Fasig-Tipton Saratoga Sale

The August Fasig-Tipton yearling sale in Saratoga Springs is a very prestigious, boutique sale. Many top performers have emerged from this sale including Flightline.

I wanted to apply my analysis to some top sellers from this sale because I was curious about the notion of market efficiency. Market efficiency can be defined as the degree to which market prices reflect all available, relevant information. In other words, there are no undervalued or overvalued assets.

But horses are not securities.

Since an efficient market at a yearling sale would be impossible without market participants having equal access to information that was universally acknowledged to be of high quality, I think it safe to assume an inefficient market.

But how inefficient? Although I don't presume to answer that question, I was curious about what I would find when applying my pedigree analysis to top sellers. If my analysis yielded many top ratings, perhaps that could provide some justification for a significant number of prices paid for these horses. And that might suggest a market not quite as inefficient as I assumed.

The 5 sales conducted from 2017 - 2022 yielded 29 horses that sold for at least $1M.

When I analyzed the pedigrees of these horses only 2 out of 29 generated a rating.  I was surprised by this result. Using my analysis as a proxy for efficiency indicates a grossly inefficient market, at least at the very high end.

But what factors might be in play driving this market to these heights?

Well, this is a boutique sale with top stallions and some high quality mares who are proven producers. And many top horses have emerged from this sale. So, combine a top stallion with an impressive catalogue page and a good physical in a competitive bidding environment and one can imagine how prices can ratchet up quickly.

In addition, are some buyers at the high end of the market taking a venture capital approach and just looking to uncover the home-run horse that justifies all the losses? And are the emergence of high-end partnerships a way to facilitate this approach?

I can only speculate. But risk mitigation is something any seasoned investor considers. And high quality information in this market can add a lot of value.