In December, I made the great prediction that Lululemon was a bad company to hold. Year-to-date, Lululemon is the third worst company you could have held, as it is down about 50%, so that was solid. My meh/poor prediction was DraftKings. About a year ago, I said that DraftKings was a bad company to hold and that in general, the online sports gambling industry was a poor one to be in. In the past year, DraftKings is up 32.5%, or one percent less than the broader S&P 500. Unlike Jim Cramer, when I make predictions, I like to review them once in a while, which is exactly what we are doing today.

First, let’s start with Lululemon. This is my third time talking about Lululemon in nine-ish months because I find it to be a really interesting story. At one point, the stock was up 165% in a four-year period (2019-2023), and the market loved the company. In my own life, I could see the success of the company. Every age group was wearing their stuff, and they successfully diversified away from the only female side to a slightly more balanced array of customers. My evidence that men were wearing their stuff is the three middle-aged guys (my dad, my uncle, and my dad’s friend Matt) that I saw wearing Lululemon in a short period. I saw a few cracks in their company, though.

First, they were simply on top for too long. You cannot be everywhere for that long in any level of fashion before your brand becomes stale. Once old people (sorry Dad) start wearing your clothes, it makes younger people less likely to think “Oh this brand is cool. I will spend money specifically for this brand.” Lululemon had reached the top of the fashion cycle, and there is only one way to go from the top.

Second, there were a bunch of competing brands that were much cheaper and that were not too different. One of the core tenets of my strategy is avoiding competition. If your company is going to grow in the way I want it to, you cannot have a competitor or multiple competitors, that consumers can turn to if they want. Athleta, Fabletics, Vuori, and Nike are all highly visible brands that investors were not pricing in. Investors were basically pricing in a world where Lululemon faced no competition, and Lululemon could grow nearly infinitely.

Finally, a lack of innovation. This combines parts of one and two, but if your company is not growing and changing, it is dying. There are not too many ways an athleisure company can differentiate, but investors were pricing in infinite innovation.

My opinion on Lululemon has not changed. I think they are still overpriced. Getting your brand back to the top of the pile is a multi-year-long project, and there are better places for me to put my money. Also, fashion is such a pain to try and time.

Okay, now DraftKings.

My problem with DraftKings was more of a problem with the broader sports gambling industry. DraftKings is up about 33% since my prediction, but I do not care. DraftKing, and the broader industry’s failing, will be an event that will maybe not play out for the next decade. Eventually, pressure from outside groups will stigmatize gambling to such an extent that the government will either regulate it into oblivion or fewer and fewer people each year will join. Likely, it will be a combination of both.

DraftKings individually is problematic because, like Lululemon, there is too much competition and too little opportunity to differentiate. There are at least 16 different sports gambling companies offering nearly the same lines on bets, the same bonus bets, and the same selection of sports and matches. The only way to get ahead is to dump billions upon billions into marketing and advertising, getting the biggest stars in your commercials, the most ads to the youngest people, and the most money into the pockets of politicians.

DraftKings is doing alright now, but there is simply no way they can grow sustainably in such a capital-exhaustive, competitively flooded market.

I would not buy either of these companies, but I would buy one or more of Costco, Ferrari, Disney, Microsoft, ServiceNow, Block, and TQQQ, AKA, the greatest stocks in the world, AKA, my seven holdings.