Pick #1: Nike

I was in Chicago the other day and I had a little time to kill so I pulled into the Nike Store to look around.

You know what they have?

They have sneakers you can customize yourself.

You can choose different colors for everything from the base to the tongue to the laces. I want a pair. I want three pairs. And I'm old.

The reason I was in Chicago was to do a documentary project on people and computers. We interviewed people in a bunch of demographic groups--including teen boys and teen girls. Why is this relevant? Because a message that came through loud and clear was that teen boys in particular, but also teen girls to a large degree, project their identity through two things: music and shoes.

Do you see where I'm heading with this?

These customizable sneakers (and other stuff as well--go to http://www.nikeid.nike.com/ and you'll see what I'm talking about) are going to be to Nike what the iPod is/was to Apple (we'll get to Apple later). Only moreso. Because whereas other companies can and do build MP3 players, no other athletic company has the infrastructure to compete with Nike in this arena.

I know what you're thinking. You're thinking, "Brian, I thought you said you were going to make your decisions based on marketing, not on stuff like infrastructure." You're right. I am.

Here's why this is a marketing call:

I keep telling this to my clients, but they never seem to hear it: The most visible form of advertising that a most companies can invest in is the product itself. Sure, Nike can spend $200 million on television commercials. But Joey Eightgrader is going to see more Nikes in person than he ever will on TV. A relatively expensive customizable shoe is a more compelling ad for itself than any television commercial will be.

Okay, not quite true. Advertising can be insanely powerful. But the sad truth is that most advertising is not. Some of it is actually harmful (we'll get to Cold Stone Creamery later). The point is that I believe that Nike understands this in a way that most of the clients I work with don't. Nike treats its products as a valuable component of its marketing communication--that's why they spend so much on design.

What Nikeid.com represents is a single idea that can effectively transform the perception of a massive company: The tightrope Nike has been walking for years (successfully, I might add) is maintaining a balance between its massive popularity and the desire of its customers to be individual.

Customization implies individuality, essentially negating the negative effects of being too popular. In other words, you can have what everybody else has without being a member of a herd.

These shoes just came out, which means that most people on Wall Street have at best a vague notion that they even exist. But when they start to notice that Joey and Suzy keep spending their allowance at the Nike Store, they're going to begin to believe that the company is onto something.

They'll lose all perspective when Nike announces its third quarter of better-than-expected sales for Nikeid products, and they'll speculate the stock up to a point where the price/earnings ratio is totally stupid (we'll get to Google later). Then Nike will have an off quarter and boom! The stock price will collapse to below where it is now.

Like I said before, it's all about perception.

On June 27, 2005, I bought 168 shares of Nike at $85.50 a share.

I had an epiphany the other day. It goes something like this:

1) Marketing is about managing perception. That wasn't the epiphany, just a sort of set up. It's something I know to be true because I've been working in advertising and marketing and branding for 20 years.

2) The perceived value of a company is determined by perception. This isn't the epiphany, either. Although it is something of a realization. What it means is that people will buy or sell a stock based not on what a company is worth, but on what they believe the company will be worth.

I've learned this lesson repeatedly, but most profoundly when I decided--back in 2000--that you don't bet against Bill Gates. I bought stock in Microsoft at something like $58 a share. Today it's worth less than half of that. Beacause...

Because the important thing isn't how smart Bill Gates is, it's how smart people think Bill Gates is. A very important distinction. In 2000, people thought the future for Microsoft was rosier than people do today.

Perception.

Or, to put it another way, the perception of the future for Microsoft was better in 2000 than it is now.

I know, it's not just marketing. There are fundamentals. But the fundamentals only contribute to the perception. This is why a company like Ford can have a price/earnings ratio of 8.13 while a company like Google can have one of 110.79. What that says is that people think Google has more than a ten times better chance of doubling in value in two years than Ford.

Here comes the epiphany. If marketing is about managing perception and the stock market is about reflecting perception, then if anybody should be able to pick a winning stock, it's me.

So I'm pulling the trigger.

I'm opening an account at a brokerage, putting $50,000 into it, and buying and selling stocks in companies based on what I know about marketing.

This blog is here to do two things. First, to keep me honest. It's easy to be revisionist, but if I articulate my thoughts as they come to me, I'll be able to track whether I'm as smart as I think I am. (I'm really proud of my investment in Apple, which is worth eight times what I paid for it, but I tend to forget how tough it was to write the check.)

Second, I'd like to hear what other people think about what I think. I know what I know, but what I don't know is what I don't know. So maybe you could tell me.