To diversify my portfolio, or not?

Diversifying your portfolio is one of the most basic tricks of the trade in the stock market. If you don’t bank too much on a single company’s success, but rather create a portfolio of varied, cross-industry stocks, the old adage says that you’ll succeed. In it’s most basic and unscientific form, is the same strategy worthwhile?

Pictured below are some pretty pie graphs of my draft breakdown thus far in 2012. I’ve drafted in five out of the seven leagues I’m participating in this year, and found myself building a core, generally, around a whole slew of different guys each time.

Is that a keen strategy—using my end game, and even centerpiece picks, on a variety of guys, assuring—in theory—the chances for success? Or, like in Vegas when you’re feeling good about a certain game or a certain line, should I have “whacked” a certain player, gone all-in, and drafted him in every single league (say, an Alejandro de Aza, Cory Luebke, or Carlos Gonzalez, all of whom I own in three out of five leagues so far)?

image
image

I own 16 percent of my hitters in more than one league, and 23 percent of my pitchers twice or more, for reference. But it all comes down to personal preference. Feeling a big year coming from Carlos Gonzalez like I do? Not so risk-averse? Bid him up in every league and put all your money where your mouth is.

My personal bend is to diversify my assets and simply look for the best deals where available. This draft season, I’ve found my strategy pretty straightforward and repetitive: draft a couple of studs, spend a good deal on pitching, but generally hold my money until the mid-range players come around and buy whomever I choose. Jordan Zimmermann and Cory Luebke, to a certain extent, fit that mold; I’m not targeting them, but they’re falling to me. I’m paying less for their value than what I should, and that, in it’s simplest form, is how to win any given league.

A couple of reminders when chasing a player you love:

What’s the difference?

I’ve seen, by nature of participating in a good number of drafts over the past few weeks, a bunch of guys bid past the projected value of a player on a site like Yahoo, only to be pushed one number further and drop out. Sometimes—and this is what doesn’t work for me—the chat box will read, from the recently outbid, “I was willing to go (insert arbitrary number here) but wasn’t willing to go (insert arbitrary number plus another bid, usually $2) on him.” Err… If you’re willing to spend $27 on Clayton Kershaw, for example, but aren’t willing to spend $29 on him, you’re letting self-doubt rule the day. I’d put the likelihood that Kershaw’s actual value lies in the $27-$29 range at “very low.” What one is really thinking when they self-confirm their dropping out of the bidding is, I’d think, “Crap, maybe I oughtta spend my money elsewhere! Or let this guy or gal with a fat stack left burn some of their cash so I can have the most money left!” Don’t self-doubt, and don’t back down at such levels. Target your guys and go get ‘em.

Don’t price enforce

By all means, if you’ve pinpointed a couple of guys that you feel you absolutely need to build around, don’t play the role of the price enforcer. By pushing the price up on guys you have no intention of buying, you’re playing into a risky strategy that may not pan out (i.e. when you get stuck with Chris Carpenter for three bucks trying to push his price up to pre-draft value of, say, seven dollars).

That said, deplete the market and pounce

Especially if you play in a keeper league, it would certainly be a deft move to take into account position scarcity and current rosters and, depending on the situation, try to fill others’ gaps. Say, for instance, I play in a 10 team NL-only league, and there are seven or so catchers kept. I figure I need Brian McCann or things might get ugly, but there are, plausibly, the two other teams without a catcher competing for McCann’s services to fill their void. I spot Buster Posey, who I’m low on this year, still hanging on my draft board, and throw him out there very well knowing I’ll eliminate one of my competitors for McCann: I sit back, relax, and enjoy the show. Now, of course, such a situation is unlikely (catcher is pretty weak this year, let me tell you), but the idea rings true at any point in the draft and in many analogous situation. Take money out of the total pot without price enforcing.

So, you feeling lucky on Carlos Gonzalez this year? Play your cards right, put a chip in each of the pots, and hold your breath.

Print Friendly
 Share on Facebook0Tweet about this on Twitter0Share on Google+0Share on Reddit0Email this to someone
« Previous: Things are trending up
Next: Comparing players between historical eras part two: pitchers »

Comments

  1. Dupicles said...

    The idea of diversification isn’t new, but I’d argue that it is more important to diversify within each league you participate in than to diversity across different leagues.  What I mean is that you should try not to draft multiple players from the same ML team in the same league.  Instead of drafting the leadoff and #3 hitters from the same team, try to find a substitute from a different team that has roughly the same expected value.  There’s too much covariance between the two; if, for instance, Jose Reyes gets hurt, Hanley Ramirez’s RBIs may well decrease and you’d suffer twice from a single injury.  And, of course, each year there are teams that just implode and everyone performs worse than anticipated. Minimize the risk by selecting players from as many different teams as possible.

  2. Brian said...

    Good article, Jeff.  No, the idea of diversification isn’t new, but it’s always fun to explore.

    FWIW, I’ve owned a plethora of Rangers and Rays on multiple teams the last two years. Reigning back-to-back champ.  Just sayin’…

    Alas, your point is a valid one, Dupicles.  I very well understand these two championships could very well be attributed to timely trades, sleeper picks, and killer advice from @thtfantasy (see: Javier Vazquez’s 2011 2nd-half).

    However, sometimes it can be detrimental to worry about the domino effect of injuries rather than the amplification of owning stud players in powerhouse lineups.  I draft based on my expectations of player performance and not on the potential (and not always correlated) fallout of injured players’ effects on teammates (see: Holliday).

    Back to the article, I agree with Jeff: go get your guys.  You value them, go get them.  Like a stock in which positive/negative news is already “priced in” to the share price, your player evaluation already considers, among many factors, the effect of other hitters in the lineup.  I’d advise not to get too caught up in single-year fantasy diversification.  The principle is more significant over a long period of time (e.g. buy-and-hold stock portfolio strategies) than it is for a single-year draft.  As it was mentioned, the argument is a bit different for keeper leagues, but I digress.

    You draft to win – throw caution to the wind!  If you want to draft a team full of Pirates and Astros, well – actually, don’t do that.

  3. Brian said...

    Apologize, Nick.  I tend to associate feeds from @thtfantasy with Jeff, apparently!

    Same holds, though.  Fun article, and there really isn’t a wrong answer (yet), so the analysis exploring the risk/reward of the various strategies is undoubtedly welcomed!

  4. Derek Ambrosino said...

    I don’t pay much attention to the heterogeneity of my teams. One of the reasons for this is that I know there are a number of factors that lead toward you winding up with multiple repeat players. I’ll list a few.

    1. Most simply, if you’re high on a player you will reach for him. Getting players you target is an important part of a draft/auction strategy. So, just acting on your opinions is a factor.

    2. Another side of the same coin is that in an auction, for example, there’s are two facets to the player duplication question. Did you get player A twice, and if so, did you get him for the same price. There will be a lot of pitchers that go for $2, say, and knowing that, there will be some $2 pitchers I like more than other $2 pitchers. So, those players will find their way onto my teams without reaching.

    3. I try really hard not to let, I already have that player be a reason not to acquire him. If you believe in a player, you believe in him – whether its a small or large bet you are making on him. I wouldn’t fret about having Albert Pujols on too many of my teams, so why would I fret about having any other player I like on too many teams?…

    4. Repetition is also a reflection of having a plan – it means you have a reason why you are picking the same player over and over. Much like how novices trade just for the sake of, diversifying for its own sake has limited value.

    …Now diversifying among players you really like. Or, attempting entirely different, but well-conceived, team building strategies, that I’m all for.

  5. Bob said...

    In my experience, your “Deplete the Market and Pounce” strategy often has the opposite effect.  Using the players you used in your example, my experience is that often another owner will also be targeting McCann, and as a result, Posey goes for less than expected.  Then when McCann comes up, since he is the last high-value guy available, there is even MORE of a premium on him than usual. 

    I got stuck paying $9 for Ryan Hanigan in a 2-catcher NL-only league last year because by the time he came up for bid, he was the ONLY catcher remaining expected to get meaningful playing time.  I have no doubt he would have went for only $4-5 if he had come up a few rounds earlier.

  6. Nick Fleder said...

    Can always happen, Bob, but I think of an example where there are something more like four or five SS you like left and throw one out; maybe you’ll eliminate a competitor and if not you land your player. Sometimes depleting can have the same outcome, but a backup plan is indeed a keen idea.

  7. Todd said...

    I think diversification across different teams in different leagues is irrelevant (it’s not that you should or shouldn’t do it, it’s that it doesn’t matter). Unlike your stock portfolio, the resources in different leagues are completely independent. Winning one league, or not, doesn’t affect another league. Whatever strategy makes sense in a particular league is what you should use to try to win it. What you’re doing in a different league has no impact on that.

    The only way that wouldn’t hold is if you set for yourself a specific meta goal regarding all of your leagues together, such as always winning at least one league, or winning all of them in a given year. In the former case, you’d want to diversify to maximize the chances that one of your strategies pays off. In the latter case, you’d want to avoid diversity and go all-in with a given strategy, so that if it works it pays off everywhere. But I don’t see any particular reason to privilege any particular meta goal like that.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>