Take the New England Patriots for example. They lost in the Super Bowl to one of the biggest underdogs in NFL history... and failed in their attempt to complete a perfect season.

But I'm not just talking about the Super Bowl...

As I wrote last month, the New England Patriots failed to "cover the spread" in any of their last six games of the NFL season. "Covering the spread" is a gambling term. The two sides are rarely equal in sports. So to make it an even bet for the gamblers, the bookmakers give the stronger team a handicap. Bookmakers call this handicap the "spread."

When New England played Miami, the spread was the largest I saw all year: 22 points. Miami had only won one game all season. It was the worst team in the league. New England was the best team in the league. So to make it an even bet, the bookmakers gave Miami a 22-point head start. In other words, to win a bet on New England, the Patriots would have to win by more than 22 points.

As it turned out, the Patriots only won by 21 points. Anyone who bet on New England lost their bet, even though the Patriots still won the game by three touchdowns.

In the last six games of the season, including the Super Bowl, New England started every game as heavy favorite... but failed to cover the point spread in any of the games. Betting on the underdog was the right bet every time.

I only bet on underdogs... in sports or in the financial markets. That's why homebuilders, lumber, banks, and the U.S. dollar are among my favorite investments right now. Everyone expects the market will flush these assets down the toilet. I bet they go up... and for making this bet, the market will give me great odds: an upside potential three or four times greater than my downside risk.
 
Take homebuilding stocks, for example. Recently I read a study by one of the large Wall Street institutions that showed current homebuilder stock prices reflected a business environment that was worse than the worst-case scenario these analysts could imagine. There's only upside to this bet: You either win a little or you win a lot.

Underdog odds are why I always bet against Tiger Woods in major golf tournaments. He's like Apple or Google in the stock market... or the euro in the currency markets.

Tiger won the first two golf tournaments of the year. He's playing the best golf of his career. He's the best golfer in the world... by far. The Masters starts in April. It's Tiger's favorite tournament. There's not a person in the world who thinks he won't win... so you can get great odds by betting against him.

The bookmakers are giving 50/50 odds that Tiger will win the Masters right now. I think these odds are preposterous. There are more than 60 world-class golfers in the field. Augusta is the hardest golf course on the planet. Every year, they make it harder. The greens are faster than a billiard table and have more slopes than a ski resort. Anything could happen on that course – even if you're as good as Tiger Woods. There's no way that even odds on Tiger Woods is a good bet.

My advice, if you have access to a sports bookmaker, bet against Tiger Woods. If finance is your game, I recommend you always bet on underdogs. Right now, that means homebuilders, the U.S. dollar, banks, and lumber.

Good investing,

Tom

Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.