Archives for April 12, 2016

Under Armour, Nike, and Owning The Haystack

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haystacknikeIf you’re a basketball fan, you may have read this ESPN article about how Under Armour beat out Nike to get an endorsement deal for Stephen Curry. As one of the hottest athletes in the world, this single deal could shift billions of dollars towards Under Armour, especially if the Warriors win 73 games and defend their NBA championship. All for a company that just starting making shoes 10 years ago.

Under Armour (UA) is currently worth about $10 billion (at a very high P/E ratio), just 10% of Nike (NKE) at roughly $100 billion. What will things look like in another 10 or 20 years? Will they maintain their momentum? Athletic apparel is a huge and growing industry, but fashion moves quickly and I am only getting older! Under Armour didn’t even exist when I was begging my parents for Nike Air Jordans in high school.

I see myself as an investor in these companies through the Vanguard Total Stock Market Index Fund. I know that as a market-cap weighted fund, the amount of each stock held is directly proportional to the total market value of the company. Right now, I own roughly 10 shares of Nike stock to every 1 share of Under Armour stock. If the current trends continue, I could one day be owning 10 shares of UA stock for every share of NKE. All without having to pay attention to trends, comb through any financial statements, or trade a single share of stock.

In the future, I will own shares of the company selling whatever kinds of clothing and shoes all the kids covet, be it Nike or Under Armour or something being sketched right now in a garage somewhere. (My own athletic wear logos are dependent on what is on sale under $10 at Ross…) I’ve repeated this well-known quote from Vanguard founder Jack Bogle before:

Don’t look for the needle in the haystack. Buy the entire haystack.

In the end, I sleep better at night because I know that I will own the haystack. I will own all the winners in relative amounts. In exchange, I will give up the opportunity to earn a very high return from betting on the top winner, I will give up the risk of picking the losers, and I won’t have to pay anyone to pick them for me.

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