Americans have always had a soft spot for the underdog. Our natural compassion leads us to cheer for those who face great adversity and yet are still willing to put everything on the line, even when they know their chances of success are low. This may be partly due to our own historical underdog status as a nation. Few battles began more lopsided than the revolutionary war, where a band of determined farmers with shotguns took on the most powerful military in the world.
In sports, we love to root for the underdog. It makes us feel good when the little guy, against all odds, is able to pull off the victory. And so it was as the 2016 world series began in what could accurately be described as the Cleveland Indians against the world. Not that the Indians didn’t have their own giants to overcome, but the legendary underdog status of the loveable Cubs made them the clear crowd favorite.
The American desire to cheer for the underdog carries with it inherent emotional risks. After all, underdogs lose more than they win. Cub fans have much to celebrate this week, but it followed a century of disappointment. What a price those fans have paid for this year’s great victory.
This desire to cheer the underdog does not end with sports. It can be seen in the arts, in educational activities, even in politics. We just like to see someone win who doesn’t get to win very often. I have also seen this wonderful American quality carried over into the world of investing. Small startups can attract a lot of buying attention from investors who hope they might be able to “take down the big guys.” Companies that are one the ropes, whose stocks have fallen dramatically for one reason or another, may also attract buying attention from investors who view them as underdogs. Perhaps investors think the stock surely can’t fall any further (known on Wall Street as trying to catch a falling knife), or because they quietly sympathize with the financial underdog and, with their money, seek to cheer him on.
In investing, as in sports, there is a reason why underdogs are underdogs. If a stock’s price has fallen precipitously, there is usually a cause. If big money investors are fleeing an equity position, don’t assume that its lower price suddenly makes it a good value. Sports fans who cheer the underdog lose more games than they win. Investors who spend their time buying the “dogs” of the market, may find themselves likewise on the losing end of many of their investments.
In sports, unless my team is playing, I always root for the underdog. It’s just my nature and part of my American Heritage. But in investing, I resist that nature and look for the strongest, the most talented, the most likely to succeed when I select investment opportunities. In short, if investing were a sport, I too may cheer on the underdog, while quietly putting my money on the favorite.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
This communication is strictly intended for individuals residing in the states of AZ,CA,CO,DC,FL,HI,ID,IL,KS,KY,MA,MI,MN,MO,MT,NE,NM,NV,OH,OR,SD,TX,UT,VA,WA,WY. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.