Saturday, April 30, 2011

Under Armour - 7.5%

Started by a former university of Maryland football player in 1996, Under Armour epitomizes the type of product all good businesses are founded upon.  An unbelievably strong product with unique characteristics, Under Armour was selling out before the owner had a factory secured solely based on word-of-mouth.  By 1999, UA was fully functioning and showing a profit.  Now, a stalwart of professional, college, and high school athletes, even the casual weekend warrior swears by Under Armour.

I started tracking Under Armour last April and tracked it for a couple of weeks.  It went from about $32 to $36 during that time.  Despite not being a typical stock I own or would purchase, i.e. a "retail stock", Motley Fool had given it 5 stars and it had a lot of qualities I liked.  Furthermore, my wife had pointed out that the ladies on the Real Housewives of New York were all wearing it, demonstrating its clear market expansion beyond professional athletes.  This was a high quality product and the people who used it tended to abide by it.  Although all important considerations the most important and interesting aspect of this purchase  has to do with my tracking.

Under Armour had gone from $32 to $36 during a 2 week period then all of a sudden, one day it dropped to $30.  Did it drop because it missed earnings?  Did Goldman or Merril come out with a downgrade?  No.  Greece had a financial calamity and it looked as if it's debts couldn't get paid.  So, what does this have to do with Under Armour?  Absolutely nothing.  The Dow lost over 200 points because of problems in Greece and took Under Armour with it.  Nothing about a $36 Under Armour had changed except now it was $30.  I pounced figuring I had an easy 18% profit.  The market would clear up after panicking about Greece and UA would go back to its true worth of $36.   And this, my friends, is one of the easiest things I would do when developing a private portfolio.  Wait for the market to tank from some political reason that has nothing to do with the company you want to buy, and buy then.

Within days, Under Armour was back at $36 and then shot beyond.  Now trading at around $70, UA has made it to the top 5 in my portfolio.  This after a huge recent drop due to inventory concerns  As early May is the one year anniversary of my purchase and it may be overpriced, I may dump it after having it for the requisite time to qualify as long term capital gains (one of my rules - I hold for at least a year and a day).  However, I like the company so much it may also be a long term holding.

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