You can either file this post as genius opinion, or proof that Bootstrap Investing can make an investment lesson out of just about anything.  You decide.  You won’t hurt my feelings either way.

Mrs. Bootstrap and I recently spent a lovely weekend in Lake Tahoe, CA.  The undisputed highlight of the trip was the Sheryl Crow concert at Harvey’s hotel and casino.  An outstanding four hours of musical entertainment.  Her opening act was the immensely talented James Blunt.  I didn’t think about investing for one minute of the show. I swear.



Shortly afterward however, reflecting on our wonderful evening, I was reminded of the power of branding (for a description of “brand” I recommend this Wikipedia article).  Clearly, Sheryl Crow has great name recognition and has cultivated her own image or brand.  We know what she stands for, we understand the quality and consistency of her music.  Over her career (her first major album was released in 1993) she has built on this image and reinforced her own personal brand (I'm sure it doesn't hurt that she is ... really hot).  Compared to her opener, James Blunt, she has a much more powerful brand.  This is not a slight to James, but just the reality of the situation (which is probably why he is touring with her).  James will certainly continue to perform, and if he successfully delivers quality products, good press, etc. he will undoubtedly build his own brand and image, increasing his name recognition and image in the process (I have no opinion on James' hotness).  The process takes time – and consistency.

I think this is an important point in investing.  One, although it might be mentioned frequently in the financial press, is not really considered very often in the investment process.  Why? Probably because it is not easy to put in a spreadsheet or quantify.  It reminds me of a quote:

“Data is not information; information is not knowledge; knowledge is not wisdom”

Or something like that.  I’m not sure who said it, if you know, drop me a line.  Anyway, some great investors, including Warren Buffett, are proponents of using the power of a company’s brands as part of the investment thesis or process.  From my perspective, there are two ways to potentially use this as an investor:

1. Invest in companies with strong brands that can use that brand power as a competitive advantage (often in terms of pricing power, or equity with customers in recovering from stumbles) – the “Sheryl Crows” of the investment world.
2. Look for companies that have a high probability of developing a strong brand over time and building a competitive advantage – the “James Blunts” of the investment world.

Companies in the first camp are those such as American Express, Coke and Apple.  Well established franchises with incredibly strong brands that can help them withstand all sorts of hardships.  Many investors make a career of focusing on these power house brands, waiting for an inevitable stumble, picking shares up on the cheap and making a great return over time.

It is the second camp that particularly intrigues me as an individual investor.  I think spending some time evaluating the possibility of strong brands that are still in development could provide serious opportunity for the individual investor.  One company that I think fits the bill, is an athletic apparel maker called Under Armor (full disclosure: I have owned their stock for a while now).  Many of you may be familiar with Under Armor.  They practically invented the compression fit moisture wicking garment favored by many amateur and professional athletes.  Here are some of the points that I identified as key branding elements:

• A clear market:  UA started by targeting the football market.  They are gradually expanding into adjacent markets such as cleats, training shoes, etc. as appropriate.
• Excellent marketing: UA targets local, college and club level sports sponsorships.  They hook them while they are young.  Some of these athletes will go on to professional sports voluntarily wearing the brand.  This is back up with strong traditional TV, print and web advertising.
• Compelling product: Moisture wicking fabrics aren’t unique.  UA’s initial compression products were unique (but quickly copied).  UA has leveraged that initial advantage and capitalized on the customer base with compelling new products and innovations to keep customers coming back.
• Image: UA has developed a powerful image as product focused on the serious athlete.  The brand has been built around being the must have product for anyone serious (or wishing they were serious, which is just about everyone) about their training.

Admittedly, UA is in its infancy in developing the brand.  But I think they have compelling building blocks for a potentially great brand. 

Let me know if you have any thoughts on Under Armor, or branding in general.