The Olympics are just getting started and Team USA still are massive favorites to take home the men’s basketball gold at -300. However, it's pretty clear to anyone watching that this team is not performing to their potential. The U.S. team lost to France, who has a great team in their own right, for its first Olympic loss since 2004.
It's just been one loss so far but the team hasn’t looked overly impressive leading up to the Olympics and is performing as less than the sum of its top-end parts.
Teams or Stocks? Either Way It's All The Same
Basketball teams aren’t the only thing that can perform less than the sum of their parts would suggest. Many investment opportunities can have all the right metrics with analytics pointing to a profitable investment but then simply fail to perform to their full potential. A stock may have strong fundamentals and be highly rated by analysts, but still underperform the market over the long term. The trick is identifying which asset in a portfolio may be underperforming relative to where your research says it should.
What Constitutes a 'Strong' Stock?
There is a reason stocks with good fundamentals are desirable. Metrics such as high operating cash flow point to the health of the underlying company and an ability to cover any debts or other obligations. Assets are recommended by analysts for a reason, usually due to a positive outlook for the company going forward. Finally, many investments are desired for being at a good value with share prices low relative to the company’s recent earnings and growth rates, this sort of value investing is highly recommended by Warren Buffett who’s managed to make a few dollars through this method.
How to Avoid Disappointing Stocks
Investors doing their due diligence are smart to use these analytics when making investing decisions, should also consider combining that with trading patterns and personal intuition if they believe the company is primed to grow in future. Using technical analysis on stocks through studying charts and trying to determine where the stock might go in the future should be done as well. Whether investors gear more towards fundamental or technical analysis is personal preference typically based on how long they plan to hold a stock, but performing both can help traders avoid situations where investments that seem great by one metric ends up underperforming. Long-time investors of General Motors (GM) may love the company’s current strong fundamentals but that doesn’t change the fact its stock traded mostly flat over the past eight years until recently rising late last year following a crash caused by the pandemic.
Additionally, investors should always remember to go back to the basics of investing when making decisions. Day traders and meme traders may just execute trades based on where they expect the price to move in the short term but buy and hold investors are basing decisions on where they see the actual company going. A typical investor should truly believe in the company he or she is investing in and expect the firm to continue growing either based on industry growth, increase in market share, or innovative products that give them a competitive edge. It can be a mix of all three factors that leads an investor to expect future growth. Thus, an everyday investor deciding to put money into Apple (AAPL) stock should, in the simplest terms, expect Apple to continue to grow and build innovative products that will keep or expand their market share in a massive industry that is still growing.
Wrapping Up
Moral of the story, Team USA Men’s Basketball isn't the only place to find what looks like a collection of blue chips that underperforms expectations. Whether it is teams or stocks, many things can perform worse than the sum of their parts and leave people disappointed.
At least in stocks investors can move off these assets. Meanwhile, the U.S. can just hope the men’s basketball team gets it together and lives up to its potential soon or wait for the next redeem team led by MJ again.
