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Articles Tagged Disposition Effect 

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April 9, 2014 6:00 am

Fantasy Freestyle: Buying Low, Letting Go, and the Disposition Effect

8

Jeff Quinton

A way to determine the optimal time to acquire underperforming players and the right time to jump ship.

“There is no such thing as buying low” has become popular advice among the fantasy baseball community. Does the classic buy-low opportunity, in which an underperforming player gets moved for $0.50 on the dollar, really exist? Rarely. However, there are still opportunities to acquire players below their actual or true value. The disposition effect is a phenomenon of behavioral finance that shows the tendency of investors to keep their losers too long and sell their winners too quickly. In other words, when people invest in a stock that underperforms, the following story often plays out: They hold on to the stock as it continues to underperform and then either sell the stock as soon as they can make the smallest of gains or continue to hold on to the loser while missing out on more profitable investments elsewhere.

The disposition effect as it relates to fantasy baseball is thus refusing to sell low on an underperforming player and either (1) selling him as soon as you can cash him in for too small a profit or (2) continuing to hold on to the player instead of picking up or trading for better players.

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