Pic from TheProvince.com

Making your hockey team better is really, really hard. Making money in the stock market is really, really hard. Everyone wants a better hockey team and they get paid a lot of money to obsess about it all day. Financial wizards lose their shirts in the market, and intelligent men make stupid trades that hurt their hockey teams. In my opinion, the most successful GMs tend to be the ones that are able to effectively buy low and sell high, but it’s not because some GMs are aware of the strategy and others aren’t. It’s because it’s really, really hard to buy low and sell high, as anyone who trades stocks will tell you.

Buying low means spending your resources to get something that everyone thinks is shitty. You have to buy a player that is coming off injury with a big question mark beside his name, a goalie that just got lit up for a season, a guy who is rumoured to be shitty in the dressing room, etc. This is one of the crucial bits of information that the “buy low, sell high” mantra is based on: buying low involves buying something that nobody wants, and there are usually perfectly valid reasons why nobody wants it. Not only that, but you have limited resources so you have to choose this shitty stock rather than going after one of the ones that everyone thinks is destined for greatness.

Sometimes people are right, but this hype drives up the price. This is another crucial part of the mantra: when you buy things that everyone else thinks are good, the price is high and your risk/reward is smaller. Buying low has higher rewards, but it’s risky and it requires the ability to accurately judge value in the face of an inaccurate market valuation. At the same time, as a general rule of thumb you can be sure that when everybody thinks something is worth nothing, the market value is going to be much lower than it ought to be even if that stock does actually suck. There is an entire field of trading, called contrarian trading, that is based on the principle of seeing what everyone is doing and then doing the opposite.

However, I think the most difficult part of ‘buy low, sell high’ is the selling part. This tends to get people slaughtered in the stock market and it constantly leads to missed opportunities in the NHL. Selling high means that you have to sell something that everybody wants, and it seems to be human nature to refuse to do this. If everybody wants what I have, I should keep it. It might continue to gain value, and it costs me nothing to keep it. I can always sell it, so I’m going to assume that money is basically in my pocket whether I sell it or not. The thing is, as many traders will tell you, nothing is actually in your pocket until you can feel that cash in your hand.

In stocks there is a widely held convention that stocks tend to lose value approximately three times faster than they gain value, because of the nature of hype versus fear, and the same is often true in hockey because of the underlying nature of human perception. It is surprising how quickly the market can decide that your middle-age second-line scoring winger is worth half what you were being offered last month when he scored 10 goals in 15 games. Fantasy hockey GMs will be nodding their heads here, thinking of the times they have been on either side of these deals. Earlier in the season I traded a streaking Lehtonen, leading the league in wins, for an injury-plagued Malkin (who temporarily looked like a possible bust) and Bryan Elliot (amidst all of the “Hitchcock will go back to Halak” talk). Lehtonen promptly injured his groin and Malkin has 79 points in 56 games. Malkin’s value rose steadily and slowly, whereas Lehtonen’s came crashing down in days. It stung a little bit to trade a goalie leading the league in wins in the middle of a hot streak, but that is exactly when you should trade that asset, and if you’re lucky you can trade it for another asset that happens to be valued artificially low.

The flak that Mike Gillis took for trading Cody Hodgson at what was arguably the highest value that resource had been at since he was drafted was a perfect example of the human reaction to selling something that is highly valued. Many Vancouver fans and TSN talking heads were wondering why on Earth Gillis would trade him in the middle of such an amazing season. That is a huge reason why Gillis made that trade, and in my opinion he made out even better by grabbing an excellent young defenseman who seems to be having a questionable year despite breaking out in the playoffs last year and putting up crazy numbers in the AHL. Obviously there are many other points to be made about this trade and I’m sure I don’t need to rehash them for you. Also, I’m not saying it was a bad trade for either Buffalo or Vancouver. My point is simply that you have to appreciate how the market-based value of a player influences how a good GM will think about trades, and as fans, it seems that we have a tendency to forget how hard it is to actually improve the comparative value of your team in an industry where everyone else is trying to do the same thing.

You can’t say enough good things about a GM who knows how to grab guys when they’re cheap. Burke did this extremely well with Lupul, and it is unfortunate that he didn’t have more success bringing in Giguére at a relatively low price considering how well he has played in Colorado this season on a slightly more stable groin. Carolina nabbed Ian White at a beautifully low price from Calgary before stupidly trading him to San Jose for a 2nd round pick, but Holland took advantage of a great situation by getting him for NOTHING. Signing Bertuzzi for free was also a nice touch. I liked Gillis signing Higgins and Lapierre for low prices, as both pieces have turned out to be very valuable. However, there is another piece of critical information required to take advantage of buying low and selling high: you have to know what you’re talking about. This is actually a hugely powerful weapon (shocking, I know), because if you actually have a rough idea of what guys like White and Lupul are capable of doing and how healthy they are, you can be thrilled when they have a poor year somewhere and become available. You can start to use the herd mentality of the market to your advantage. The trick is, you have to know what you’re talking about, and you have to be willing to devote resources to a stock that everybody thinks ought to be avoided. It takes courage and intelligence, and often a little bit of luck. Some of the best trades are the ones that fans and talking find relatively innocuous. Not every GM is good at this, and you can often tell which ones by looking at the standings.