Better Investing Through College Basketball

Investing is a lot like sports in some ways. It's also nothing like sports in other ways, but where's the fun in that? In this week's episode of Industry Focus: Consumer Goods, basketball fans and professional Motley Fool analysts Jason Moser and Asit Sharma talk March Madness, the business of basketball, and how sports can help you make better investments. Learn why UNC and Wofford are shoo-ins for something big this year; the shifting dynamics of the never-ending battle among Nike (NKE -0.18%), Under Armour (UA 0.92%) (UAA 1.03%), and Adidas; some of the non-apparel sports companies investors can get a piece of; what basketball's top coaches can teach us all about investing better; and more.

A full transcript follows the video.

This video was recorded on March 19, 2019. 

Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Tuesday, March 19, which means we're talking consumer goods. Folks, I'm going to go ahead and get ahead of this thing for you right now and warn you that today's show, we're taking a little bit of a different tack. As you may or may not have heard, it is March Madness time. If you've been listening to Monday's Financials shows at all here over the past basketball season, or following me on Twitter, then you certainly understand that my Wofford Terriers are dancing this year as a 7 seed. My guy on the other side of the computer today, Asit Sharma, Asit, your Tar Heels are dancing, no surprise, as a 1 seed. How's everything going?

Asit Sharma: Really well, Jason. I'm infected with March Madness. I went to the doctor this weekend, I said, "What can we do about this?" He said, "You just have to wait it out. It'll take care of itself." [laughs] 

Moser: [laughs] It's a fun time of year. I tell you, to me, it's the most exciting sporting event of the year. I'm a big golfer, but man, this one's just always a nail-biter, it seems like. To have our teams in there, obviously the Tar Heels are always in there. Wofford has done a good job in getting in there as the Southern Conference champions a number of times, but this year was an exceptional year. They would have made it even if they didn't win the conference tournament. Certainly, we'll talk about that. 

But hey, before we get started, Asit, I also want to give some honorable mention here to Dylan Lewis and his Northeastern Huskies. They are also in the tournament at a 13 seed. We maybe should have gotten Dylan here in the studio today. Regardless, we want to make sure and throw a little love out there for Northeastern as well. Congratulations, Huskies! We're wishing you luck as well!

Sharma: For sure. They're going to be a dangerous 13 seed. Kudos to them!

Moser: All right. We want to get started today talking about the overall tournament seedings. We're going to talk, of course, where UNC fell, where Wofford fell here on the seeding chart. We figured that this was a good way to talk some basketball but also to draw the connections between the NCAA tournament and investing. There are a lot of different ways that investing plays into our everyday lives, certainly in the consumer goods realm. There are just so many different ways that sports connect to our portfolios, one way or another. It's not just apparel. We'll talk about all of the different stuff. 

First and foremost, we want to get into these seedings here, talk about our teams, talk a little bit about the season, what went well for them, why we feel like they may be dangerous teams in the tournament. Asit, I'm going to let you get started here, talk to you and see. Listen, I've got some UNC connections as well. My dad graduated from UNC. My wife got her MBA from UNC. I grew up watching UNC a lot in the house and certainly pull for them as well, except for when they play Wofford. But, talk to us a little bit about UNC's season and what you think they've got going for them into this tournament.

Sharma: One of first and foremost things we've got going for us is, we actually beat Wofford this year.

You guys handed us a loss, and it turned out to be a harbinger of how good Wofford was going to be. We lost a home game. I still remember I dropped two of my younger sons off at the game. I had some work to do for the Fool that night. I didn't attend the game. I picked them up and everyone was pouring out of the Smith Center in shock. That was a preliminary taste of the Wofford team we're going to talk about.

What I like about UNC this year, I think they are always good. My connection, I also graduated from UNC and live very close, so I'm over in town often. I think that their offense and defense are both really strong this year. They're both within the top 10 in the NCAA tournament. The team is anchored by three seniors who are all present for the championship game in which UNC won the National Championship in 2017. So you have a team that's anchored by very experienced seniors. Then, you've got a pretty good big man in Garrison Brooks. He's a sophomore. A phenomenal freshman in Coby White, who will be a future NBA player. You also have another really great future NBA player in Nassir Little, who comes off the bench. 

Why I think this team will be dangerous is because even for a Carolina team, this particular group of guys played extremely fast up and down the court. Carolina's fast break is their bread and butter, their staple play. They also have something called a secondary break. It's another very fast type of play. I've noticed, this is one of the Roy Williams' fastest teams ever. They are faster off a made basket by the opposing team down the court than some teams are in transition off a turnover. That's how fast they are. 

That actually covers up for a lot of deficiencies. Towards the second half of the season, Carolina has not shot the ball quite as well. Their percentages have dropped off both in three-point shooting and two-point field goals as of late. But they're an excellent rebounding team, which also helps cover that. Between the speed that they have, the maturity, the young guys, and being an excellent rebounding team, I think they can make a deep run in the tournament.

Now, let's hear about these Wofford Terriers, who, I must say, 29-and-4 is their record so far. The only team in the country to go undefeated in conference. Just an amazing team, for those of you who have not seen them play. Let me flip it back to you, Jason. Tell us about this formidable team. 

Moser: It's been a phenomenal year. By any team's measure, when you go undefeated in your conference and then you run through that conference championship and win that to top it all off, that's something that is going to be special, these guys are going to remember it for the rest of their lives.

It's a team, I think, much like Carolina, steered by some strong seniors there. You have Fletcher Magee, the guy who can really shoot the three. You've got Cameron Jackson, who can get in the paint and play with anyone. Their four losses this year came against ranked teams. Those four losses came against Kansas, UNC, Oklahoma, and Mississippi State. Good teams all in their own right. I think those are games where they kept them close, but more than anything, I think, when you go and you play against teams that are on paper better than you -- and I know I found this in golf growing up -- when you're out there playing against a field that is really good, it ups your game, it teaches you how to be able to play at that level, and you gain that confidence so that you can play in that level. Hopefully we'll see that play out for these guys in the tournament here, matching up against Seton Hall in the first round. Seton Hall, obviously, a very good team. 

I think that when you look at Wofford, the thing that makes it so special, in all honesty, is the fact that Wofford is a very small school. It's about 1,600 students total. It's just a tiny school. It's difficult to field a really good team when you just don't have that many students. But they've really done a good job through the years. I attribute it to not only the school's culture, but Mike Young, the coach there, he's been head coach there for 17 years now, with the school I think for 30. 

I was down there at the beginning of the basketball season, Asit, and I went to go talk with some students and professors there about finance and the work we're doing here and whatnot. I was able to get a full tour of the new basketball facility that they have there, that they just opened up. It's really phenomenal. You can see they're making big investments there. It's not something that existed when I was there. I graduated in 1995. It's a much different school than it was when I was there. Really fun to watch this team make it work. I think ultimately, that's what they have here, they have a team in place where it isn't really fully dependent on any one player. If there's one player having a bit of a tough time, there are players that can go in there and make up for that. I think we saw that in the conference championship against UNCG. Fletcher wasn't having his greatest game, but you got a junior there in Nathan Hoover who really picked up the slack there and helped them come back when they weren't really playing their best. These guys are feisty. They're in it, they're excited. Certainly, the entire Wofford student body, from what I've seen, is very excited. This is a big deal for a tiny school.

Sharma: Storm Murphy is another name I wanted to throw out that comes to mind. You have some players who are... it's not just Fletcher McGee. He's going to be a legendary player. He already is, to some extent. I think in this tournament, perhaps on Thursday, he will set the record for the most made NCAA three-pointers in Division One. That itself is incredible. But I just remember from playing you guys how balanced you are. You've got five players, your post player, as you mentioned, Cameron Jackson, he's 6-foot-8 and he's just a beast. It's a great inside-outside game. They're an exciting team to watch, I'll say that. 

Moser: Yeah. That's the beauty of this tournament, right? A lot of exciting teams to watch. And I mean, hey, listen, let's remember, this isn't just the guys. We've got the NCAA Women's Tournament getting ready to start as well. You've got a tremendous amount of high-quality basketball, exciting basketball, getting ready to start for audiences everywhere. It's a really fun time of year. 

Now, let's get into talking a little bit more about NCAA, sports in general. Basketball in particular, though, is really big business. I know football tends to get a lot of the spotlight. Maybe that's just due to the nature of the sport itself. But I feel like basketball gives a little bit more of a level playing field for a lot of teams out there. That's probably why you see a school like Wofford that can hang on the basketball court. Maybe not so much on the football field. Basketball really is big business. We talk about the major players in this space, the obvious suspects there. Nike, Adidas, even Under Armour. I saw something where Under Armour tweeted out, they've got 17 squads representing in the Men's Tournament this year. They've got 12 squads representing in the Women's Tournament this year. Asit, we've seen lately here, as Under Armour has been in the process of a little bit of damage control, Nike and Adidas have been duking it out lately. It seems like Nike might be gaining the upper hand there.

Sharma: Yeah, it seems like that. Nike was once the undisputed leader of program partnerships and really evolved this whole mechanism where a major sports apparel company will team up with a school, give the school athletic gear and cash and marketing support, and then get their product placed within these schools, which is really great for their brand. But, we've seen in recent years, Adidas really tried to take some of this share from Nike, and Under Armour get into the game as well. 

It's really interesting to me. I was doing a bit of research for this program. I'm surprised, it's estimated that these three companies jointly pour in about $300 million a year in college program contracts. One of the ones that stands out is Under Armour's mega-contract with UCLA, which they inked in 2017. This is a 16-year partnership. Each year, UCLA will get an annual cash allotment of $9 million. They will get product worth $3.76 million. You have to pause there and think; how many stickers does $4 million buy? [laughs] Of course, this is going to all their teams. I'm sure there's new lacrosse jerseys, etc. There's all types of departments that prosper in a big deal like this. It's a $200 million deal over that lifespan. So, Under Armour has come in and pushed up or escalated the bidding process. 

Adidas, as you mentioned, Jason, had really come out in front of Nike in the past few years on a couple of fronts. It really stole some nice partnerships upon contract renewals, but also, in financial terms, as Adidas decided to focus on the college market, that was simultaneous with margin expansion for the company and revenue expansion. I looked this morning, Nike still has about $36 billion in annual revenue a year. Adidas now has $26 billion. It's slowly catching up. 

The really interesting thing is, as Adidas has decided to challenge Nike on everything from shoes to jersey apparel, their margins have improved. They used to range around 6% three years ago, their operating margin is what I'm referring to. Adidas' operating margin has now almost doubled to 11%. In that same time frame, Nike, which used to have an operating margin of 14% to 15%, has seen its operating margin decline to about 12%. The inferences in the marketplace is Adidas, with these new contract deals and a lot of innovation on the sneaker front and other apparel fronts, is forcing Nike into some bigger promotions and more discounts. 

But again, just as it seemed that Adidas was going to take over, they've run into some problems. In a recent earnings report, which you shared with me, Jason, it looks like they're stumbling with some supply chain issues. That's going to knock a few hundred million dollars off of that $26 billion top line in this current year. It's a never-ending battle between these companies. Every time you think one of them is getting this decisive edge, there's a stumble or a new contract deal, which is so important for both of their brands to extend out into the apparel universe.

What are your thoughts about this whole dynamic between Adidas, Under Armour, Nike? 

Moser: In our Foolish universe here, certainly Nike is a popular holding. Under Armour has been a popular holding for a long time. Adidas has always been sort of that company that maybe didn't get as much of the limelight. You referred to the fact that they're making a considerable amount in regard to top line revenue annually as well. You think about it, Adidas has been around for a long time. That's a brand I remember very well as a child growing up many, many years ago. [laughs] I guess my point there, between Nike and Adidas, it's important to remember that those companies have been around for a long time doing what they've been doing. Under Armour is still, relatively speaking, the new kid on the block.

With Under Armour, we've been very excited about the opportunity, the possibilities there, the potential. There was a little bit, I think, maybe it was an overreach on Kevin Plank's part, the founder and CEO of Under Armour. He's talked about wanting to supplant Nike as the world's No. 1 brand. That's not a bad goal to have. But it's worth remembering how long it took Nike to get where they are today in. I think that time spent doing what they're doing, that's a very important variable in the equation for Under Armour. It's not to say they can't do it one day, but really, it's going to take them some time to get there. 

Now, to their credit, it does seem like they've gotten the business right-sized. They've corrected some of the errors. But, yeah, this retail business, the nature of it is very difficult. Supply chain management, making sure you don't overload yourself with inventory that you then have to basically liquidate, thereby affecting the margin, the profitability. It's a difficult space to operate on a consistent basis. But when you're looking at the brands that really are ruling the space there, those are three very big ones. 

We recently were talking -- I don't want to go too much into this -- about Zion Williamson's shoe malfunction. The big story there was, how much is Nike going to feel this impact on their stock price from that? And we all kind of looked at that and said, "You know what, that's kind of silly. Let's take a step back and recognize the fact that it's one isolated incident." It'd be different if that was happening to shoes all over the place. To be sure, if you see one or two shoes blow out here during the NCAA, we probably will see a little bit more of an impact. But again, those are very temporary in nature for a company that still has done a lot of great stuff over a long period of time. 

Sharma: Yeah. We'll chat in in a bit about the impact that Zion Williamson -- for those of you who don't know the incredible 285-pound player for Duke University, who will almost certainly go pro next year, he's having a phenomenal year. We'll talk about his impact maybe on a smaller company than Nike in just a bit here.

I wanted to second you on Under Armour. I think their focus last year on getting back to basics, and Kevin Plank's ability to hand over the mechanics of operating this company to his operations people is paying off. I think that was wise of him, to back off and focus on innovation, let the operational people get back to brass tacks. It's certainly paying off; their stock has recovered. It's still down over a three to five-year period. But, over the past 12 months, shareholders have seen some appreciation. That's pretty good for them. 

One thing we should mention before moving on about Adidas is this ongoing scandal in college basketball, which was a big story in 2017, 2018. Loyal Motley Fool Industry Focus: Consumer Goods listeners will remember that we had a whole show on this Adidas scandal. We talked about the executive James Gatto, who was arrested for charges of bribery and fraud, basically steering money to players in order to get them to go to schools that had deals with Adidas. We should just mention here in passing -- I don't want to spend a lot of time on this -- this scandal is yet to be resolved. Only a couple of weeks ago, Louisiana's basketball coach, Will Wade, was suspended after some reports that he may be implicated in this whole ball of wax. It's amazing, because Louisiana is having a great year. They're in the tournaments. It just goes to show that the competition for these school endorsements is intense for a reason. It leads to unethical behavior, in my opinion, for a reason -- because the ultimate impact on the bottom line of companies like Nike and Adidas, it's hard to measure. It's really easy to measure and throw out figures like $300 million that these three companies will spend annually. But the reverse impact, what Nike gets out of kids wearing its products after they see a marquee player on a basketball team, that kind of effect is hard to measure but contributes to their top line growth, margins, and the rest.

Moser: Indeed. OK, Asit, let's talk a little bit about the influence of NCAA basketball beyond apparel. I think that anybody can connect those dots and say, Under Armour, Nike, Adidas, we're going to see those brands every game. They're just front and center. But let's talk a little bit about some of those brands that maybe we don't see so front and center, but certainly come into play when it comes to big events like these.

Sharma: Absolutely. A company to look at is Madison Square Garden, which is one of the few companies that's publicly traded that owns a professional basketball team, that being the New York Knicks. This is connected, as I as I hinted a little while ago, to Zion Williamson. Zion Williamson will go pro next year. For those of you who aren't familiar with how this whole process works, of jumping from college to the NBA, there's something called the NBA Draft in which players are selected to play on different teams through a lottery system. How you get points in the lottery system, or how the different teams get preference in the players they can take, depends on how you play during the season. If you play really badly, the league is very good to you, and it says, "You had a bad season, you're due for a good player. We're going to give you a probability in the lottery that you'll get a top draft pick." Zion Williamson is going to be hands-down the No. 1 pick. He's a once-in-a-generation player. Hard to think of another player coming out of college who's had such a hype behind him, not just for what he brings to the court -- and he delivers on court -- but he's a charismatic kid. There's a lot of potential for huge endorsements and for him to spread his own brand in the NBA. 

Three teams that sit at the bottom of the league, I'm going to read these stats out and hand this back over to you, Jason. The Knicks, the Phoenix Suns, and the Cleveland Cavaliers each have a 14% probability of getting the first draft pick in the NBA lottery this year because they're playing so badly, they've been so woeful this season. This is a phenomenon that is hard to prove, but some suspect, it's called tanking, where you lose games on purpose to get that draft pick. What are your thoughts on that, Jason?

Moser: Well, that's something you hear a lot about in the NBA and the NFL. I get it. If you've hit that midpoint of the season and you realize you suck, more or less, and you just want to get through it and have something to show for it... I guess it's hard to prove. By the same token, you can see maybe that coaches try different things, play players a little bit more who wouldn't normally garner so much playing time. Maybe it's unintentional tanking. Whatever you want to call it. I do get it. You want to try to get the best players you can, and it's a business.

Whenever I think of going beyond the usual suspects in regard to basketball and making that leap from NCAA to the NBA -- NCAA, you have that one-and-done. You essentially have to go play one year in the NCAA, then you can get in the draft. I like, now, though, that in the NBA, you see these teams that are able to have patch sponsors, jersey sponsors. You didn't see that for quite some time. But now, you actually see teams in the NBA with companies that are actually sponsoring the teams, and they wear those companies' patches on their jersey. A couple of that stand out to me, the Milwaukee Bucks are sponsored by Harley-Davidson. That's pretty cool. You've got the Orlando Magic, shocker, they're sponsored by Disney. That's pretty neat. On the flip side here, though -- and, I mean, I say this as a Boston sports fan -- the Celtics being sponsored by GE, [laughs] I'm not sure how I feel about that, Asit.

Sharma: [laughs] You want to associate yourself with a winner. No offense to GE. 

Moser: [laughs] Yeah, it's been a poorly managed company. There are reasons for those problems. But yeah, I just think that's neat, to see how they've made that leap into the NBA. Another way to draw connection between the sports and the names that we cover here in the work that we do every day. To me, that's just another fun way to look at it. 

Sharma: Just a quick last point from me. If you look at this aggregate effect on Madison Square Garden, what a player like Zion Williamson can mean in terms of greater attendance, concession sales, sales of team merchandise, that ultimately gets reflected in the stock price. I was looking at the chart of MSG, it's sort of a sleepy stock. It's done OK over the past couple of years, but I noticed they're up 10% year to date. I wonder if that has something to do with the Knicks' fortunes on the court.

Moser: [laughs] Distinctly possible.

Sharma: You can't prove it, but there's some correlation there.

Moser: We'll leave it at this. It's a very interesting story between Zion and his connection to Wofford College. For those of you who don't know it, I'll just tell you, Google Zion and Wofford College and that will take you immediately to the story there. Once upon a time, it wouldn't have been such a crazy thing to think that Zion actually might have ended up at Wofford College, but it just wasn't meant to be. 

OK, Asit, we wanted to get into another part of the show here, talk a little bit about the principles of investing from the perspective of the coaches with our programs, Wofford and UNC. Look at the coaches, what they've done with the programs, and see if we can't draw some parallels there in the investing world. I'll let you kick this off. Roy Williams, obviously, he's had tremendous success there. Following up a legacy in Dean Smith and what he's done with the program through the years. Roy has done a tremendous job as well. Why is that? What parallels can we draw to the investing world?

Sharma: For me, two things really stand out. One is an ability to tinker around. The other is a focus on continuous improvement. For those of you who are not as familiar with North Carolina, Roy Williams was an assistant coach under the legendary Dean Smith. He left to go to Kansas and built a really great program there and was persuaded to come back to North Carolina after Dean Smith had retired. We went through a couple of coaches. He took over the program in 2003. Now, in that time span, UNC has won three national titles. That's the most by far of any team in that time span except Villanova, who's won two titles. UNC is winning national titles at a clip of almost one out of every five titles since Roy Williams came back to Chapel Hill.

If you're a fan, you would realize, if you're close into this, that the win-loss records every year don't really reflect all of this achievement. They're not as great as you might expect. That's because there's a clearly identifiable phenomenon. At the beginning of the season, Roy Williams loves to tinker with his team lineups. He'll try out a bunch of different configurations. It leads to so much consternation among the fan base because we have more losses at the beginning of the season than we think we should with the talent and the system that he employs. Roy Williams is not afraid to experiment and he's not afraid to lose. That's really hard for most coaches. I think the biggest stumbling block is being able to go into a game not making the win the most important thing. For Roy Williams, the learning experience is the most important thing early on in the season. What can I assess about my team's potential? What might work and what might not? Now, as the seasons go along, Carolina is a very reliable team in terms of peaking at the end of the season. They seem to get better and better from the midway point on through the tournament. I think that's partially because of this ability to take a loss and figure out what works and what doesn't; the study, the retrospective look at configurations, but also the principle of continuous improvement. 

Now, I know we've got some engineers, some business consultants, some people who've been through MBA programs who listen to this program, and you're familiar with the Japanese concept of Kaizen, continuous improvement. It's a term that gets bandied about a lot. Many teams in basketball talk about this. "We're going to improve every game." But I don't know that they all apply it as seriously as this coach does. When the players attend their practices at the Smith Center -- that's the team's big both game venue and practice venue -- they run through these giant curtains every practice. It's sort of a metaphor that once a player runs through the curtains in the tunnels of the Smith Center that lead to the practice court, they can't run back through without having improved that day on the practice floor. If they have, there's something wrong. So, the whole team has this mentality that, not just from game to game, but from moment to moment, on the practice floor, you should be improving. I think that's a really great principle. 

How I'd apply both of these principles to investing is, hey, don't be afraid to lose early and often. Yes, your money is at stake when you invest. But you have to learn. Paper trading is one way. I play Motley Fool CAPS. I've learned a lot about investing just by playing that game. There's not much stakes, except that someone like Jason might look at my score and see, last year 33 was my CAPS score. [laughs] Now it's somewhere in the high 70s. 

You can improve if you're willing to take risks and learn from that. Each investment that you make should be better than the last. What I mean by that, I don't mean that you should magically have an investment that's just a better company. It means you, the investor, should improve your ability. Maybe you spend more time researching this investment vs. the last one. Maybe you post-mortem the last investment more than you did the time before that. The more you can educate yourself, learn principles of investing, figure out what went right, what went wrong, every time you invest, you should be able to say to yourself, "I'm better at it this time than the last time I put my money and committed it."

To sum up, tinker around. Don't be afraid to do that in order to learn. Losses are a part of the game. Second, think continuous improvement, but not just as some abstract principle. Really try to improve every time you commit your capital.

Jason, now, Wofford and their phenomenal coach Mike Young.

Moser: Probably a little bit lesser known to the masses out there, but certainly, this is not his first rodeo, as they would say. This is his fifth tournament appearance in the NCAA. Fifth tournament championship in the Southern Conference. He's been at Wofford for I think a total of 30 years, head coach for 17. Nice little resume going there. This year, just won the Sporting News Coach of the Year. He's in the Naismith Coach of the Year, semi-finalist. So, he's clearly had a very good year. He's been there for a while. 

I've been researching him a little bit learning more about his philosophy and his approach. It really boils down to just a few simple ideals. He values community, he values being a part of a tight-knit community there. He values wins over dollars. When I heard that, when I read that, he values wins over dollars, let's look at this and think about it for what it is. Given his track record, he's had the opportunity to bail on Wofford before and go make more money somewhere else. He's just not done that. To be sure, he's not one of the higher-paid coaches out there by virtue of where he works. They just don't have that kind of money to throw at coaches regardless of the records, what they've done, how long they've been there. So, clearly, he's walking the walk and talking the talk. He does value community over moving around and finding the best situation for the most dollars. It does seem like he stands up to what he says there. 

When I look at that and I take that to the investing world, how many times do we see management teams make decisions to chase the almighty dollar? Make those short-term-focused decisions to meet or beat expectations or change the financial picture a little bit, boost that earnings per share number to meet Wall Street's expectations there, keep the stock going for another quarter or whatever? We don't invest that way here. We take a longer-term approach. We look at these management teams and the businesses that they're building and we look for that language in those conference calls when they talk about making decisions with years in mind as opposed to quarters. Mike Young just strikes me, that seems to be why he's been so successful over the years at Wofford. And he's been there for a long time. He's focused on being a part of a family, a tight-knit community. And really, yeah, he values wins over dollars. If it was the other way around, he wouldn't be there. I think that's a very powerful message. When you can communicate that to your players year in and year out -- and, he's at a school where players tend to stay for four years -- you can build some really great teams around that type of mentality. It seems to be working for him. As a Wofford graduate, I say, thanks, Coach Young. Keep up the great work. I have to tell you, as an investor, I'm not surprised that's working out for him. When we apply that same philosophy to the businesses that we follow here at The Fool, we tend to see some pretty good investing results, too.

Asit, let's go to one more point here before we wrap this show up. We're running out of time, but we want to talk about a couple of stocks that's we're taking away from all of this. Two stocks that we're watching. This can be related to anything we've talked about up to this point here. We can relate this to the principles, we can relate it to the market. We want to give some people some stock ideas to take away from this show. I feel like we've touched on a lot. Let's go for one more. What is a stock that you're watching as we get this NCAA Tournament kicked off?

Sharma: I am watching Canada Goose. Longtime listeners may have heard me talk about the stock once or twice before. I'm going to relate it to the principle that I just talked about, continuous improvement. I really like what Jason was showing us -- the values that you have, what you're committed to as a management team, results in profitable returns, and that inflates stock price over time, and as investors, you can invest your values by investing in a management team that you're confident in and that aligns with the way you see the world. Longer-term focus, focusing on the right things. 

I really like Canada Goose's management team. It's basically a family-run business that went public a few years ago. If you don't know, they make the really high-end parkas. Some of them sell for upwards of $1,000 or $1,500. What's very interesting about this company is that they're obsessive about manufacturing quality products. Usually, when we see an apparel company go public, it's fairly predictable. Over a few years, they'll start to scale into multiple geographies, they'll begin to outsource their production, chasing that almighty dollar, as Jason so eloquently said. But Canada Goose is really focused on manufacturing. A lot of their product is made by hand. They want to have a quality product, keep improving the quality of that product to live up to that Canadian outdoor ethos, where it could be sub-zero temperatures and you bought one of their parkas. It's not just a fashion statement, it's a real piece that will protect you out in the cold. 

They have continually invested in local manufacturing. They now have eight separate facilities within Canada where they manufacture their goods. They just opened their eighth facility in Montreal. It's 115,000 square feet. It's going to employ 650 people by the end of 2020. They just opened one in Quebec very similar to this in 2017, which now employs 500 people. 

Just to wrap it up, you can go check out their financials. Rapidly growing income because of margins since people pay for this quality product, they'll pay top dollar for it. But, again, something that's anchored in quality. Sort of reminds me of Nike's evolution. Nike built a global supply chain -- a little bit different, because they outsource most of what they produce -- with the same obsessive bent. If you've read Phil Knight's memoir, you'll see this colorful story about how obsessed he was with the manufacturing of his product. I see something similar going on here, except manufactured in-house. And this will be a long-term competitive advantage for Canada Goose. Despite the fact that its multiple is a little bit inflated, over the long term, this is a winner almost purely for this reason: they care about their product, and it's going to be around for decades to come, in my opinion. 

Moser: All right, Canada Goose. I like it! I was thinking about Coach Young's focus on community. That word, community, immediately brought one company to mind. I went to their 10-K, I did a quick search, and the word community is mentioned in their 10-K 45 times. I'm talking about Etsy. No, this isn't really anything related to the NCAA Tournament, but I think a lot of people out there do know what Etsy is. It's that arts and crafts network, buyers and sellers, folks going out there and being able to offer up their handmade goods to sell to people around the world. It has, over time, built out a community with that brand there. Etsy is known as that place to go for that type of stuff. I'll tell you, the business has really continued to perform. When you look at all the metrics that matter, the buyers continue to go up, the sellers continue to go up, the dollars that are going through the network continue to go up. It's a beautiful business model in that it's really just a network at the end of the day. They're not carrying any inventory. It's really all about building this network and connecting buyers and sellers. It's a profitable business, it's a cash flow positive business. Smart leadership. The stock has really done well, and I have no reason to believe that it won't continue to do well. I like their focus on community, too. I'm going with Etsy, Asit.

Sharma: That'll go far in the tournament of investing.

Moser: [laughs] Asit, listen, good luck to your Tar Heels this coming few weeks here! I'm sure they'll have a great showing. Good luck to Wofford! Guys, wishing you all the best out there! Looking forward to that game Thursday night against Seton Hall. We'll pick this back up and talk about it once it's all concluded. Maybe we'll have a couple of takeaways from it all then, too.

Sharma: Looking forward to it! There is one path, we might meet in the tournament next week if we both keep winning. [laughs] We'll definitely have more to talk about then. But we have to win these first games first.

Moser: That's right. OK, as always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Today's show was produced by Austin Morgan. For Asit Sharma, I'm Jason Moser. Thanks for listening! We'll see you next week!

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