Dynasty, in Theory: Stop Buying Low and Selling High

There are better ways to build your roster.

I mentioned last week that the most common questions I get are about trades, and many of those questions fall into one of a few broad categories. Two of the big ones are the “buy low” and the “sell high”, (sometimes combined into a single “buy low, sell high” question).

Essentially, someone will ask me “player X has struggled recently and his price has fallen. Should I buy him?”, or “player Y has played terrifically the past few weeks. should I sell him?” And to these questions, I always have to respond with the spectacularly unhelpful “that depends on what you’re giving/getting.”

Because to me, the idea of buying or selling just based on what a player’s value has done recently misses the point entirely. I think people need to stop trying to buy low and sell high entirely.

An Apology in Advance

Before we begin, I do want to say that I know people who have tremendous success with a “buy low, sell high” mindset. Many of them are wonderful people who spend just as much time thinking about dynasty as I do. I don’t want to say that their approach can't work. These owners' success belies any attempt at such a claim.

I also know people who have had a lot of success making win-now trades. That hasn’t stopped me from writing against that practice, too. Here at Dynasty, in Theory, we’re not afraid of taking a shot at conventional wisdom when we feel it’s warranted.

“Buy low, sell high”, as an overarching strategy, is not the worst approach you could have. But it's not the best one, either, because of a few key blind spots.

We’re Talking about Value Again?

Long-time readers might notice that I seem to have a fixation on talking about valuing players in dynasty. I think that’s a fair accusation. I love talking high-level strategy and granular tactics, but at the end of the day, if your player values are solid you’re probably going to dominate no matter what you do.

So if this feels like a recurring theme, hopefully you’ll forgive me, because it’s an important one. I’ve written in the past, (most clearly in those first two links), that there are really two types of value. The first is “actual value”, which translates to the amount that a player will help you win championships. The second is “perceived value”, which translates into how much you can trade a player for at any given time.

Another way to look at it is that “actual value” is how much you think a player will contribute to your ability to win championships, while “perceived value” is the broad market consensus about how much that player will contribute to championships in general.

The terms “actual” and “perceived” are merely descriptors. “Actual value” is not really “actual”, since it’s just your personal prediction, which will frequently be wrong. “Perceived value” is real value just as much as actual value is. I use the terms because I’ve found them to be intuitive, and because they make communicating on the subject easier. They are useful.

While perceived value is certainly real, a note must be made that it is only real value at the moment you cash it in via trade. Quoting from the first article: “Perceived value is a tool that you can use to acquire actual value, but at the end of the day, actual value is the only thing that determines how successful you are at achieving your goals. Perceived value is a parachute that allows you to soften the landing if a player crashes, but like a parachute, it only works if you actually pull the ripcord before hitting the ground.”

Think of perceived value like the appraised value of your home. Appraised values rise and fall, but by and large, they only matter at the moment you buy your house and the moment you sell your house. If you bought your home before the housing bubble for $100,000, and the appraised value rose as high as $200,000, you didn't actually gain any money unless you sold at the peak of the bubble. All gains and losses in perceived value are phantom gains and losses until they're locked in with a trade.

The “buy low, sell high” mantra is typically understood, (or, one could argue, misunderstood), as “buy players whose perceived value is low, sell players whose perceived value is high”. But perceived value, on its own, is meaningless. What matters is the comparison of perceived value to actual value.

LaDainian Tomlinson’s “perceived value” was sky-high throughout his career. But the reason it was sky-high is because his actual value was sky-high. Tomlinson won a lot of teams a lot of championships. Owners shouldn’t have traded him just because his value was high; they should have traded him when they felt his trade value outstripped his actual value going forward.

Just a Few Ways “Buy Low, Sell High” Fails Owners

Let’s imagine that an owner had a simple rule. If at any point any of his players’ value doubled from the cost he paid to acquire him, he would sell that player. The theory behind this rule makes sense. If an owner keeps doubling his investments, he’ll eventually acquire a very valuable portfolio.

But the application is never as clean as the theory. Let’s say this owner drafted Anquan Boldin with a 2nd-round rookie pick in 2003, then traded him after his first game for two future second-round rookie picks. In theory, if each of those new second-round picks started well and doubled in value, the owner could start compounding his gains.

But those 2nd-round rookie picks probably aren’t going to start hot and double in value. Most players picked there will fluctuate and see spikes and valleys, but the most likely outcome is that those picks become busts and, rather than doubling his assets, the owner just squandered what value he had.

Some owners seem to believe that they’ll be able to consistently chain aging stars into younger rising stars. They’ll point out that Randy Moss was great, but if you’d traded him after his huge 2007 you could have gotten Larry Fitzgerald, who could have been swapped in 2012 for Demaryius Thomas, who could have been traded this offseason for DeAndre Hopkins, which would have kept the cycle going. Instead of a few more top seasons, a successful chain could give you a difference-making WR1 in perpetuity.

But this is hindsight bias at its worst. Why would the Randy Moss owner have traded him for Larry Fitzgerald and not, say, Braylon Edwards, who was a former #3 overall draft pick who was fresh off of producing 1289 yards and 16 touchdowns at age 24?

And why would the Fitzgerald owner have opted, presciently enough, to trade after 2011 when Fitzgerald was just 29 years old? Why wouldn’t he have held on for another year to trade at 30? And why Demaryius Thomas and not, say, Percy Harvin or Mike Wallace; Harvin was a year younger than Thomas and coming off of a top-10 fantasy finish, while Wallace was 25 and coming off of back-to-back top-10 years in standard scoring. Thomas, on the other hand, had just 832 career receiving yards before Peyton Manning landed in Denver.

Which is my big problem with “buy low, sell high”, in a nutshell. It’s a fantastic theory that’s way too optimistic about our ability to apply it in real life. The market is good at pricing players, and for the most part, a player’s value is as likely to move down as it is to move up at any given point, confounding our efforts to “buy low” and dooming half of them to failure.

It is difficult, (verging on impossible), to time the market. This quick game demonstrates the concept with the stock market. Dynasty player values aren’t perfect analogues to the stock market, but a lot of the challenges remain the same. When a player’s value is trending upwards, how can you tell when it has peaked and when it’s still climbing? When a player’s value is trending downwards, how can you tell when it’s reached rock bottom and when it’s going to drill right through?

I remember in 2013 having several discussions about Zac Stacy, who was drafted in the 5th round of the NFL draft but was sneaking into the 1st round in dynasty rookie drafts. I thought it wasn’t wise to invest so much capital in a player of such questionable talent. One of the most frequent responses I got was that, with immediate opportunity, Stacy’s value was likely to climb and he could be sold later for a profit.

The Zac Stacy supporters wound up being completely vindicated on their thesis. Stacy produced 1110 yards and 8 touchdowns in just 12 starts, a pace that would pro-rate to 1500 yards and 11 scores over a full season. His value climbed through the roof; after the year, Stacy was being drafted as a top-12 running back, going in the first three rounds of startups. The opportunity for profit was immense.

The problem? From what I saw, very few of them actually reaped those rewards. Why on earth would anyone trade away a 23-year-old workhorse who had just produced at a 1500/11 pace as a rookie? And so most Stacy owners held and watched the bottom drop out of his value again, because they were unable to see at the time what is now obvious with hindsight; the time to sell had finally arrived.

And that’s just it. With the benefit of hindsight, it’s always very easy to see the optimal “buy point” and “sell point”. If we managed our leagues with the benefit of hindsight, “buy low and sell high” would be the dominant dynasty strategy. But from a forward-looking standpoint, execution on the ideal is just going to be too inconsistent to rely on it as a roster-building philosophy.

So Who Should We Buy? Who Should We Sell?

If the avid “buy low, sell high” owners are like the day traders of fantasy football, I consider myself more of a value investor in the mold of Warren Buffett. Buffett believes more in buying things that are inherently valuable and trusting that the valuation will generally reflect that in the long run.

This philosophy is perhaps most succinctly illustrated in a story he tells to explain why he doesn’t invest in gold:

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Gold, you see, doesn’t have any value except that people are convinced it has value. It has a few industrial applications, but most of those could be filled with another metal in a pinch.

Compare this to silver, for instance; silver is the most conductive metal of both electricity and heat, is also the most reflective metal, and never corrodes. As a result, it is virtually irreplaceable in numerous industrial applications, from solar panels to water purification to dentistry to the production of musical instruments. It is used in bandages, (where it helps prevent the growth of bacteria), coats CDs, and is even sometimes incorporated with yarn and woven into socks, (again, to inhibit bacteria growth and reduce foot odor).

Gold, one could say, has a very high perceived value but little actual value. Silver, on the other hand, has much less perceived value, but its actual value is tremendous. And, indeed, despite eschewing gold investments, Buffett invests a substantial sum in silver.

This is my philosophy at a glance. Invest in assets that have real, tangible value and trust that the market, over time, will recognize and reward that value. Do not chase assets with little inherent value simply because you believe you’ll be able to sell them for more later.

For me, then, the key for when to buy and when to sell always lies in the interplay between actual value and perceived value. I want to buy players whose actual value exceeds their perceived value. I want to sell players whose perceived value exceeds their actual value.

Sometimes this means buying low on players. Injured players are the famous example I always give; I believe that the market tends to overprice injury risk, which means perceived value typically lags actual value when a player is hurt.

Other times, though, it means buying high on players. DeAndre Hopkins right now would be a possible example; according to my valuations he’s the #1 dynasty receiver, so even giving up something like Julio Jones to acquire him— a shocking example of “buying high”— could still yield positive value.

Similarly, when a player I own sees his perceived value creep up beyond where I think it should be, I will sell. Sometimes that happens when the public perception of him rises, and it’s an example of “selling high”. Other times it happens when my own perception of him falls, and it’s an example of “selling low”.

One example of a trade I made earlier this year was giving Davante Adams for Dion Lewis after week 2. Adams wasn’t playing well and his value had declined slightly from his preseason high. Lewis was playing spectacularly and his value had risen. From that standpoint, this trade could easily look like a sell low, buy high— the exact opposite of the trades you should stereotypically be looking to make.

But from my standpoint, Adams’ perceived value had always been too high for an unproven young talent, and the market was seriously underrating Lewis based on New England’s history with backs who clearly weren’t nearly as good. So for me, it was a net gain in actual value, regardless of what the perceived value said.

Now, when I say “don’t buy low and sell high”, I mean only that this shouldn’t be your core philosophy. Obviously it’s better to buy a player for less than to buy the same player for more. I can think DeAndre Hopkins is a good buy today and still recognize he would have been a better buy two months ago. When I label him a good buy today, though, I’m merely saying that he’s still likely underpriced, regardless of where he was valued two months ago. Unless I can get my hands on a time machine, his value two months ago is irrelevant; we can only benefit from his value from this point forward.

At the end of the day, that’s what I think the goal should be in trades— to leverage perceived value to increase actual value. Instead of “buy low and sell high”, the mantra should be “buy undervalued and sell overvalued, regardless of whether low or high, and regardless of where that price was two months ago”.

Which is why, when asked whether an owner should be looking to buy or sell a given player, my response is always the same. “That depends on what you’re giving or getting.”

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