As the co-founder of Apple Computer, Steve Jobs' entrepreneurial efforts earned praise and fame, but the founder of another iconic American company, which became publically traded within months of Apple's IPO, was also a scrappy underdog that shaped the face of his industry. In "Shoe Dogs" Nike founder Phil Knight describes his journey from selling shoes out of his car at track meets to creating the most iconic footwear and apparel company in the world. Jobs may have started in a friend's garage, but Knight began in his parents' basement.
After Stanford business school, the future shoe mogul was determined to bring an MBA research project to life and embarked on a bold journey to Japan. Knight networked his way into a meeting with a shoe manufacturer and deftly negotiated the right to import and distribute Onitsuka Tiger running shoes to America.
The combination of Knight's passion for running and attractive exchange rates propelled the young entrepreneur's venture from the basement to earn the sole right to distribute Tigers in America. Shoe Dogs proceeds to describe Knight's struggle to obtain funding, the tribulations of vertical integration, and the counterculture that fueled Nike's evolution. Knight, the quintessential iconoclast, and Nike broke all the rules and shaped the athletic footwear and apparel industries.
As an investor, finding the next Nike is the dream. Unfortunately, finding the next Nike may be easier than holding the next Nike. In the past few weeks I have liquidated five positions in our family portfolio. Though primarily motivated to offset gains incurred through portfolio rebalancing, several liquidated positions have the potential to be the next Nike. It is easy to sell when companies underperform. Approaching the end of 2016, Nike currently trades 20% below its all-time high (set roughly one year ago); over the same period, Vanguard's S&P500 index fund (VFINX) appreciated by 2%.
Or consider the success of Job's Apple Computer. Apple has had remarkable success since the introduction of the iPhone (Apple is currently $50 billion more valuable than the second most valuable company in the world, Alphabet). But it would have been difficult to hold Apple's stock from its IPO date in 1980 through an almost twenty year period during which compounding annual returns stagnated at roughly 3%.
Shoe Dogs provides a first-hand account of the difficult path to success. Patience and diligence, and sometimes luck, are necessary to realize the outsized returns experienced by Nike's long-term shareholders. Knight's story reminds us superior investment returns must be earned, even by passive investors.