Investing & Maybe Fantasy Baseball

Howard Marks is the cochairman and cofounder of Oaktree Capital Management. Mr. Marks is an exceptional investor. He has been compounding money at similar rates as Warren Buffet for 25-plus years. If you’ve read his books or his memos one of the common themes is the importance of more perceptive thinking or what he calls second level thinking. For example, if a stock goes from $10 to $60 in two months a first level thinker will say, “we should buy the stock.” However, a second level thinker will say, “the company is great but the price its selling at is too optimistic. We should sell.”

My initial reaction to the Corey Kluber was this was a bad trade for the Indians and great for the Rangers. Kluber was sent to the Rangers for Delino DeShields Jr. and Emmanuel Clase. DeShields is an above average defender in center field with no power but can have an OBP in the .340s and steal 25-plus bases. Clase is the classic young reliever who got promoted to the majors before the developmental was close to finishing because he has an elite fastball (this happened to Neftalí Feliz, who also started his career for the Rangers).

The Indians got a fringe starter at center field and a young reliever with an excellent fastball without the command of his secondary pitches. From 2014-18 Kluber was at least one of the top 10 best pitchers in baseball. The first level thoughts about the Indians return is light. However, I want to try to look deeper.

Other than 1-2 organizations I believe front offices are extremely intelligent and competent. In my opinion, the Indians and Rangers are well run organizations. Therefore, I assume there is no lack competency.

Let’s take a step back. When someone makes a trade with someone, especially in pro sports and in equities, it’s a very hubristic act. You’re telling the other person that the asset you’re receiving is worth more than the other person thinks.

When any trade is made it’s important to ask yourself, “what does the team know that I don’t know?” The dominant narrative is the Indians got a really light return. Obviously, the Indians do not believe that so why did they do the deal? These are the likely answers; also, it could be a combination of multiple of these:

1. Kluber will probably be not as good as 2014-18. In fact, he could only be a mediocre pitcher now. Kluber will make $17.5 million in 2020 and that is a lot for a small market team.
2. The Indians have a deep starting rotation without Kluber. They have Mike Clevinger, Shane Bieber and Carlos Carrasco at the top of the rotation. They also have Aaron Civale, who looked like a number three pitcher in spots and Zach Plesac who reminds me of Chase Anderson when he first made it the Majors. Not to mention Logan Allen who, if he can improve his command, could step into the rotation. From 1-6 the Indians have a top 10 rotation in baseball.
3. The Indians think DeShields and Clase are better than the current census. It’s possible, but their recent history of talent acquisition gives me pause. For example, they signed Yonder Alonso and let Carlos Santana They also traded for Jake Bauers in exchange for Yandy Diaz. That said, if you’re in an AL-only I think there is a 40-50% chance Clase has the most saves on the Indians in 2020 and if you draft Brad Hand you’ll want to handcuff him with Clase.
4. The deal with the Rangers was the best deal they could get. If you believe the return the Indians got was light that means the other 28 teams were offering less than the Rangers. If the other teams were offering less the question becomes, “what do the other 28 teams know that we don’t know?” I have to assume the Indians at least spoke to every team about Kluber and the Ranger deal was the best they could get.

All four factors factored into the decision to trade Kluber. The fourth point, in regards to Kluber’s 2020 fantasy value, is the most concerning. He makes a lot of money but I have to think if clubs, even small market ones like the Reds, Brewers, Braves, Twins and Padres, thought he could return to form they would have offered more for him. Therefore, I have to conclude we’re going to see a diminished version of Kluber. (The changing of ballparks means very little to me even if it is Texas and its new ballpark.)

As of December 16, these are the numbers I project for Kluber: 190 innings,  3.36 ERA, 190 strikeouts and a 1.11 WHIP. (I don’t project wins until early March.) Those numbers are still good but they’re no longer elite. He is my 17^th rated starting pitcher.

“It’s better to be roughly right than precisely wrong.” ~ John Maynard Keynes

After playing fantasy baseball seriously for the past six years I’ve learned Mr. Keynes is one hundred percent correct. Odds are if you think Mike Trout will hit 40 home runs and he ends up with 42 or 38 your projection didn’t negatively affect your ability to win.

However, if you projected 30 and hits more 38 or more than your projection did hurt you. Every season there are players who put up fantastic numbers no one saw coming (I’m looking at you Peter Alonso and Tim Anderson). When you’re evaluating 300-400 players there will always be players you miss on. The key to winning is to be roughly right on more players than your competition. (I’ve found 65-70% in accuracy is the sweet spot for 12-team mixed leagues.) When I do my projections I ask myself if the 2020 season was played 100 times what would the average performance be for every player. That way, I have a great chance of being roughly right than precisely wrong.

Last season there were a record number of home runs hit in the Majors (11% more than the next highest year) and in Triple-A (57.4% increase compared to 2018). Both leagues played with a brand-new baseball. Major League Baseball commissioned an independent study to try to understand why the uptick happened.

The study said carry contributed to 60% of the home run increase and launch conditions to 40%. And a statistically significant link exists between the height of the seams on balls and the amount of drag they produce.

Last year there were 6,776 home runs. The next highest was 6,105 in 2017. The difference between the two is 671 home runs. Therefore, 403 of the home runs (60% x 671) was due to the changes in the baseball and 268 home runs (40% x 671) was due to launch angle.

As of December 15, I’m assuming changes will be made to the baseball and if that happens, we should see more home runs in 2020 than 2017. Therefore, all my projections will assume the home run environment decreases about 6%. I came to the number by removing by adding 6,105 and 268. Now, my assumption/projection may be incorrect but if I assume that rate for every player it shouldn’t negatively hurt. If I project Joey Gallo to hit 41 home runs and he hits 44; no big deal.

Since home runs should be really high again it depresses the values of power-only players like Gallo, Khris Davis, Jorge Soler and Nelson Cruz).

This part two of my season recap. (You can see part one here.) For those of who don’t know, every year I write a recap of each of my leagues. This process is masterbatory because the only one who gets any benefit and/or knowledge from this is me.

In this league I didn’t come close to doing as well. To see my recap after the draft and the players I drafted please go here. I will assume you have this knowledge when I provide my analysis.

After the draft I projected the following Hitting Statistics:
Forecast: .267 Avg/ 334 HRs/ 1,198 RBI/ 1,153 Runs/ 164 SBs
Actual: .267 Avg/ 387 HRs/ 1,165 RBI/ 1,213 Runs/ 105 SBs

Pitching Stats:
Forecast: 3.72 ERA/1.21 WHIP/ 1,499 Ks/ 98 W/ 68 Saves
Actual: 4.24 ERA/ 1.29 WHIP/ 1,410 Ks/ 78 W/ 78 Saves

Overall Takeaways From 2019 & 2020

Starters are throwing less innings, getting fewer wins and are striking out more batters. Screenshots below. Now, you’re probably thinking teams are using the opener’s much more now and that is dragging down the numbers. That is true and I need to do more digging on this, but from owning a lot of number three and four starters this year I have noticed very often my guys only five or six innings this year. This is very anecdotal, but these trends suggest it’s even more important to get a top 5-10 starting pitcher in drafts. This season I didn’t draft a top starter; this was intentional as I wanted to find pitching off the waiver wire and I thought I could find “sleepers” later in drafts.

Now, you’re probably thinking teams are using the opener’s much more now and that is dragging down the numbers. That is true and I need to do more digging on this, but from owning a lot of number three and four starters this year I have noticed very often my guys only five or six innings this year. This is very anecdotal, but these trends suggest it’s even more important to get a top 5-10 starting pitcher in drafts. This season I didn’t draft a top starter; this was intentional as I wanted to find pitching off the waiver wire and I thought I could find “sleepers” later in drafts.

Takeaways From My Season

Despite having similar rosters with my other team, the performance in this league was far less. I really needed Trea Turner to steal 50 bases; he missed time after getting hit by a pitch, but even when he came back he didn’t steal that much.If Dave Martinez, the Nationals head coach, comes back I don’t see Turner stealing more than 40 bases next year.

I thought Andrew Benintendi would hit second or leadoff and he would hit 18 home runs, 20 steals with 100 runs, 88 RBI and a .280 batting average. He didn’t come close to that projection at all, but the underlying statistics suggest he got unlucky with the power. His contact rates took a turn for the worse, which may limit his batting average upside. He’ll be 25 next season and I think he’ll be underrated in drafts.

I got unlucky with my closers. David Robertson threw a couple of innings. The Pirates were a bad team, which limited save opportunities. I did pick up Hector Nerris, but I got unlucky with the saves department.

The one positive was I picked up Matt Olson off the waiver wire. What was surprising was no one wanted him. At the time of the waiver wire auction it was reported he was going to play in the Majors in about a week. Despite missing 35 games he finished 12th among first basemen on ESPNs Player Rater.

The basic reason why my team failed was due to my inability to find pitching off the waiver wire, putting the majority of my stolen base hopes in one player, and getting unlucky.

Random Thought

NFBC has a wide range of buy-in leagues from $125 to $15,000. There is one $10,000 and another $15,000 buy-in leagues. Both leagues are 15-team mixed leagues with the same rules. The drafts occurred in Las Vegas. Despite the large buy-in’s there were many people who played in both leagues. Below are screenshots of the standings of both leagues. Do you see anything interesting?

Derek Pierson came in first and 13th while kc char came in first and 10th. In 15-team leagues the performance can vary much more than shallower leagues, but still it’s a pretty wide discrepancy in performance. You can view the drafts of both leagues here. Lastly, the drafts occurred on back-to-back days.

Obviously we’re dealing with a small sample so there is a caveat to all this, but I think there is something to be learned here. You’ll notice the rosters were somewhat similar. One owner had seven players in common (23% of the roster) and the other owner with 11 in common (37%). Most of the duplicate players were in the middle rounds, which suggest the players they drafted, in their owners’ eyes, were undervalued.

When I look at their drafts there were a lot of misses. There were players on both winning rosters that didn’t live up to their draft day value. But the primary reason why they won was they found tremendous value in the middle-to-late rounds (below).

For example, kc char drafted: Nelson Cruz, Yasmani Grandal, Ketel Marte, Jeff McNeil, Jeff Samardzija, Anthony Descalfani, and Lance Lynn.

Another example; Derek drafted: Clayton Kershaw, Hyun-Jin Ryu, Will Smith, Trey Mancini, Kevin Kiermaier, Dakota Hudson, and Sonny Gray.

The biggest takeaway, for me, is to always find value with every pick. You’re going to swing and miss on some picks. It’s okay to swing and miss in the middle rounds and later, but it’s important that your first 1-4 picks work out.

If you find value then you’ll be in a better place to compete. Or in other words, find players who drafted in the middle-to-late rounds that perform like a top 40 pick. That said, and this is the most important takeaway, even when you get more value you never know how much more or less value you’ll get from each player. This is where luck comes into play. For example, literally no one saw a 28/28 season for Wil Myers in 2016 or that Blake Snell would have a Cy Young season in 2018. Anyone who says they knew they were going to perform like that is full of shit. If they truly believed that they wouldn’t have been drafted in round 20.