Greedy When Fearful

Anyone who invested $1,000 in Nike (NKE) in 1980 would be sitting on at least 120 times their money ($120,000, not including dividends). Any parent who would have purchased just $100 worth of Nike stock with their kid’s $100 Air Force 1 sneaker would be sitting on $12,000 for college.

Nike was born in 1964 and was a household name in 1980. I’m sure many people thought they already missed the Nike train in 1980. But, “Nothing succeeds like success.” Only investing in the cream after it’s risen to the top has proven to be a great investment strategy over the decades. Look up the charts from the companies that made your favorite products when you first discovered them and you may be surprised at their massive gains.

Since Doc Brown hasn’t invented the Flux Capacitor to send me back to 1980, my strategy is to find the next Nike, and invest like it is 1980.

Only about 1/8^th the size of Nike’s market capitalization, Lululemon Athetlica (LULU) and Under Armor (UA) are both 13 year olds that look like they might grow up to be Nike some day.  Jim Cramer would say I should only own one to stay properly diversified. But, when trying to predict the next 30 years, I have no idea which one will do better or even exist in 30 years. Great investors sketch the future, bad investors try to photograph it. I’m going to sketch the future by buying both.  

Lululemon Athletica

This is a company I didn’t even know existed a month ago. My wife confused it with Gap’s Athleta brand when I asked her about it. Jim Cramer mentioned it a couple of times on Mad Money. Then, Motley Fool’s David Gardner suggested it as not only a Rule Breaker but a Rule Breaker Core. Rick Aristotle Munarriz called it “The Hottest Retailer in 2011.” Lulu launched their first store in 2003, IPO in 2007, and their online store in 2009. No wonder I haven’t heard of Lulu, she was just a baby!  OK investing universe, you have my attention. I LOVE babies.

Though plenty of Americans still tie their ego to the price of a product, most men I know follow Tyler Durden’s advice (“You aren’t your f$#@% khakis”) when it comes to gym clothes. I wear the same decade old t-shirt and shorts to work out. Women are the polar opposite in this category however and that’s what gives Lulu an edge over Under Armor. Lulu was created to fill the void in athletic wear for women. Do you think of women when you think of Nike or Under Armor? Me neither. Lulu has invented a world where women rule the gym. When companies invent their own world take a look at your feet, you may be walking on a yellow brick road.

$350 for True Religion jeans, $200 haircuts at Lunatic Fringe, and shopping 399 hours a year is why women rule the shopping universe. Lulu is bringing Women’s fashion to the gym and now they’re sweating gold. Net revenue increased from 40 million to 459 million from 2004-2009, an astonishing 60% compound annual growth rate. They increased cash from 3.8 million in 2006 to 159 million in 2010. No debt. 31% growth in comparables in 2010. Lulu only has 100 US stores, only a few per state. They plan on growing to 300 US stores. If they can successfully execute growth to 300 stores expect the stock to soar. As Cramer says, “Growth is rocket fuel for stock price.”

A primary concern of mine is the mainstream appeal of exercising. With record obesity rates in America, exercising isn’t trendy like it was in the 80s (Thanks Schwarzenegger and Stalone!). I also typically avoid retailers like the plague as most middlemen can be easily replaced. They have no moat. However, when the retailer makes the product they are selling, brand loyalty becomes their biggest asset (think Victoria Secret, Starbucks, Apple).

In my next update, I’ll cover why I like Under Armor. Here are my purchase stats for both stocks:

I also purchased more NFLX @ $205.00 because I think the fears of Facebook and Amazon are over-blown. Doubled down on BYDDY @ $9.06 to turn a -28% loss into a -12% loss. Only 3% of China owns cars and I think China’s biggest home grown automaker will eventually be able to compete with GM and Ford. View the entire portfolio here:

Off to the gym….

Monty