Comments on: Efficient Markets http://www.henrywoodbury.com/2008/05/efficient-markets/ Fri, 14 Oct 2011 15:10:46 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: skidpad » Peripheral assumptions http://www.henrywoodbury.com/2008/05/efficient-markets/comment-page-1/#comment-232 skidpad » Peripheral assumptions Sat, 09 May 2009 02:46:19 +0000 http://www.henrywoodbury.com/skidpad/?p=38#comment-232 [...] Second, these analyses rely upon the premise that the player will continue to produce the same peripherals. Your slumping star’s line-drive BABIP may return to the mean over time, but that means nothing if your slumping star stops hitting line-drives. The correction you expect won’t have any effect. The market can stay irrational longer than you can stay solvent. [...] [...] Second, these analyses rely upon the premise that the player will continue to produce the same peripherals. Your slumping star’s line-drive BABIP may return to the mean over time, but that means nothing if your slumping star stops hitting line-drives. The correction you expect won’t have any effect. The market can stay irrational longer than you can stay solvent. [...]

]]> By: skidpad » When to Stop Churning http://www.henrywoodbury.com/2008/05/efficient-markets/comment-page-1/#comment-43 skidpad » When to Stop Churning Wed, 11 Jun 2008 17:58:45 +0000 http://www.henrywoodbury.com/skidpad/?p=38#comment-43 [...] about free agent pickups in the market efficency post, reminded me of a well known problem in probability, often illustrated by way of [...] [...] about free agent pickups in the market efficency post, reminded me of a well known problem in probability, often illustrated by way of [...]

]]> By: skidpad » Efficient Markets, Part 2 http://www.henrywoodbury.com/2008/05/efficient-markets/comment-page-1/#comment-42 skidpad » Efficient Markets, Part 2 Wed, 04 Jun 2008 16:08:11 +0000 http://www.henrywoodbury.com/skidpad/?p=38#comment-42 [...] the comments to my Efficient Markets post, Shayne points out that one way to apply market efficiency thinking to fantasy baseball is to [...] [...] the comments to my Efficient Markets post, Shayne points out that one way to apply market efficiency thinking to fantasy baseball is to [...]

]]> By: Henry http://www.henrywoodbury.com/2008/05/efficient-markets/comment-page-1/#comment-41 Henry Wed, 04 Jun 2008 00:23:28 +0000 http://www.henrywoodbury.com/skidpad/?p=38#comment-41 Both of us go after pitching, which doesn't seem to have any bearing on this discussion, but which, I'm convinced, is as sound a strategy as any in fantasy baseball. This season I've hung with slumping players longer than in the past, particularly with Nick Swisher and Paul Konerko and (for far too long) Andruw Jones. I'm trying to stay away from the inane churning of the bottom part of the roster (the utility infielder, the middle reliever), which has driven up my transactions total in the past. But I also recall last season's regrettable playoffs. I wonder: how do I keep that from happening again? The only answer I come up with is: get luckier. So the question is, how does one get more luck? Both of us go after pitching, which doesn’t seem to have any bearing on this discussion, but which, I’m convinced, is as sound a strategy as any in fantasy baseball.

This season I’ve hung with slumping players longer than in the past, particularly with Nick Swisher and Paul Konerko and (for far too long) Andruw Jones. I’m trying to stay away from the inane churning of the bottom part of the roster (the utility infielder, the middle reliever), which has driven up my transactions total in the past.

But I also recall last season’s regrettable playoffs. I wonder: how do I keep that from happening again? The only answer I come up with is: get luckier. So the question is, how does one get more luck?

]]> By: Shayne http://www.henrywoodbury.com/2008/05/efficient-markets/comment-page-1/#comment-39 Shayne Tue, 03 Jun 2008 23:12:17 +0000 http://www.henrywoodbury.com/skidpad/?p=38#comment-39 Stock picking is a sucker's game. I was completely convinced of this by a professor I had in business school who I respected greatly, and who believed this resolutely. What's funny is he taught a capital markets class, which is a required intro class for any student headed to Wall Street (of which I was not one). These are the guys whose very identity is often built upon their perceived ability to win in the market. His position, very simply, was that a single person (or institution, group of people, etc.) cannot possibly know more than the rest of the financial marketplace combined about what a stock will do. Stock prices are completely unpredictable. It's the random walk hypothesis, in line with the efficient market theory. It states that the value of a stock (related to its current price) relies totally on news -- news being defined as things that were not foreseen. Arbitrage opportunities are vaporized instantly. And it's why I will never purchase shares of stock of an individual company. And you see people make this mistake ALL THE TIME. "Ooh, Merck has received approval for a new drug to treat Condition X! I'm going to buy its stock! The company will make more money!" Well, perhaps the company will make more money, but that does not make the stock a good buy. If you know about the news, it's not news -- everybody knows, and it's already in the price of the stock. The price of a stock is not based on the current value of the company -- its based, solely, on the market's expectation of the future value of the company. The only thing not factored in is what the market doesn't know, which means you don't know (unless it's insider trading). If you buy or short a stock, you are essentially betting against the thousands and thousands of people who know a lot more that you do. How does this relate to fantasy baseball? For me, it limits my number of transactions. Particularly, it limits the amount of shuffling I do in my lineup. Most of all, it informs my draft strategy -- I place a lot of trust in the masses. Likewise, I am the most boring fantasy player ever, and also the most boring NCAA pool participant. I always pick the favorites in every game, no exceptions. I won the my NCAA pool this year for the third consecutive time (4 #1 seeds in the final four meant I had it wrapped up before the national semifinal). I think this makes my interpretation of the efficient market theory, at least how I relate it to FBB, different than Henry's. And it is now that I am reminded that I can't remember the last time I finished ahead of him the final standings (including last season, when he replaced me in the #1 spot in the final week). Stock picking is a sucker’s game. I was completely convinced of this by a professor I had in business school who I respected greatly, and who believed this resolutely. What’s funny is he taught a capital markets class, which is a required intro class for any student headed to Wall Street (of which I was not one). These are the guys whose very identity is often built upon their perceived ability to win in the market.

His position, very simply, was that a single person (or institution, group of people, etc.) cannot possibly know more than the rest of the financial marketplace combined about what a stock will do. Stock prices are completely unpredictable. It’s the random walk hypothesis, in line with the efficient market theory. It states that the value of a stock (related to its current price) relies totally on news — news being defined as things that were not foreseen. Arbitrage opportunities are vaporized instantly. And it’s why I will never purchase shares of stock of an individual company.

And you see people make this mistake ALL THE TIME. “Ooh, Merck has received approval for a new drug to treat Condition X! I’m going to buy its stock! The company will make more money!” Well, perhaps the company will make more money, but that does not make the stock a good buy. If you know about the news, it’s not news — everybody knows, and it’s already in the price of the stock. The price of a stock is not based on the current value of the company — its based, solely, on the market’s expectation of the future value of the company. The only thing not factored in is what the market doesn’t know, which means you don’t know (unless it’s insider trading). If you buy or short a stock, you are essentially betting against the thousands and thousands of people who know a lot more that you do.

How does this relate to fantasy baseball? For me, it limits my number of transactions. Particularly, it limits the amount of shuffling I do in my lineup. Most of all, it informs my draft strategy — I place a lot of trust in the masses. Likewise, I am the most boring fantasy player ever, and also the most boring NCAA pool participant. I always pick the favorites in every game, no exceptions. I won the my NCAA pool this year for the third consecutive time (4 #1 seeds in the final four meant I had it wrapped up before the national semifinal).

I think this makes my interpretation of the efficient market theory, at least how I relate it to FBB, different than Henry’s. And it is now that I am reminded that I can’t remember the last time I finished ahead of him the final standings (including last season, when he replaced me in the #1 spot in the final week).

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