Category: Industry Analysis

Kobe’s Legacy Lives On: The Investing Lessons I Learned from the Black Mamba

On January 26, 2019, I had lunch with a prospective client on a Sunday afternoon. During the meeting, my phone vibrated repeatedly in my jacket, prompting me to wonder what the urgency was behind the messages. Later, when I checked my messages, I learned that they related to the death of Kobe Bryant.

One of my friends had sent me a late-breaking piece, and initially, I thought it couldn’t be true. I believed that social media was jumping to conclusions. However, upon visiting various social media sites and popular news media, I encountered the same, inevitable truth. In an attempt to hold onto the hope that Kobe was still alive, I watched replays of his games repeatedly.

The news left me in disbelief for the entire day, and I yearned for more news that would report that it was just a minor accident. It was emotionally difficult to hear that his daughter had died in the same helicopter accident. I couldn’t fathom the devastation that Kobe’s family must have felt after experiencing such a catastrophic helicopter crash. Kobe has always been an inspiration to me, and his loss is deeply felt. Anyone can relate to Kobe because he was genuine. His passion was undeniable, and the way he lived his life was truly inspirational.

Who Was Kobe Bryant?

Kobe Bryant was just 17 years old when he entered professional basketball in the NBA straight out of high school. At the beginning of his career, Bryant didn’t have many opportunities to play, despite having more potential than many of his teammates. When he was given the chance to play regularly, NBA fans saw glimpses of his unique style and skill. As his career progressed, it was clear that he was destined for greatness.

In 2002, I was fortunate enough to see Kobe Bryant and Michael Jordan play in the NBA for the first time. The home game took place in Washington, D.C., with the Wizards, led by Michael Jordan, facing off against the Lakers, led by Kobe Bryant.

The game was intense and close, but the Wizards ultimately beat the Lakers in the final seconds. During the game, Jordan told Bryant that he could “wear those shoes, but never fulfill them.” This critique annoyed Bryant so much that he stopped communicating with his team for two weeks. In the next game against the Wizards, the Lakers won, with Bryant scoring a retaliatory 55 points.

Michael Jordan VS Kobe Bryant – 2002.11.08

There were numerous similar stories about Kobe’s desire for revenge on the court, as he always found ways to improve and get ahead. His work ethic and pursuit of wisdom and knowledge led to five NBA championships and a lengthy list of legendary achievements.

Kobe Bryant’s work ethic was legendary. The best moments of his career were not captured on ESPN; rather, they occurred during the early mornings and late nights when he practiced more than anyone else. Bryant was always the first and last person to arrive at and leave the gym. He followed a strict workout regimen and even found ways to practice while injured, such as focusing on his weaknesses or using his uninjured hand. There was no off-season for Bryant; his summer training sessions were traditionally just as intense as the regular season. Hard work, both on and off the court, was a consistent effort for him. Kobe Bryant exemplified the meaning of perseverance and hard work through his actions.

Talent can only take someone so far in their profession. For example, most starting players in the NBA have the potential to score 20 points per game and some have scored a 20-point game, but most players cannot consistently perform at that high of a level every night. Similarly, most investors will have some years of outperforming the market, but most investors cannot consistently outperform the market average over a lifetime. Those few who can consistently perform at a high level share one trait: hard work.

Bryant believed that he should work hard as if he never had any talent. When asked why he was such a hard worker, he said, “To think of me as a person that’s overachieved would mean a lot to me. That means I put a lot of work in and squeezed every ounce of juice out of this orange that I could.”

Hard work is about commitment and there are no substitutes for it.

Lesson about short cuts: Blackberry (BB) had the potential to compete with Apple (AAPL) but has been unable to do so due to a lack of innovation. As a result, it is no longer a significant player in the smartphone industry. In an attempt to regain market share, Blackberry released a rushed and unfinished smartphone. However, the company did not invest enough in research and development or give its engineering team sufficient time to deliver the promised features. As a result, Apple has already won the market and Blackberry was unable to match its commitment.

Actively Seeking Wisdom and Knowledge

Kobe was skilled at using every tool at his disposal to become a better basketball player. He watched soccer and noticed that soccer players had a unique freedom of movement. He observed that they used more ankle torque than basketball players, but did not experience a higher incidence of ankle injuries. Kobe began researching ways to improve his signature shoe. He asked Nike to remove a few millimeters from the sole to provide better traction and incorporate the benefits of soccer shoes. The result was a low-top shoe that offered structural ankle support, improved traction, and faster response time.

Kobe Bryant was known for cold calling basketball players and business leaders to learn about their successes. He studied the movements of animal predators in order to incorporate them into his jump shots and psychology to gain an advantage over his opponents. Kobe also analyzed the weaknesses of other players and the foul calls made by referees. Some might view Kobe’s behavior as erratic, but those in similar positions of success often see this level of obsession as normal and even beneficial.

Many successful people have an obsession with their work. It is a common trait found in leaders, business professionals, and investors. For example, Sam Walton immersed himself in the wisdom of all he could learn from competitors to junior associates at Walmart. He took advantage of every opportunity to enhance the business. The Walmart business model is built on low prices and efficiency. Another example is Elon Musk, who was months away from bankruptcy and slept in the Tesla factory for months in order to turn the company around. Warren Buffett searched through 10,000 pages of Moody’s manual to become familiar with every public company. Once he found a few suitable investments, he studied everything he could about those companies and invested accordingly.

Champions are constantly seeking to improve and develop their skills. In the world of sports, championships are often determined by small margins such as a fraction of a second, one snap, or one turnover.

In the world of investing, small differences can lead to millions in earnings or bankruptcy.

Kobe Bryant’s dedication to basketball is inspiring. He has influenced many people and shared his wisdom. His “Mamba mentality” is about working hard and living up to one’s potential.

Kobe believed that he should always work hard as if he had no talent.

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Collectibles arbitrage in the 1970s-1990s: The rise and fall of hobby stores

Before the internet, auctions, and hobby stores existed, it was a simple market for collectibles such as shoes, artwork, games, and cards. However, the market was not efficient in pricing collectibles for hobbyists.

It was difficult to find rare cards and they were only available through newspaper ads, neighbors, acquaintances, and hobby stores. Rarity was determined by the availability and location of a product. Baseball cards gained popularity in the 1970s to 1990s and led to the creation of new hobby stores to sell them. Baseball cards were cheap to produce and could be sold for a significant profit.

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By the early 1970s, the first professional card dealers emerged

During the dial-up internet era in the late 1990s, consumers were not familiar with the internet and were skeptical of buying products online. As a result, they trusted local hobby stores more than the internet. Hobby stores took advantage of this by selling the same merchandise at higher prices due to the customer’s mistrust of internet products.

I often paid a premium price at the store rather than the “official card price index” listed in hobbyist magazines. It was not easy to buy from the internet because there was no way to confirm or guarantee that the money paid online would be honored. It was common for hobby stores to list merchandise at higher prices than the market’s selling price.

As time passed, consumers began to trust online marketplaces like eBay, and collectibles became more price efficient. Sports card revenues reached their peak in 1991 at $1.2 billion, but since then have dropped to under $200 million as hobbyists lost interest in baseball cards. The saturation of hobby stores reached its peak when store owners realized there were more baseball cards than they could sell. As a result, hobby stores started looking like storage rooms and most baseball cards lost their value.

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Baseball Cards Liquidation sale

Experienced store owners who recognized the decline of baseball cards quickly sold their entire inventory and stores. The market clearly showed that baseball and collectible cards were not worth much. Smart hobby store owners were able to make a decent profit and shift their attention to the next collectible trend. However, those who took over the hobby stores ended up holding the bankruptcy bag.

Where was Under Armour in 2001?

Before Under Armour became a famous sports brand worn by professional athletes, it was a small business founded in 1996 in my home state, Maryland. Kevin Plank, founder of Under Armour designed shirts to help cool down an athletes body during training. Under Armour clothing was available through a regional mid-size sport’s retail chain called Modells. Modells were also one of the first major retail chains to carry their brand.

I still remembered the moment UA apparel caught my attention in Modells. As soon as you enter Modells, Under Armour was the solitary thing you could look at because it was visible in front. It was situated on the button on the front left entrance and Nike was located near the front right entrance of the store. UA had this skin tight shirt on display that looks hi-tech and innovative. UA shirt was like no other clothing apparel that I have ever come across, the material felt light and smooth. I decided to buy a $40 shirt in 2001 that was worth my entire paycheck for mowing two lawns.

Purchasing an expensive shirt wasn’t the best financial decision, but I felt cool for being the first kid in my neighborhood to have an Under Armour shirt. I did not know anything about Under Armour business model yet, but I knew their shirt pulled in my skinny teen body felt like I transform into a superhero. I felt proud wearing UA gear and shouting “we must protect this house” during basketball games and gym workouts. I was attracted to the brand because the unique logo and the marketing motto “Protect this House”.

The UA business model started out, targeting the male demographic customers. UA is much more than a one trick pony company that sold skin tight shirts. They rapidly expanded their business in over 2,500 retail stores near the end of 2002, and shortly less than a year later it started offering Women’s apparel. In 2005, UA went IPO to expand their brand domestically and introduce more products.

15 years after, I am still wearing the UA shirt to basketball games, this time with a real superhero “Batman Embalm” that cost me over $50 dollars.    I bought more UA apparel and a few pairs of their place, but I am not the only kid anymore to purchase UA gear. There are children all over the world wearing UA and Adults in the gym are challenging my status quo as a superhero with their own UA superhero shirts.

UA grew tremendously and became competitive enough to challenge the sporting apparel industry leaders like Adidas and Nike. Its IPO gained over 800%, turning from a market size of ~ $770 Million to the current valuation of ~$8Billion! In that respect is no doubt, UA became a successful business and a household brand. Early UA investors have tons of earning money over the last decade. UA continues to expand to multiple clothing apparel lines and even introduce hi-tech sport electronics.

The business environment was very challenging in the early 2000s.    On Jan 2002, Kmart became the largest retailer in American history at that time to file for Chapter 11 bankruptcy. By the summer of 2002, US Airways, shared Kmart’s faith and declared Bankruptcy. Many trade names from the early 2000s have disappeared and became irrelevant. Today, many investors and shoppers recognize the UA brand. UA offer products for nearly every major sport and is a world-wide brand. While Under Armour has been wildly successful so far, they are really small compared against Adidas and Nike. Stay Tuned for my next BLOG on learning what is keeping Under Armour, UNDER PRESSURE!