If you've ever sat down with any kind of adviser, broker, or money shaman to discuss investments, chances are you've been told about the benefits of the d-word: diversification. Whether you've got $500 or $500,000 to invest, you'll hear all about how diversification can protect you and your money from recessions, depressions, global uncertainty, bear markets, and the emotional trauma caused by a 37-year-old Placido Polanco hitting second for your favorite baseball team.1 By the time you walk out, your heart's full of fear, your pants full of something else.
It's true that by limiting your exposure to any one stock, industry, or region, you might be able to avoid some risk. But what you're also doing is watering down your potential return. If you own shares of 50 stocks, there's just no way all of them are going to pay off. By spreading your investments that thin, it's basically impossible to properly analyze everything you own, such that whoever's managing your money will struggle to make informed decisions on which ones to keep and which ones to dump before it's too late. Waste a couple decades investing in fear, and your kid's dreams of Harvard or Stanford might get chucked in favor of Hollywood Upstairs Medical College.
Honestly, that's being kind. Jim Rogers, cofounder of the Quantum group of hedge funds, called diversification "something that stock brokers came up with to protect themselves, so they wouldn't get sued for making bad investment choices for clients." William O'Neil, a self-made multimillionaire and founder of Investor's Business Daily, said diversification was "a hedge for ignorance." Warren Buffett, the most successful investor of the 20th century, put it this way: "Wide diversification is only required when investors do not understand what they are doing."
Every spring, Las Vegas sportsbooks set odds for all 30 Major League Baseball teams. For each team, casinos will produce a projected win total they hope will be accurate enough to attract betting action on both sides. So if there's a team that looks like it's in the middle of the pack, Vegas might call for 81 wins. You can then predict whether that team will win more or fewer than 81, often while having to pay a vig2 for either bet. Pop into the sportsbook on a busy Saturday afternoon, with big screens showing multiple sports, board after board of betting odds up, and a couple cocktails in you, and you can freak out in a hurry. Scanning the sheet of 30 MLB over/unders alone can give you a case of the shakes, tempting you to bet 10 teams, 20 teams, or hell, maybe all of 'em.
For year two of Grantland's MLB over/under column, I spent weeks scrutinizing all 30 clubs, considering dozens of angles and contingencies plus a few shifts in odds. In the end, I channeled Warren Buffett, spat in the face of diversification, and bet on one team.
I'll cover that one team, plus a few more that could make strong bets, in a minute. First, a few words on process, and why only one bet stood out from the rest.
In last year's inaugural over/unders column, I discussed one of the quickest and easiest ways to look for optimal bets:
One of the most popular advances in the sabermetric community over the past decade has been the proliferation of projection systems. Baseball Prospectus's PECOTA, Dan Szymborski's ZiPS, Bill James's brand of projections, as well as CAIRO, Oliver, Marcel, and the no longer publicly available CHONE all crunched players' past results, combined those stats with age, injury data, and in some cases scouting information, and spit out forecasts for every player. (For more on how these systems work, see this writeup by FanGraphs' Steve Slowinski.) By combining all those player results on each team, then adjusting for strength of schedule, you could build standings projections for all 30 teams. By combining those team win predictions with your own additional analysis, you could find and exploit inefficient betting lines and make money off them.
Last year, a handful of teams delivered betting odds five or more games off what the projection systems had pegged. Many other factors must be considered beyond simple projections, of course.3 But variance that big can imply a failure by the oddsmakers to account for the analytical elements that go into properly scrutinizing a team's chances before Opening Day. One team that produced that big a gap that year was Detroit. I never gamble huge sums on anything. But if that were ever going to happen, it would have been on the Tigers — a very good but also clearly flawed team — to win fewer than 93½ games last year. They won 88, so hopefully the constant pleading to bet the under on Detroit last year bought some of you some nice TVs or waffle makers, or at least a few waffles. If anything, my mistake was in not putting everything on that Tigers bet: Grantland's 3-1 results in 2012 were nice, but none of the other bets (Rays over 87½, Cardinals over 85½, and Dodgers under 81½) felt nearly as rock-solid as the Tigers one did.
Variance has shrunk this year. Not one team's over/under differed by five games or more from the consensus delivered by the advanced projection systems. There could be a number of reasons for this, ranging from parity to bookmakers digging up those same projections.
Whatever the reason, we'll need to redouble our efforts to find nuances that the sharps might have missed. We can start by looking at each team's projected Opening Day roster — I'm a big fan of MLBDepthCharts.com for that. Then you'll want to dig into each roster, paying special attention to depth. If a team's no. 2 starter goes down, is there a swing man in the bullpen who could make a few starts and hold his own? Is there major league–ready talent waiting in the high minors, be they Triple-A veterans who won't embarrass themselves or high-upside prospects? If a team doesn't have much depth, how much payroll space could there be for an in-season trade? You would want to examine management's historical spending habits, the general manager's track record around the trade deadline, the assets that team might be able and willing to trade, and which players could be out there for the taking. Teams don't play in a vacuum, either: Competition matters, especially within your own division. Skepticism can be warranted even when Vegas and other projections are relatively far apart, too. The White Sox consistently beat the forecasts made by PECOTA and other systems, a subject that has prompted further investigation by the analytical community and made us consider subtler factors such as the ability of a pitching coach and team trainer to keep a team's arms healthy.
Finally, don't ever, ever try to make a bet simply by looking at a team's record one year, looking at what they did over the offseason, then calling it a day. For one thing, a team's record isn't always a perfect gauge of its true ability: The 2012 Orioles won 93 games, but they're pegged to win 78½ this year, in large part because Baltimore posted the best record for one-run games in the history of baseball last year at 29-9, a mark that'll be virtually impossible to duplicate in 2013.4 For another, being the league champion of hot stove season guarantees exactly nothing. Ask the 2012 Angels, and especially the 2012 Marlins.
All of the bets you're about to see come from the MGM Grand sportsbook in Las Vegas, as of March 16. In each case, both the over/under and the vig were considered. Maybe you'll like these bets, or maybe you'll find other wagers you like more. As long as you're meticulous and thoughtful in your research, you'll stand a good chance of doing well on whichever small number of over/unders you choose.
Los Angeles Dodgers
Under 91½ Wins
A sample of the Dodgers commentary Grantland has done in the past year and a half:
• Good riddance, Frank McCourt, but it'll take a while for the Dodgers to start winning again.
• All hail the Dodgers' fancy new owners but don't plan any parades just yet.
• Love the Dodgers exploiting a market inefficiency of sorts by simply spending more money than anyone else, but Adrian Gonzalez might not be a superstar anymore, Carl Crawford and Josh Beckett look like albatrosses, and they're probably not catching the Giants anyway.
• The biggest problems with having nearly unlimited spending power in baseball are that eventually you run out of roster room, and the market stops producing players worth buying.
• The Dodgers say Zack Greinke's injury isn't bad at all, but that doesn't mean the Dodgers are in great shape.
I don't hate the Dodgers, honest.5 They've certainly got a chance to compete for the NL West crown this year, and with all their riches they stand a good chance to be contenders for the foreseeable future and hopefully build a strong farm system to increase their chances at longer-term success.
But there are holes on the 2013 roster, and they're not easily fixed. Luis Cruz was a fun story last year, going for .297/.322/.431 and delivering a bunch of big hits in his first crack at semi-regular playing time in the big leagues. But there are reasons he toiled so many years in the minors: He has minimal power, never walks, and doesn't run particularly well. He isn't a championship-caliber everyday player by any stretch, and replacing him would be a bear. Think of the best third basemen in the league. Miguel Cabrera and Adrian Beltre aren't going anywhere. David Wright's signed to a long-term deal. So's Evan Longoria and Ryan Zimmerman and Aramis Ramirez. In theory, it's not impossible that the Dodgers could try another Adrian Gonzalez–style deal, in which they absorb an ungodly amount of salary via bad contracts for the sake of landing one player they really want. But that trade came with unique circumstances, and it's tough to find any team with a top third baseman (or a top shortstop, if you wanted to move Hanley Ramirez to third) that would offer similar parameters to pull off that kind of deal.
Outfield talent might be easier to find. But then you run into what we've called the Curse of Plenty, or if you prefer, the Carl Crawford Conundrum. The Dodgers owe Crawford $102.5 million over the next five years. Unfortunately, we don't know when Crawford will be fully healthy and ready to play in games that matter; he's starting to see some spring training action, but he's been out so long that it's hard to tell when he might be ready for regular-section action, much less if he can return to the high performance levels he showed in Tampa Bay, or even moderately productive levels in an everyday role. If Crawford's out, a platoon of Skip Schumaker and Jerry Hairston Jr. would cover left field, which again doesn't qualify as a championship-level combination by any stretch. It's possible that the Dodgers could pursue a big-time replacement, even being on the hook for nine figures with Crawford and another $42 million for Yasiel Puig, the Cuban prospect with lots of talent but also a very raw approach and just 23 games of minor league experience, none above Single-A. But you have to figure that even the Dodgers might have their limits.
There are other problems. Some are potentially terrifying, such as Greinke's injury proving to be more serious than first believed; some are smaller but still relevant, such as the injury histories of Mark Ellis and Chad Billingsley, Andre Ethier's struggles against left-handed pitching, and new closer Brandon League not being particularly good. These and other issues could potentially be addressed if the Dodgers had a bunch of good prospects close to major league–ready. They don't. Promising pitching prospects Allen Webster and Rubby De La Rosa went to Boston in the Gonzalez deal, while former top prospect Zach Lee has, at least for now, seen his development stall. The team's best hitting prospects are likely years away from making a splash in the majors. That lack of options hurts the Dodgers in two ways: There's not much there to call up for this season, and there aren't many players other teams would covet so intensely that they'd consider trading an established star to get them.
Again, this isn't to say the Dodgers are a bad team, or that they can't vie for a playoff spot. A full season of Gonzalez (and no James Loney) will be great. Kemp's an MVP candidate if he plays 150-plus games. Clayton Kershaw's probably the best pitcher in the National League. You get your first full year of Ramirez in a Dodgers uniform, and another one for A.J. Ellis, L.A.'s very good and underrated starting catcher. If you buy spring training stats, Hyun-Jin Ryu has looked promising in Arizona after the Dodgers nabbed him over the winter.
But the team's multiple question marks, combined with its likely inability to address its holes this year, point to something fewer than 92 wins. Like last year's Tigers, there's a window here for the Dodgers to be pretty damn good and still not make their number. After poring over 29 other possibilities, and considering the vig was only -105, the Dodgers under 91½ was the only bet I was willing to bet with confidence. It's not a 2012 Tigers-style lock, but it was the best of a really tough bunch.
There are other bets worth looking at on this year's slate, even after accounting for the vig. A few that I strongly considered:
New York Yankees
Under 86.5 Wins
Sunday afternoon, sitting in a casino's business center while everyone else is at the blackjack table, lounging by the pool, or crowding the sportsbook, and your mind starts to wander. Could I really leave Vegas after making just one bet? There was one other team that faced the same problems with injuries and minor league depth that the Dodgers did, only with an older roster, weaker alternatives, and surprisingly, no desire to spend big to fix those problems. We knew about A-Rod and Curtis Granderson; knew that Phil Hughes's back left him questionable for Opening Day; that Mark Teixeira would be out a while longer with a wrist injury; and that the likes of Juan Rivera, Brennan Boesch, and Chris Stewart were going to get far more playing time than anyone but their moms and agents would want them to see. Then, waiting out a three-hour flight delay on the Strip instead of at the airport, the latest bit of bad news broke: Teixeira's injury was worse than initially feared, meaning he could be gone until June, and no one knew when his bat would return to full strength.
I dashed down to the sportsbook, ran to the teller to confirm that the over/under was still 87 wins as previously advertised, with a very palatable -105 vig for the under. Nope. It dropped to 86½. And I bailed. The AL East figures to be a very competitive division this year, without any great or lousy teams.6 The Yankees are old, hurt, and flawed, but they also have one of the five best players in baseball in Robinson Cano, a true ace in CC Sabathia, and a strong enough supporting cast to hold their own this season. If this is the year it all goes south in the Bronx, then that half a win won't matter. But there was just enough doubt here to pass.
Under 83.5 Wins
This team definitely has enough problems to make you wonder. The trio of infield stars isn't what it once was. Neither's Roy Halladay, who's at least planted a little doubt with his 2012 injury and ugly Grapefruit League performance, even if we know that most spring results mean nothing. They'll start the year without Carlos Ruiz, and with an outfield that's short on positive big league results. But this isn't necessarily the end of days, either. A healthy Ryan Howard would certainly help. You've got the league's best lefty starter duo in Cole Hamels and Cliff Lee, one of baseball's best closers in Jonathan Papelbon,7 helpful pickups in Ben Revere and Mike Adams, and a nifty breakout candidate who could lure fans and fantasy owners into defecting to the #DomRepublic.
It's easy to get lost in labels, to try to name good teams and bad teams. But what we usually get is a vast middle, where a team projected to finish around .500 could win 73 games or challenge for a playoff spot, depending on how its luck goes. The Phillies are most definitely part of that vast middle, with some chance for collapse, but also an opening for optimists to deliver a big eff you to haters who write inflammatory stories (or headlines!) before a single game has been played. Too many ifs, buts, and maybes for a high-confidence bet.
Jays Under 89: Love the aggressive rebuilding job, but 17 more wins than last year for a team with multiple injury concerns is no sure thing.
Diamondbacks Over 82: Runs scored and runs allowed last year suggested an 86-win team, but Arizona won just 81 largely thanks to a horrific 15-27 record in one-run games that's very likely to improve significantly this year. Wasn't quite optimistic enough about the remade roster to take the plunge, but could easily see this one working out.
and a few more bets I thought about making but didn't, mostly because of the vig:
Royals Over 77½ and Indians Over 77½: Both were -125, enough to negate my enthusiasm over Kansas City's multiple potential breakout players and the combination of Cleveland's aggressive offseason and likely positive regression following an apocalyptic season last year, especially on the run-prevention side.
Rays Over 85: The -130 vig was too rich for my blood, which marks the end of an era. This would have been my fourth year in a row betting on a Rays over, and I was 3-0 on that bet for 2010, 2011, and 2012.
Marlins Over 63: Placido Polanco jokes aside, there's some sleeperish young talent on this team, and expecting any team to win 100 or lose 100 is asking a hell of a lot. No one's touching the -155 on this one, though.
Good luck, friends. And remember, whatever you do, don't let Warren Buffett mock you.