What is a Weak Sister?
A weak sister is a security,or operating unit that performs worse than all the others.
How Does a Weak Sister Work?
Let's say John Doe's portfolio contains five stocks: Company A, Company B, Company C, Company D and Company E.
Company A and B have returned 25% over the last five years. Company C has returned 15%. Company D has returned 40%. Company E has returned only 1%. In this portfolio, Company E is the weak sister and is pulling down the average return of the whole portfolio.
Why Does a Weak Sister Matter?
Weak sisters drag down overall performance, which is why there is often a temptation to get rid of them. However, weak sisters can sometimes surprise everyone and thus may be worth sparing. Because they are valued the lowest or have the lowest expectations, and growth or improvement can be dramatic.