We've heard Theo say that prospects are currency. That's fair. They are. But are they the kind of currency that the Cubs should spending right now?
That's where I'm not so sure.
Theo speaks of prospects in much the same way an investor speaks of his holdings so I think considering investing will lend some insight into the Cubs thinking. First of all, there is obviously cash. Cash is very similar to actual cash in your wallet. It is characterized by the ability to be spent immediately and maintain relatively constant value. Cash has an obvious analog in baseball parlance in unspent budget, which can also be used immediately to players on the free agency market.
For simplicity, I'll focus on stock as the only investment available. Stock is ownership in a company. Investors buy a stock to get the company's future earnings. In a real sense, stock is currency for investors because it can be converted into other stocks close to instantaneously on the stock market. The analog here is all players. GMs buy players to get a future stream of performance and, ultimately, wins. (WAR makes the comparison very clean.)
But not all stocks are created equal. Some stocks are considered safe because they have very predictable earnings and dividend payments. Because the earnings are so predictable, the price tends to reflect this and an investor buys it mostly for the dividend stream. These tend to be more appropriate for older people who are looking for a constant income stream at the end of their lives. The analog isn't perfect, but this is similar to older, established players. They tend to come quite expensive on the market, have very little upside, and are most appropriate for a team that is in contention and want to add immediate impact.
The other type of stock is a growth stock. These are smaller companies -- or even negative earnings -- today which are expected to grow earnings significantly over time. Anyone paying attention to the news during the great tech bubble of the early '00s saw one of the great moments for growth stocks. It's also indicative of a problem with growth investing: many of the companies don't make it. Growth investments are appropriate for a younger person looking to build capital for a retirement 20-40 years in the future. These are almost perfectly analogous to baseball prospects.
To extend the metaphor some, the Cubs are the young person building for the long term. They need their growth assets because they will be in position to take advantage of their full careers. This compares to a team like the Tigers who are built to win now and will likely be pretty bad in 3-4 years. For them, prospects are a currency they would do well to spend because they won’t be able to take advantage of their prime years.
As I’ve said many times, I admire the collection of assets this front office has put together with remarkable discipline. However, now that it’s time to spend, we should be spending money, no prospects, to fill in our holes.
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