Observations On the Pirates' Trades From a Former Wall Street Trader

The Pittsburgh Pirates have been Major League Baseball's "tradingest" team in the past two years, having "turned over" all but a handful (Paul Maholm, Zach Duke, Ryan Doumit, and Matt Capps) of players that they had since new management took over in 2007. Now that we're approaching the final deadline, it seems appropriate to evaluate all that trading. And this is coming from a former Wall St. trader.

The first major trade was a good one, certainly in hindsight, and even at the time. Right fielder Xavier Nady and reliever Damasco Marte were traded for two potential replacements in Jose Tabata and Dan McCutchen. To bridge the time gap between "players now," and "prospects for later," we also got (then) starters Jeff Karstens and Ross Ohlendorf in the bargain.

Originally billed as back end starters, Ohlendorf is developing into a strong, possibly top of rotation, pitcher, although Karstens went the other way and is a more of a reliever. That's an adequate down payment on Nady and Marte, meaning that McCutchen and/or Tabata could represent a profit on the deal.

The next trade, of Jason Bay, wasn't nearly as good. Forget, for a moment, about the fact that of the four prospects received for him, only Andy LaRoche has more or less lived up to his billing. The real problem was that coming on the heels of the Nady deal, the trade was not done with adequate forethought (like seeing how the new pitchers performed).

And Neal Huntington concluded the exchange at 3:59:59 on July 31st with literally a second (or two) to spare, meaning that he was "pushing" the trade. That kind of over-eagerness is usually the sign of a bad trade.

A wily veteran who fleeced a young T. Boone Pickens then warned him, "Someday when you don't have to do a deal, you might start doing good ones."

The next major deal, of McLouth, was a good and necessary one (although I didn't think so at the time). Although we had a surplus of outfielders, we got a potential replacement in Gorkys Hernandez, plus immediate pitching help in Charlie Morton, and potential further assistance in Jeff Locke.

The problem was that it was a second shock after the bad taste left by the Bay trade: One of them should have been retained. If the argument was that we should have traded Bay for Atlanta's three prospects, and kept McLouth to save money, that is a valid argument.

The next set of trades, Nyjer Morgan and Sean Burnett for Lastings Milledge and Joel Hanrahan, smacked of trading for trading's sake. Pirates' management wouldn't do Morgan for Milledge "straight up" but would accept it if tied to a trade of Burnett for Hanrahan, and the pick up of one "sabermetric" (theoretical) win.

They apparently relied on a model that Morgan was equal to Milledge (on expected value that I tried to reconstruct in previous pieces), without testing the assumptions to see if Morgan was worth one win or more than the model said he was.

Adam LaRoche should have been traded, although we could have gotten more for him; e.g. Casey Kotchman. The three teams that one should be wary of trading with are the ones that use "Moneyball" theories; the Oakland A's, the Toronto Blue Jays, and the Boston Red Sox. We got nothing from their end of the Bay deal (Andy LaRoche came from LA), and apparently very little for LaRoche.

The last person I would have traded was Ian Snell, although I would have used him (and Bradon Moss or Steve Pearce), rather than Nyjer Morgan, to trade for Lastings Milledge. If we get one "Ohlendorf" and one "Karstens," that would be a pretty good deal.

I didn't see the need to trade Jack Wilson or Freddy Sanchez. Instead, I would have exercised the club options on them for 2010, and perhaps traded them next year, depending on how the team developed by then. And in any event, it was a mistake for Pirates' management to telegraph (through Dejan Kovacivec) their eagerness to trade Sanchez and Wilson. That's like wearing a sign that says "Lowball me."

After my first year as a trader, my boss took me aside and said, "you've outperformed meaningfully, and we're giving you credit for that, but did you have to trade so much?"

So I reviewed a year's worth of trades and found the following; that essentially all of the outperformance had taken place in two of twelve months. Ten months of trading had been break even for the portfolio, and had actually cost money in terms of paperwork costs, etc.

Likewise, most of the Pirates' gains appear to have taken place in two trades: Nady/Marte and McLouth for five pitchers and two fielding replacements. The rest was just trading "noise."

It took two years, but I restructured my trading and cut it by two thirds, to four months worth  on the old basis. There was still two months of outperformance, a third month used to gather market intelligence, and an inevitable fourth month of wasted, (but mostly break even trades). But that's one month worth of waste, not eight or nine months.

The Pirates had good reasons for trading surplus fielders for badly needed starting pitchers. And it also made sense to dump two relatively unproductive players. But trading the rest of the team smacked too much of a "stat arb" (statistical arbitrage) exercise like that practiced by hedge funds. Like hedge fund operations, they might work but they also leave people wondering what the --- is going on?