (e.g., HS vs. colleges players, two different FAs). In relative terms, I think it is possible to get a high level of performance for less than it would cost on the "open market" via player development or good FA signings. However, the term was then misapplied to situations that were clearly (IMHO) low risk-low reward (e.g., Penny, Smoltz, Miller), possibly by Theo and definitely by others.

 

An example below:

 

"It starts with the draft. We are committed to finding the best available talent every year (sorry, I know that means nothing, but I have to say it... it's in the GM manual). In general, we look for low-risk, high-reward players. We make no secret about our belief that college players represent lower risks than high school players while offering comparable rewards."

[Emmz]

850k. Practically nothing. It's just a difference of definition. When I say "Low risk' date=' high reward", I mean they have invested practically nothing and could get an elite RP in return. The reason he's a low risk player is because he's hurt. If he was not injured, he would be a $6-8mm relief pitcher.[/quote']

 

Even at the low price, he was very likely to get hurt, so the risk is higher IMO. I don't see a risk as being one-dimensional.

[de coverly]

Is John Maine in camp right now? It was said that he signed a minor league deal but I have not seen him on any fotos and is not mentioned in any reports. He is also not not on MLB.com among the NRI players. Does anybody who is around Ft. Myers know anything about that?

[a700hitter]

The performance doesn't even factor with a minor league deal. You're not relying on them to be a contributor. I even said I think he's right this time' date=' but because Zumaya is just that big of an injury risk. Mostly though, the performance is the reward, not the risk. Performance only factors as a high risk if they're not very good, and then the reward is low. If that's just not a valid argument to you, then I'll just say agree to disagree.[/quote']Sure leave at that. If you were an investment manager and you used Theo's terminology with regard to the client's portfolio, he would be fired on the spot. A GM's payroll is finite. The GM plays the roll of the investment manager with regard to a team's payroll as an investment manager plays with regard to its client's portfolios.

[The Boomer]

Even at the low price' date=' he was very likely to get hurt, so the risk is higher IMO. I don't see a risk as being one-dimensional.[/quote']

 

LOL, sounds like an accounting discussion here. FWIW, I have always viewed the "risk" part of the equation as purely financial. The "reward" part is where you'd factor in injuries, which limit your reward.

 

I can see looking at it the other way too. However, if you include the chance that Zumaya will be on the DL in 2012, and factor in he has been on the DL for a lot of 2010 and all of 2011, then it's hard for me to see how you can call that "low risk".

[a700hitter]

Is John Maine in camp right now? It was said that he signed a minor league deal but I have not seen him on any fotos and is not mentioned in any reports. He is also not not on MLB.com among the NRI players. Does anybody who is around Ft. Myers know anything about that?

I don't think he was invited to Spring training.

[Emmz]

Sure leave at that. If you were an investment manager and you used Theo's terminology with regard to the client's portfolio' date=' he would be fired on the spot. A GM's payroll is finite. The GM plays the roll of the investment manager with regard to a team's payroll as an investment manager plays with regard to its client's portfolios.[/quote']

 

Not the same at all. Portfolios dont have injury, monetary and performance risk to factor in, like you can substantially look at in baseball.

[Bellhorn04]

I think in general you are right, the term "low risk-high reward" is an impossibility if you take it literally. I don't want to restart a discussion that has already occurred many times, but I always thought that Theo meant it as "relatively low risk-relatively high reward". Most of the time he appeared to use it when comparing options (e.g., HS vs. colleges players, two different FAs). In relative terms, I think it is possible to get a high level of performance for less than it would cost on the "open market" via player development or good FA signings. However, the term was then misapplied to situations that were clearly (IMHO) low risk-low reward (e.g., Penny, Smoltz, Miller), possibly by Theo and definitely by others.

 

OK, I will buy relatively low risk, relatively high reward.

 

To me the thing causing the confusion is what the term risk means here. I've always interpreted low risk/high reward as implying that if it fails, you're not going to lose that much on it. I might argue that Aceves was low risk, high reward. Especially because it's one of the few of ours that actually succeeded.

[Emmz]

Yeah, everyone has a different view of what the risk/reward is. This is going to be as bad as that big market/small market discussion, so..... Yeah.

[The Boomer]

Sure leave at that. If you were an investment manager and you used Theo's terminology with regard to the client's portfolio' date=' he would be fired on the spot. A GM's payroll is finite. The GM plays the roll of the investment manager with regard to a team's payroll as an investment manager plays with regard to its client's portfolios.[/quote']

 

In the world of finance, Joel Zumaya is the equivalent of a penny stock. Most likely a loser, but sometimes you can make big returns if you're lucky. If my fund manager wanted to use that as a strategy, I'd sell.In baseball, there are a finite number of penny stocks and it's possible you have inside information on which ones will be winners. So I guess you could make that a viable strategy. I'd go with better drafting first though.

[Emmz]

In the world of finance' date=' Joel Zumaya is the equivalent of a penny stock. Most likely a loser, but sometimes you can make big returns if you're lucky. If my fund manager wanted to use that as a strategy, I'd sell.In baseball, there are a finite number of penny stocks and it's possible you have inside information on which ones will be winners. So I guess you could make that a viable strategy. I'd go with better drafting first though.[/quote']

 

I agree totally, best way to put it, really, if you're comparing it to stock investments.

[The Boomer]

OK, I will buy relatively low risk, relatively high reward.

 

To me the thing causing the confusion is what the term risk means here. I've always interpreted low risk/high reward as implying that if it fails, you're not going to lose that much on it. I might argue that Aceves was low risk, high reward. Especially because it's one of the few of ours that actually succeeded.

 

Ex post facto, yes. But there were (and I suppose still are) serious questions about Aceves's back. My personal opinion is that the Sox got a better return for him because they used him in a way that worked for him (mostly long relief and a few starts). However, that limited his reward, because the big win is if he can be an effective #3-4 starter. We'll see about that this year, I guess.

[Bellhorn04]

The Yankees put two penny stocks in their rotation last year and got high returns on both.

 

There are actually a fair number of these stocks that hit, because baseball is such a weirdly unpredictable sport. That's why GM's keep buying them. Cherington couldn't get enough of them this offseason.

[a700hitter]

I think in general you are right, the term "low risk-high reward" is an impossibility if you take it literally. I don't want to restart a discussion that has already occurred many times, but I always thought that Theo meant it as "relatively low risk-relatively high reward". Most of the time he appeared to use it when comparing options (e.g., HS vs. colleges players, two different FAs). In relative terms, I think it is possible to get a high level of performance for less than it would cost on the "open market" via player development or good FA signings. However, the term was then misapplied to situations that were clearly (IMHO) low risk-low reward (e.g., Penny, Smoltz, Miller), possibly by Theo and definitely by others.

 

An example below:

 

"It starts with the draft. We are committed to finding the best available talent every year (sorry, I know that means nothing, but I have to say it... it's in the GM manual). In general, we look for low-risk, high-reward players. We make no secret about our belief that college players represent lower risks than high school players while offering comparable rewards."

He used the term incorrectly because it sounds better than the accurate investment characterization of the transaction. Low risk/high reward sounds better than high risk/high reward, and most people don't know the difference and can easily confuse cost with risk. I like to use the example of a lottery ticket. It only costs a dollar. The payoff can be huge, but the odds, i.e., the risk of winning are enormously high. Is the $1 lottery ticket a low risk/high reward investment? No, it is not. It is high risk/high reward, and that is precisely why it is low cost. If your investment manager invested solely in lottery tickets and told you that he had invested in low cost/high reward assets, you'd have him arrested or committed to an insane asylum. Risk with regard to a portfolios assets has to do with the quality of the asset and the probability that it will perform at market levels. You pay more for low risk assets than you do for high risk assets. You allocate less of your portfolio to his risk investments. The $800k invested in Zumaya is a small portion of payroll. That doesn't convert the asset into a low risk asset. You just invest a smaller portion of your portfolio in high risk assets. Ryan has it 100% right.

[a700hitter]

The Yankees put two penny stocks in their rotation last year and got high returns on both.

 

There are actually a fair number of these stocks that hit, because baseball is such a weirdly unpredictable sport. That's why GM's keep buying them. Cherington couldn't get enough of them this offseason.

So, penny stocks are low risk/high reward? That's completely wrong. It's not even a situation where we can agree to disagree. You are just wrong.

[a700hitter]

Not the same at all. Portfolios dont have injury' date=' monetary and performance risk to factor in, like you can substantially look at in baseball.[/quote']Portfolios investments have many performance factors that need to be considered. A greater percentage of investment managers get fired every year than baseball GM's. There's a lot to consider-- far more than a GM has to consider about a player.

[The Boomer]

The Yankees put two penny stocks in their rotation last year and got high returns on both.

 

There are actually a fair number of these stocks that hit, because baseball is such a weirdly unpredictable sport. That's why GM's keep buying them. Cherington couldn't get enough of them this offseason.

 

I wouldn't equate Garcia or even Colon to Zumaya, who was basically a lock to be miss a large part of the season on the DL. As it turns out, that number is 100%. But it was going to be above 50% in any case, at least based on his past history.

 

GMs buy reclamation projects because your options are limited; you can't just go out and find a proven, cheap closer or corner outfielder most of the time. Why not take a shot on Zumaya for less than a million dollars?

 

IMO, Cherington only has Aviles and Sweeney that kind of fit the Zumaya mold. Ross is a known quantity, as are Punto and Shoppach. The rotation is a big question mark, but not because we signed an Oswalt for cheap, but because we are trying to convert one or more good relievers to starters.

 

I think it's true that performance in MLB has a lot of discontinuities. But that works both ways. For every Jose Bautista who suddenly figures out the game after scuffling for years, there's a Grady Sizemore who can't get it together consistently after looking like he would be all-world. I would bet that the standard deviation of performance in MLB is much higher than in the stock market.

[The Boomer]

So' date=' penny stocks are low risk/high reward? That's completely wrong. It's not even a situation where we can agree to disagree. You are just wrong.[/quote']

 

If penny stocks are low risk/high reward, then why isn't everyone buying them? It's like free money. Which, of course, means the price would go up and they wouldn't be low risk anymore. Hell, I'll take as much of that as I can buy, if it's true.

[The Boomer]

He used the term incorrectly because it sounds better than the accurate investment characterization of the transaction. Low risk/high reward sounds better than high risk/high reward' date=' and most people don't know the difference and can easily confuse cost with risk. I like to use the example of a lottery ticket. It only costs a dollar. The payoff can be huge, but the odds, i.e., the risk of winning are enormously high. Is the $1 lottery ticket a low risk/high reward investment? No, it is not. It is high risk/high reward, and that is precisely why it is low cost. If your investment manager invested solely in lottery tickets and told you that he had invested in low cost/high reward assets, you'd have him arrested or committed to an insane asylum. Risk with regard to a portfolios assets has to do with the quality of the asset and the probability that it will perform at market levels. You pay more for low risk assets than you do for high risk assets. You allocate less of your portfolio to his risk investments. The $800k invested in Zumaya is a small portion of payroll. That doesn't convert the asset into a low risk asset. You just invest a smaller portion of your portfolio in high risk assets. Ryan has it 100% right.[/quote']

 

I agree with you when you are talking about assets with similar levels of information available about them. This applies to generally market-efficient structures like the stock market. When you introduce markedly different assets (e.g., my draft pick vs. Albert Pujols) with major information asymmetries, it is possible that low risk/high reward situations can occur. However, I see no evidence that anyone in MLB today is doing a great job of finding those situations consistently. So either they don't exist or they do and they aren't being captured. Either is possible, IMO.

 

I also agree that Theo was probably using the term because "low risk, low reward" sounds like he's not doing much and "high risk, high reward" sounds like he's gambling. Neither of which would have endeared him to the fanbase.

 

Sorry about the highfalutin' terms. This is an area of interest for me as a fan and professionally.

[a700hitter]

If penny stocks are low risk/high reward' date=' then why isn't everyone buying them? It's like free money. Which, of course, means the price would go up and they wouldn't be low risk anymore. Hell, I'll take as much of that as I can buy, if it's true.[/quote']Spoken, er I mean posted, like an astute investor. You are 100% right. If there was any such animal as a low risk/high reward asset everyone would want them, thus driving up their price, resulting in lower returns andconverting them into low risk/low reward according to the laws of economics of investing.

[User Name]

You can't directly equate stock investments to player signings. Too many different variables involved, specially in the inexact science of player investment.

[a700hitter]

I agree with you when you are talking about assets with similar levels of information available about them. This applies to generally market-efficient structures like the stock market. When you introduce markedly different assets (e.g.' date=' my draft pick vs. Albert Pujols) with major information asymmetries, it is possible that low risk/high reward situations can occur. [b']However, I see no evidence that anyone in MLB today is doing a great job of finding those situations consistently. So either they don't exist or they do and they aren't being captured. Either is possible, IMO.

[/b]

I also agree that Theo was probably using the term because "low risk, low reward" sounds like he's not doing much and "high risk, high reward" sounds like he's gambling. Neither of which would have endeared him to the fanbase.

Inside or special information about an asset/player would influence the risk classification, but while were are talking about a finite pool as compared to the broad investment markets, there are 30 GM's with scouting departments all looking to get the same information, so I'd lean toward saying that it (i.e., a true low risk/high reward player) doesn't exist, because you only need a couple of the GMs armed with the information to drive up the price.

 

Sorry about the highfalutin' terms. This is an area of interest for me as a fan and professionally.

I respect your professional background in this area. Your expertise is definitely reflected in the way you have been discussing this topic.

[jung]

While this is a bit of a distraction, the topic of equating player evaluation and risk reward to the stock market reminds of those hideous commercials on EEI for that guy's sports betting business, the commercials that talk about making "an investment in sports betting". Never heard anything so ridiculous in my entire life.

 

Frankly I have been somewhat disappointed in EEI for allowing such advertising content.

[a700hitter]

You can't directly equate stock investments to player signings. Too many different variables involved' date=' specially in the inexact science of player investment.[/quote']I made an exception an looked at your post, because I couldn't resist seeing what you posted about a topic in which you have absolutely no expertise. Investment management involves far more variables than player investment. Investment management is far from an exact science. The reason why they can be compared is that GM's like investment managers have a finite pool of money to invest in assets that will perform. Are the businesses and assets different? Yes, but not so fundamentally different than to change the nature of risk/reward. There is no such asset class in any large industry as a low risk/high reward assets.