The Epitome of Long-term Investing

The company's share price return in percentage (%), from 1984 to 5 March 2019.

If an investor invested in Nike the day the company went public, and held on for 36 years til today, doing exactly nothing else, he would have made over 310x his original investment just on capital appreciation alone. In fact, he would also be collecting more than 300% yearly dividend yield on his original investment currently – digest on that for a while.

Which companies’ shares would you buy for your kids today such that in 10-30 years’ time you could pass something of immense value to them?

Granted, Nike’s current valuation is high at ~28x EV/EBIT, but even if we were to halve its valuation to say 14x EV/EBIT, said investment would still have returned about 150x; or for every $10,000 invested, Nike would be returning $30,000 dividends yearly, as well as $1.5 million in capital appreciation.

Clearly there were many factors that led to Nike’s success, including signing Michael Air Jordan in the eighties when the once-in-a-generation global athelete literally took off, the iconic brand slogan “Just Do It” which evokes a meaningful and relevant connection to global sports enthusiasts, a dogged focus on design iterations and supply chain management, as well as the recent adoption of technology to deepen their connection with loyal fans and to provide a quantum leap in the brand experience, both offline and online. All these helped to explain about 65% of the returns in this long-term investment.

But there was one thing that founder Phil Knight and subsequent leaders did which stands out and accounted for about 35% of their long-term success as a company, something which increased the company’s worth by another 100x.

Appropriate capital allocation.

Over the 36 years since Nike went public, the company not only increased their dividend payouts by 17,000%, they also bought back roughly $22 billion worth of shares, reducing the number of shares by 35% from 2.4 billion shares to 1.58 billion shares today; specifically, they started buying back their shares at relatively low valuations from 1998 to 2013 (I’m not sure if the recent 3 years’ valuations justified the buybacks though).

Think about that for a while; when the company went public in 1983, they raised $52 million and the company’s market capitalisation was ~$600 million. Today the company is worth $133 billion and pay dividends of more than $1.3 billion.

And from a per share basis, because the company bought back so much shares, the overall returns to shareholders increased by another 35%, or another 100 times more.

Talk about organic growth; Phil Knight and Nike has returned their original shareholders’ investment back many hundreds of times.

Supposed you learn something from this brief article:

Q) Which companies in your investment portfolio might grow 10x in the next 10-30 years?

Q) Which companies’ shares would you buy for your kids today such that in 10-30 years’ time you could pass something of immense value to them?