Weak Sister

"Weak sister" is a term for an element that undermines an entire system. It can refer to a single individual or a specialized group that is considered to be the weak link in an integrated process.

Key Takeaways:

– "Weak sister" refers to an undependable or weak link that threatens to undermine an entire system.

– It can be used to refer to an individual, group, company, or economy.

– Weak sisters aren’t always undependable and can bounce back with outside help and favorable external factors.

Understanding Weak Sisters:

Weak sisters hold someone or something back. It could be a malfunctioning part of a team-oriented task, like the slowest member of an assembly line or a sluggish marketing team. It can also describe a security, economy, or business unit that performs worse than others.

Weak sister is similar to the term "weakest link in the chain." Both refer to someone or something that risks single-handedly causing the failure of the system or group it belongs to. "Weakest link" comes from the proverb "a chain is only as strong as its weakest link." In other words, one substandard link may cause a chain to break, even though stronger links may hold under pressure.

Example of a Weak Sister:

Weak sisters can appear in every industry. For instance, in an investment portfolio, there is usually at least one laggard that weighs on total returns.

For example, an investor, Mark, has invested in five different stocks: Company A, Company B, Company C, Company D, and Company E. Over the past three years, four of the stocks have performed well, beating the stock market with returns between 17% and 40%.

Unfortunately, the impressive performance has been somewhat undermined by the weak sister. Company C returned just 2% due to a fall in the price of oil, leading to tepid demand for its products and services in its energy arm. These trading conditions in that division ended up weighing on the average return of the whole portfolio, bringing it in line with the market average (or below if you factor in fees).

Weak sisters can also refer to entire countries. Following the great recession, Europe struggled to pay off all the debts it had accumulated, known as the Eurozone debt crisis.

Five of the region’s countries — Greece, Ireland, Italy, Portugal, and Spain — took the majority of the blame. These nations were accused of lacking fiscal prudence, not generating enough economic growth, and being at risk of defaulting on their bonds.

Special Considerations:

Being referred to as a weak sister doesn’t mean something or someone is beyond saving. Weak sisters might not always be undependable. In many cases, what struggled and held everything back one year might bounce back the next.

For instance, once the oil price rebounds, Company C might go from the weak sister to the biggest outperformer in Mark’s portfolio. Jittery investors pushed the valuation down to reflect the sector’s challenges. That means the stock will look incredibly cheap if sentiment improves and trading picks up again.

Market cycles and business conditions shift over time, leading various asset classes to fall in and out of favor. Identifying weak sisters and determining when they have bottomed out can be profitable for investors.

Weak sisters can also become stronger with important tweaks made from the inside. Certain capital expenditure (CAPEX) or cost-cutting strategies can transform a bloated, misfiring laggard into a leaner and meaner proposition.