The Rational Cloner > Quotes

“JANUARY 18th 2002 When we evaluate potential investments we are looking for businesses trading at around half of their real business value, companies run by owner oriented management and employing capital allocation strategies consistent with long term shareholder wealth creation. Finding all three is rare, and that is why we think Nomad has a material advantage in being a global fund. We can look far and wide for candidates and simply are not required to invest in anything that does not fit. Chris Browne of Tweedy Browne has likened the research process to detective work or perhaps investigative journalism, and we could not agree more.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters

“At this point, the astute reader would probably mentally classify Nomad as a “value” fund since they prefer to buy stocks at half price. Yet, the same reader will realize later, many of Nomad’s largest holdings are classified as “growth” stocks. How can this be? We’ll dive in deeper into the debate in Chapter 14: Growth vs. Value, but in a nutshell, like Buffett, Nomad viewed growth as an inherent part of the value judgment and any distinction is quite unnecessary.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters

“Zak and I are skipping happy about the new arrangements. We hope you will be too. Yours faithfully Nicholas Sleep DECEMBER 31st, 2013 This is the twenty-fifth letter to investors over fourteen calendar years. In these letters we have tried to cover the philosophy and methodology Zak and I use to approach the problem of investing. We keep our discussions to as high a level as we can manage in the belief that, in the long run, the high level is all that matters. In these letters we have therefore discussed business models, incentive compensation, capital allocation, mistakes, more mistakes, even more mistakes, lots on psychology and how to think, lots on attitude and so on. Whilst we may only write twice a year, we own shares for such long periods (if the current rate of portfolio activity should persist) that we write around twenty letters during the life of the average investment – that’s a huge amount! In previous letters we have also discussed the psychological traps inherent in a more loquacious approach (been there, done that, don’t want to do it again!). At its heart, investing is simple, and to make it seem anything but, with the frequent repartition of short-lived facts and data points, may be a conceit. Indeed, it could be argued that a running commentary obfuscates a discussion of the things that really matter.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters

“How do we know we are taking a different view to the crowd? A clue can be gleaned from the period that other investors typically hold the shares of the companies in the Partnership. If Berkshire Hathaway (US), Jardine Matheson (Hong Kong) and Next Media (also Hong Kong) are excluded (these firms are in a class of their own due to either stock illiquidity or investor education) then other investors hold stocks in our portfolio for on average twenty weeks. We expect to own shares for around two hundred and sixty weeks! So, what is going on? It seems to us that most investors look at the accounting outputs of a company (the reported financial data) as a guide to near term price movements and play the market accordingly. As stated in the investment objective section of the Nomad prospectus our goal is to “pass custody (of your investment) over at the right price and to the right people”. That’s what investing is. Zak and I concentrate on a deeper reality: the inputs to future value moves. Our peers are trading shares at the short end of the equity yield curve where the competition is the greatest, and we are investing at the long end where competition is the least. We respond to completely different stimuli.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters

“How do we know we are taking a different view to the crowd? A clue can be gleaned from the period that other investors typically hold the shares of the companies in the Partnership. If Berkshire Hathaway (US), Jardine Matheson (Hong Kong) and Next Media (also Hong Kong) are excluded (these firms are in a class of their own due to either stock illiquidity or investor education) then other investors hold stocks in our portfolio for on average twenty weeks. We expect to own shares for around two hundred and sixty weeks! So, what is going on? It seems to us that most investors look at the accounting outputs of a company (the reported financial data) as a guide to near term price movements and play the market accordingly. As stated in the investment objective section of the Nomad prospectus our goal is to “pass custody (of your investment) over at the right price and to the right people”. That’s what investing is. Zak and I concentrate on a deeper reality: the inputs to future value moves.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters

“There are two ways to present results: either in discrete annual increments or on a compounded basis. The former is industry standard, useful in demonstrating consistency of results (which your manager makes no pretense of being able to achieve), and for helping to assess outcomes for those that invested part way through. Our preferred route however is to be assessed on a compounded, multi-year basis for the reason that the only event we control is whether we are right, not when we are right. It is quite possible that our annual results will be inferior to the market for a period, but this will only convey information about the timing of outcomes, whilst saying little about the end result itself. We would therefore encourage you to be indifferent to the results below.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters

“At this point, the astute reader would probably mentally classify Nomad as a “value” fund since they prefer to buy stocks at half price. Yet, the same reader will realize later, many of Nomad’s largest holdings are classified as “growth” stocks. How can this be? We’ll dive in deeper into the debate in Chapter 14: Growth vs. Value, but in a nutshell, like Buffett, Nomad viewed growth as an inherent part of the value judgment and any distinction is quite unnecessary. This difficulty to pigeon-hole Nomad into some checkbox is fitting, as Nomad had a broad investment mandate that allowed them to invest across the capital structure (common shares, preferred, debt or convertible bonds) as well across countries and industries. Nomad’s portfolio featured companies that ranged from a Thai newspaper to a South African casino to an illiquid Philippines cement company. This willingness to scour the globe for value is why they named their partnership “Nomad”.”
― The Rational Cloner, Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters