"Sell High"

[imanshumpert]

I'm really not a fan of this term in the context it's used on this board, and really think this warrants a full thread discussion.

You don't "sell high" on young players imo. Just because a young player has a career season doesn't mean it's time to "sell high" on him. Why? Because the young player is most likely to improve further the next season or at the least maintain the same level of play. Why would you "sell high" on an asset that's producing increasing and/or consistent returns?

Selling high to me is only logical when the player is likely to regress in the following season(s). This typically applies to older players who experience career/abnormal years (think Mike James). It COULD in some cases apply to a young player who is playing freakishly and unsustainably well for a stretch (think Linsanity).

Obviously the NBA is not the TSX, but we can draw a comparison to stocks here. You don't cash out on a stock when it's much more likely for the value of the share to increase (even if it is only a marginal return) over the next few years. That share then becomes a long-term investment that can stabilize your portfolio. Conversely, you sell a stock when you've already made your quick returns and know that it's likely to crash the next year. Then you get your money and get out fast.

The same is true for NBA players imo.

[007]

I agree, we should keep DD, TRoss, JV and whoever we draft.

[TrossTheBOSS]

I see

[imanshumpert]

I agree, we should keep DD, TRoss, JV and whoever we draft.

I'm not saying that we necessarily need to keep everyone.

What I'm saying is we don't trade for the purpose of "selling high" it's stupid.

[phiLLy]

Yes.

[stooley]

Actually the way stocks are supposed to work is any expected future increases are actually built into the current price. That's why the large majority of hedge funds fare no better than an index fund that tracks the market.

While I agree with you to a certain extent, it may be, for example that Ross looks like he's going to keep improving, but he actually doesn't ever reach his potential. Given that our current GM has access to more information regarding our players than other GMs, he is probably in the right position to take advantage of any errors he sees in the general perception of his players' values.

When people refer to sell high, they are saying that they don't think our players will improve as much as the rest of the league does, or that the rest of the league is overestimating our players' future values.

I don't think there's any problem with the idea to be completely honest, although I do think we may underestimate our own players.

Right now, I don't see any players on our team that necessarily warrants a sell high. Possibly DD, but I have faith that he's gonna build on his game.

When he learns to play in the post, he's going to be able to operate closer to the basket and create his own shot, where his athleticism and mid range game will really shine.

[CalgaryRapsFan]

The idea to 'sell high' is an obvious one. Why would you ever 'sell' at anything less than 'high'?

I think the real problem some posters have is a disagreement about what warrants a 'high' return for the asset being sold. That's an entirely different discussion that is completely subjective and often takes time to fully digest (when prospects and/or draft picks are involved).

Don't confuse the definition of a 'high' return with the concept of 'selling high'.

[Scraptor]

I think whenever anyone mentions selling high the implication is that the player will never have better value than he will right now.

For young players it's an interesting equation. We can state it as thus:

Total value = actual value (achievement to date) + potential value

Which is very similar to a stock option. A stock option consists of intrinsic value + time value. The time value erodes the closer the option gets to expiry.

As time passes for a young player, that potential/time value shrinks to zero as the player approaches his ceiling. And like the time value of a stock option, it tends to erode faster and faster the closer the player gets to expiry. Exponentially. So as a rookie, a player has almost unlimited possibility/potential, but with each year the book gets written on him. If we say a player has a roughly 4 year/ 10,000 minute time to ceiling/expiry, I'd say 40% of his potential value exists in his first year, 30% in his second year, 20% in his third year, and 10% by his fourth year.

It's up to the player whether he converts that potential value to actual value.

Of course there are caveats and qualifications; players who get no minutes as rookies or sophomores obviously have more time to prove themselves.

But going back to the equation, you can sell high on a young player IF you think there's a mismatch between perceived potential and your view of potential.

Right now Terrence Ross might be viewed by some external acquirors as having 50% of his potential remaining. But Masai and the front office might think he's hit his ceiling, that he's achieved solid 3+D status and that's all he'll ever be. If they can extract that value of the 50%, it's worth it to "sell high", because the 50% would just expire worthless, like the time value of an option. And his asset value would depreciate considerably.

Take, for example, Colangelo's trade of Charlie Villanueva for TJ Ford. Charlie V was a 1st team all-rookie selection, with Chris Paul, Deron Williams, Channing Frye, and Andrew Bogut. It seemed like he had a ton of potential!, so people were mostly surprised when Colangelo traded him for Ford. Villanueva quickly showed that there was nothing more to him than what we saw that first year, but in return we got a dynamic engine in Ford who posted an 18.3 PER and helped lead us to the playoffs.

Personally, I think TRoss (as an older player with 2 years of college) is close to his ceiling, with maybe 20% upside left. After spending the last few years defending Demar's upside, I now think he is at or very near his ceiling, with maybe 5% upside left. I think Val has the most upside left, maybe 50%, as he's a big and never played college.

So total value for each would be fringe starting wing + 20%, All Star + 5%, and starting C + 50%, respectively.

If any team were to offer to overpay for any of these young players, by overpaying for their potential, I wouldn't have a problem with selling high. For me, this would mean a top-9ish pick in 2014 for Ross, and a top-3 pick for Demar or Val. Of course you'd want to be very sure about who would be available and whatnot, so that you could pick the guy you actually want.

The only tricky thing about selling guys who have been here for a couple years is that you put chemistry at risk. You lose institutional knowledge of the system, of how the other teammates play. So I wouldn't advocate a trade simply to capture value, unless we were deciding to tear the whole thing down, in which case you have less of a problem with trading DD and the likelier outcome that Lowry walks. But that isn't likely to happen, rendering the whole thing moot, and the notion of "selling high" more or less the venue of fantasy trades.

[imanshumpert]

The idea to 'sell high' is an obvious one. Why would you ever 'sell' at anything less than 'high'?

I think the real problem some posters have is a disagreement about what warrants a 'high' return for the asset being sold. That's an entirely different discussion that is completely subjective and often takes time to fully digest (when prospects and/or draft picks are involved).

Don't confuse the definition of a 'high' return with the concept of 'selling high'.

I'm not confusing anything, re-read my post please.

[CalgaryRapsFan]

I'm not confusing anything, re-read my post please.

First, my post wasn't directed only at you and the OP.

Second, I do think the OP fails to fully grasp the 'sell high' concept, in several ways.

A couple previous posters have already done a great job of explaining the concept better. From my perspective, I'd add that 'sell high' doesn't equate to the determination that the player being traded has reached his ceiling and/or peaked. It simply means that the combination of the player's real and perceived (by potential trading partners) value leads to a return via trade that is greater than the ultimate true ceiling of the player. Since the value of the return is often unknown and/or risky, often with a much different time horizon for appreciation than the player being traded (ie: established star for collection of prospects & picks), the trade can't simply be analyzed in the present. When the player being traded still has room for further improvement, it further clouds the ability to properly judge the trade in the present, since there are so many variables that will take several seasons to uncover their true value.

According to the OP, it would be stupid to trade Valanciunas as a 'sell high' candidate, because he's good, young, with a perceived (and likely) ceiling that is expected to far exceed his current form. However, the whole concept of 'sell high' is to cash-in on the perception, once the return (based on that perception) is judged to be 'better' than Valanciunas is expected to become. If Miami offered LBJ in trade, would you not 'sell high'? If a team offered a top prospect and 3 future 1st round picks, would you not 'sell high'?

Of course, the biggest caveat of all, is what exactly 'better' means. 'Better' is subjective and everybody will have their own idea of what it constitutes. If a team is in win-now mode, a trade that returns a 'better' eventual return might still be turned down, because the time horizon for the trade to be 'better' is at odds with the time horizon for the current roster. Likewise, a team that is thinking long-term might be willing to get worse in the short-term, if they determine that pulling the trigger on a trade gives them a higher probability of being 'better' in the future, when they expect their core to become truly competitive. Some people might consider the 'better' return to be the single best player in the trade, while other people would consider the overall talent/potential/value of a package of lesser individual players to be the 'better' return.

Despite the caveats and subjectivity, 'sell high' will always be a good route to take, when considering trade options. What's the alternative? 'Sell low'? I get that the main argument could be "but if we wait and don't make any moves now, an even better 'sell high' offer might come along", but I think other posters have already explained how the future value approximation and risk/reward associated with waiting, should already be factored into the valuation of the return being offered for the player.

Selling high to me is only logical when the player is likely to regress in the following season(s).

To me, this line is the biggest flaw in the reasoning of the OP.

Whenever a player is being traded, I would hope that the GM works future value into the return via trade that he is demanding. Since future value is often an even bigger driver of perceived value than current performance, I would think a good young player with room to grow, would have the potential to have the maximum 'sell high' value.

It's no different than selling a business; you don't just sell it for the current value of the assets, but rather include a return based on the future earning potential of the enterprise.

Do you think the return Toronto got from NY in the Bargnani trade was based more on the player's actual present performance, or perceived future value (that NY placed on the player and MU marketed/sold the hell out of)? That was a fantastic 'sell high' move that illustrated the importance of perceived future value, when negotiating/evaluating a trade. Whether or not Bargnani would improve or regress in the future wasn't the critical point, from MU's perspective, in determining that he was getting the 'better' return; getting a return (players, picks, cap savings, team chemistry enhancements, etc..) that was deemed 'better' even if Bargnani were to improve in the future, is what made it a 'sell high' deal.

[Fully]

If it's a Mike James situation where it's, as you put it, only logical that the player is going to regress in the following season(s) then the chance of another GM giving you a good to great return for the player seems rather miniscule, no? Not to say that executives around the league can't be duped to a certain extent, but if it's obvious to us that the player won't be able to duplicate their success, it should be relatively obvious to other front offices as well.

Other posters have touched on it already (in a much more eloquent fashion) but overall I don't think it's quite as simple as you're making it out to be. "Selling high" on a young and still developing player is an inexact science and a calculated gamble like so many other aspects of being a GM. And no two situations are exactly the same.

Going out and forcing a deal just to say you sold high would be an error, but that doesn't mean you shouldn't consider the idea based on variables such as: what exactly you're being offered, where the holes on the roster are, the individual player you're considering selling high on (are you as confident that TRoss will see jump after jump in production for his first 5 seasons like DD for example?), the context in which they had their recent successful season, etc. There's no need to be so rigid in our thinking - teams have sold high effectively before, and they've gotten burned as well. To rule out an entire line of thinking just because of the worst case scenario would truly be the mistake, in my opinion.

[Fully]

Just a few examples off the top of my head where I think teams have effectively sold high on young assets. Philadelphia turning Jrue Holiday into the #5, #10 and #42 picks after his all star season in Philly. Clippers turning Aminu and Gordon into CP3 when Gordon looked like the best young SG in the game and Aminu still had a ton of perceived potential as well. The Spurs turned George Hill into Kawhi Leonard after a really good season and playoff run in their system. Do you think any of those teams regret selling high?

[imanshumpert]

The selling high I'm referring to is people basically saying the player NEEDS to be traded because they think he has reached peak value. That does not make sense and is poor asset management

[stooley]

The selling high I'm referring to is people basically saying the player NEEDS to be traded because they think he has reached peak value. That does not make sense and is poor asset management

Well, it's not really though. If the player's value on the trade market will never be higher AND that value is greater than his current value to the team, then it's actually very smart management.

Obviously any suggestion of sell high implies that the market is overestimating the player's value, or at least it should.

If the return is less than the player's current value, the debate becomes current and future value of the assets acquired, discounted, versus current and future value (to the Raptors) of the owned asset, discounted.

It's perfectly fair to disagree on the subjective value of different players, but "sell high" in and of itself isn't really a flawed concept, and to the contrary, is probably smart asset management IF DONE PROPERLY (of course).

[imanshumpert]

Ok, you guys have convinced me. Poor logic and bad thinking on my part.