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 pitchforks and 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. I remember the incredible World Series of 2016. It was what might have best been described as the powerful Cleveland Indians against the world. The legendary underdog status of the loveable Cubs made them the clear crowd favorite that year.
The American desire to cheer for the underdog carries with it inherent emotional risks. After all, underdogs lose far more than they win. After that World Series was over, Cub fans had much to celebrate, but oh what a price those fans had paid for that victory. It followed a century of disappointment.
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 love to see people win who have the deck stacked against them. This wonderful American quality is sometimes even 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.
Since your money is at stake it is very important to remember that in investing, as in sports, there is a reason why underdogs are called underdogs. Sports teams become underdogs by losing games, sometimes a lot of them. If a stock’s price has fallen precipitously, there is usually a reason. 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 continually cheer the underdog will end up being disappointed most of the time. 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 strength, talent, and the likelihood of success 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.
Dan Wyson, CFP® is a long running national financial columnist, author of several books and CEO/Founder of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor.
