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Nomad Investment Partnership Letters
245 pages, Unknown Binding
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June 17, 2021
Letters of the investment partnership run by Nicholas Sleep and Qais Zakaria. Has had long-term investments in companies like Amazon and Costco: 'catch some better waves and ride them to the shore'. On average, companies fail. Success encourages competition and capital. Investors tend not to believe in 'longevity of compounding'. Patience is hard. The market underestimates the very few companies that can compound earnings for a long period of time. Very few businesses can do it.
Good case study on Walmart: turns out it was cheap for decades, the undervaluation persisted. If, in 1972, upon reading that year's twelve page annual report, an investor chose to make a purchase of shares, he could have paid over 150x the prevailing share price, a PE of over 1500x, and he would have still earned a 10% return on his investment to today.
Prefers inactivity: inaction is deliberate and is easier said than done (certainly counter-culture in funds management). Believe their holdings have very long runways of growth ahead - stay out of the way. The decision not to do something is still a decision. Continually compare what they have in the portfolio with the alternatives, but often the new ideas don't compare favourably with what they already own. If you buy a compounding business, you limit the future decisions you need to make, and the risk of reinvesting what you have sold.
Highlight the importance of sitting still and thinking: human mind trumps endless data collection. There is always more data that can be collected and reports reviewed in today's world. Refers to David Attenborough's response on being asked about seeing more of the world than anybody who has ever lived. He said 'well I suppose so... but the greatest naturalist who ever lived had more affect on our thinking than anybody, Charles Darwin, only spent 4 years travelling and the rest of the time thinking'. We are trained in capitalism for output maximisation - it does not teach slack: itineraries must be filled with meetings, school childrens' days must be filled with activities, borrowing capacity must be used, holidays are to be taken with blackberrys rather than books. Quotes Taleb: "having a stupidly busy schedule isn't a sign of being important, it means you have become insulated from the world." If you are too 'stupidly busy' to think, which part of the brain is making the decisions? Busy behaviour looks 'short-term efficient', but the cost is things are not being thought through.
Buffett: when refusing to bet on golf: "if you are not disciplined on the little things, you won't be disciplined on the big things".
Three competitive advantages in investing: informational, analytical, psychological. They believe their enduring advantages are psychological. Investors are typically burdened by social proof, availability bias, a lack of probabilistic thinking and lack of patience.
"When we study truly great businesses we find that very often it has been simple human attributes that have lead to their success". Be wary of information overload. A person can never synthesise all the information available on a company. Prioritise what is most important and keep your time free to simply think. Success of a company over a long period of time can usually be brought back to a simple reason: the value proposition and a competitive advantage.
Furthermore, they said they had come to appreciate the value in retreating a little from endless stock analysis and head out into the world with the expectation that what they learn through investing helps them outside the office, and what they learn doing other activities helps them as investors.
Funds management is a simple business, But not an easy one - not easy to stay focused and disciplined and avoid things that steal time and attention. Question they ask of research is: 'does any of this make a meaningful difference to the relationship between the company and its customers? Two ways to build a successful company: (1) work very hard to convince customers to pay high margins - Colgate, Nike, Coca Cola model. (2) work very hard to offer customers low margins - Walmart, Costco, Amazon model.
Concentration: top 10 investments made up 80% of the portfolio, with the largest holding 30% in 2009.
Interesting structure: attempted to align remuneration with: low management fee, performance fee claw-back for underperformance. They also closed their fund to concentrate on investing, not marketing.
Good case study on Walmart: turns out it was cheap for decades, the undervaluation persisted. If, in 1972, upon reading that year's twelve page annual report, an investor chose to make a purchase of shares, he could have paid over 150x the prevailing share price, a PE of over 1500x, and he would have still earned a 10% return on his investment to today.
Prefers inactivity: inaction is deliberate and is easier said than done (certainly counter-culture in funds management). Believe their holdings have very long runways of growth ahead - stay out of the way. The decision not to do something is still a decision. Continually compare what they have in the portfolio with the alternatives, but often the new ideas don't compare favourably with what they already own. If you buy a compounding business, you limit the future decisions you need to make, and the risk of reinvesting what you have sold.
Highlight the importance of sitting still and thinking: human mind trumps endless data collection. There is always more data that can be collected and reports reviewed in today's world. Refers to David Attenborough's response on being asked about seeing more of the world than anybody who has ever lived. He said 'well I suppose so... but the greatest naturalist who ever lived had more affect on our thinking than anybody, Charles Darwin, only spent 4 years travelling and the rest of the time thinking'. We are trained in capitalism for output maximisation - it does not teach slack: itineraries must be filled with meetings, school childrens' days must be filled with activities, borrowing capacity must be used, holidays are to be taken with blackberrys rather than books. Quotes Taleb: "having a stupidly busy schedule isn't a sign of being important, it means you have become insulated from the world." If you are too 'stupidly busy' to think, which part of the brain is making the decisions? Busy behaviour looks 'short-term efficient', but the cost is things are not being thought through.
Buffett: when refusing to bet on golf: "if you are not disciplined on the little things, you won't be disciplined on the big things".
Three competitive advantages in investing: informational, analytical, psychological. They believe their enduring advantages are psychological. Investors are typically burdened by social proof, availability bias, a lack of probabilistic thinking and lack of patience.
"When we study truly great businesses we find that very often it has been simple human attributes that have lead to their success". Be wary of information overload. A person can never synthesise all the information available on a company. Prioritise what is most important and keep your time free to simply think. Success of a company over a long period of time can usually be brought back to a simple reason: the value proposition and a competitive advantage.
Furthermore, they said they had come to appreciate the value in retreating a little from endless stock analysis and head out into the world with the expectation that what they learn through investing helps them outside the office, and what they learn doing other activities helps them as investors.
Funds management is a simple business, But not an easy one - not easy to stay focused and disciplined and avoid things that steal time and attention. Question they ask of research is: 'does any of this make a meaningful difference to the relationship between the company and its customers? Two ways to build a successful company: (1) work very hard to convince customers to pay high margins - Colgate, Nike, Coca Cola model. (2) work very hard to offer customers low margins - Walmart, Costco, Amazon model.
Concentration: top 10 investments made up 80% of the portfolio, with the largest holding 30% in 2009.
Interesting structure: attempted to align remuneration with: low management fee, performance fee claw-back for underperformance. They also closed their fund to concentrate on investing, not marketing.
November 3, 2021
This was nice.
The letters gave a few good framework to think of businesses and investing. It had contemporary examples compared to Buffett's partnership letters (It was, after all, written about half a century later). Clearly Nick and Zak were heavily influenced by Buffett, but brought a contemporary outlook to businesses and successful business models.
There was also a clear shift from Cigar Butt investing of the Graham/Buffett era to investing in companies that are "good". It certainly did look like it needed much more patience than Cigar Butt investing.
The letters gave a few good framework to think of businesses and investing. It had contemporary examples compared to Buffett's partnership letters (It was, after all, written about half a century later). Clearly Nick and Zak were heavily influenced by Buffett, but brought a contemporary outlook to businesses and successful business models.
There was also a clear shift from Cigar Butt investing of the Graham/Buffett era to investing in companies that are "good". It certainly did look like it needed much more patience than Cigar Butt investing.
June 28, 2022
A collection of letters written by Nicholas Sleep of the Nomad Investment Partnership to their investors from the partnership's inception in 2001 to closure in 2013. The letters highlight the philosophy and methodology used by Nomad to approach the problem of stock/company picking. The letters extensively discuss the many investing decisions made by Nomad over the 14 years - delving deep into understanding business models, success drivers, market psychology, capital allocation, incentive structures, and more.
The general approach taken by Nomad was of long-term, low diversification investments (30% of capital in one stock, 80% in ten stocks) with very low churn rates. The letters also provide great insights into effective client-end communication. I especially liked the heavy focus on analyses of business models, and market psychology.
A definite 5/5 investing read!
The general approach taken by Nomad was of long-term, low diversification investments (30% of capital in one stock, 80% in ten stocks) with very low churn rates. The letters also provide great insights into effective client-end communication. I especially liked the heavy focus on analyses of business models, and market psychology.
A definite 5/5 investing read!
May 31, 2021
This is very insightful read and it provides great deal of clarity why long term investment triumph most of time. This letter has been written from 2000-2013 while managing nomad investment fund.
Some of the models shared here are very worthy of reading many times like
1- branching model
2-scale economics sharing model
3-Locker room model
4-Non-transitive model
5- skeletal structure model
other detail thought process on -
1-learning from investment mistakes,
2-tips to avoid those mistakes,
3-various kind of misjudgment we fall in trap while investing &
4 some thoughts on momentum investing.
5 case for slack
6 comparative advantage
7 diversification
for detail- https://dddebjeet.WordPress.Com
Some of the models shared here are very worthy of reading many times like
1- branching model
2-scale economics sharing model
3-Locker room model
4-Non-transitive model
5- skeletal structure model
other detail thought process on -
1-learning from investment mistakes,
2-tips to avoid those mistakes,
3-various kind of misjudgment we fall in trap while investing &
4 some thoughts on momentum investing.
5 case for slack
6 comparative advantage
7 diversification
for detail- https://dddebjeet.WordPress.Com
Read
January 17, 2022we 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.
book “Where are the customers yachts?”:
“When there is a stock-market boom, and everyone is scrambling for common stocks, take all your common stocks and sell them. Take the proceeds and buy conservative bonds. No doubt the stocks you sold will go higher. Pay no attention to this – just wait for the depression which will come sooner or later. When this depression – or panic – becomes a national catastrophe, sell out the bonds (perhaps at a loss) and buy back the stocks. No doubt the stocks will go lower still. Again, pay no attention. Wait for the next boom. Continue to repeat this operation as long as you live, and you’ll have the pleasure of dying rich”.
The crucial difference is how they are recorded in the accounts. Sale leases require the leased asset to be booked atype s if sold outright, in effect bringing forward revenues and profits. In contrast, payments under an operating lease are booked incrementally over the lease term.
41% of assets are invested in “difficult to copy” franchises such as TV stations, newspapers, magazines or a motorracing track; 31% of the fund is invested in asset backed businesses such as hotels, casinos, conglomerates or those companies where balance sheet cash forms a large portion of the current valuation; and finally 22% of the fund is invested in deep value work outs where profitability is temporarily depressed, and where the firm has sizeable amounts of debt. In aggregate these inves tments are priced in the market at around 50% of what we believe the businesses to be worth
Mr. Munger invested, is CocaCola, which in the mid 1980s had become a poorly defined conglomerate including a shrimp farm, winery, film studio and shudder to think, even owned its own bottli ng plants! As the poorer businesses were cut away, to reveal the jewel that is the syrup manufacturing and marketing operation, the shares of Coca Cola rose over tenfold in the succeeding decade.
Souter is looking forward to spinning plates again.
Costco is one half of the wholesale club warehouse duopoly (with Sam's Club). marking up 14% on branded goods and 15% on private label.
Apparently Sinegal insisted on the standard mark up, arguing that if "I let you do it this time, you will do it again". The contract with the customer (very low prices) must not be broken.
Many retailers do not operate in such a way, and instead employ high-low price strategies, that is to say they take prices up and down in an attempt to influence store traffic.
We are always on the lookout for companies with corporate character that are pursuing strategies designed to create sustainable value. This is no mean f eat, and we work hard reading annual reports and proxy statements and interviewing management trying to answer the questions: what are returns on incremental capital and the longevity of those returns, are management correctly incented to allocate capital appropriately, and what is discounted by prices?
managers straightjacketed into geography, sector, style, market capitalisation or security type
the firm’s shares trade on Ofex (similar to the pink sheets in the US) rather than on the London Stock Exchange
could grow at around 10% per annum. Th e effect over five years will be to compound U$1 of value into U$1.62. This happy outcome would imply a return from p urchase price (50 cents) of around 26% per annum.
The best defense is to own enough of the company to influence the outcome.
Union Cement. This is the Philippines’ largest cement company
In our opinion, the massive overdiversificat ion that is commonplace in the industry has more to do with marketing, making the clients feel comfortable, and the smoothing of results than it does with investment excellence. At Nomad we would rather results were more volatile year to year but maximized our rolling fiveyear outcome.
Even though prices are generally high, the trick is to do the work today, so that we are ready.
commentators continue to use price to book ratios, price to earnings ratios or their modern equivalents such as EV to Ebitda, as a proxy for value. We all know that it does not mea n a thing. So why do we do it? Psychologists refer to simple rules of thumb as heuristics. In normal life heuristics generally work.
A study by Michael Goldstein at Empirical Research, a research boutique, claims that the probability of growth stock failure (company growth slowing) is as high as four in five over five ye ars and nine out of ten over ten years. And in the case of Dell, we would have been wrong.
To the value investor ask, “what is it about your approach that would have stopped you owni ng KMart for much of the last twenty years?” (K as measured by say price to book value –- Mart was a “cheap” stock, but a dreadful investment, recent performance notwithstanding), and to the growth investor ask, “what is it about your approach that would h ave stopped you selling WalMart?”
(there are 100 basis points in one percentage po int).
book “Where are the customers yachts?”:
“When there is a stock-market boom, and everyone is scrambling for common stocks, take all your common stocks and sell them. Take the proceeds and buy conservative bonds. No doubt the stocks you sold will go higher. Pay no attention to this – just wait for the depression which will come sooner or later. When this depression – or panic – becomes a national catastrophe, sell out the bonds (perhaps at a loss) and buy back the stocks. No doubt the stocks will go lower still. Again, pay no attention. Wait for the next boom. Continue to repeat this operation as long as you live, and you’ll have the pleasure of dying rich”.
The crucial difference is how they are recorded in the accounts. Sale leases require the leased asset to be booked atype s if sold outright, in effect bringing forward revenues and profits. In contrast, payments under an operating lease are booked incrementally over the lease term.
41% of assets are invested in “difficult to copy” franchises such as TV stations, newspapers, magazines or a motorracing track; 31% of the fund is invested in asset backed businesses such as hotels, casinos, conglomerates or those companies where balance sheet cash forms a large portion of the current valuation; and finally 22% of the fund is invested in deep value work outs where profitability is temporarily depressed, and where the firm has sizeable amounts of debt. In aggregate these inves tments are priced in the market at around 50% of what we believe the businesses to be worth
Mr. Munger invested, is CocaCola, which in the mid 1980s had become a poorly defined conglomerate including a shrimp farm, winery, film studio and shudder to think, even owned its own bottli ng plants! As the poorer businesses were cut away, to reveal the jewel that is the syrup manufacturing and marketing operation, the shares of Coca Cola rose over tenfold in the succeeding decade.
Souter is looking forward to spinning plates again.
Costco is one half of the wholesale club warehouse duopoly (with Sam's Club). marking up 14% on branded goods and 15% on private label.
Apparently Sinegal insisted on the standard mark up, arguing that if "I let you do it this time, you will do it again". The contract with the customer (very low prices) must not be broken.
Many retailers do not operate in such a way, and instead employ high-low price strategies, that is to say they take prices up and down in an attempt to influence store traffic.
We are always on the lookout for companies with corporate character that are pursuing strategies designed to create sustainable value. This is no mean f eat, and we work hard reading annual reports and proxy statements and interviewing management trying to answer the questions: what are returns on incremental capital and the longevity of those returns, are management correctly incented to allocate capital appropriately, and what is discounted by prices?
managers straightjacketed into geography, sector, style, market capitalisation or security type
the firm’s shares trade on Ofex (similar to the pink sheets in the US) rather than on the London Stock Exchange
could grow at around 10% per annum. Th e effect over five years will be to compound U$1 of value into U$1.62. This happy outcome would imply a return from p urchase price (50 cents) of around 26% per annum.
The best defense is to own enough of the company to influence the outcome.
Union Cement. This is the Philippines’ largest cement company
In our opinion, the massive overdiversificat ion that is commonplace in the industry has more to do with marketing, making the clients feel comfortable, and the smoothing of results than it does with investment excellence. At Nomad we would rather results were more volatile year to year but maximized our rolling fiveyear outcome.
Even though prices are generally high, the trick is to do the work today, so that we are ready.
commentators continue to use price to book ratios, price to earnings ratios or their modern equivalents such as EV to Ebitda, as a proxy for value. We all know that it does not mea n a thing. So why do we do it? Psychologists refer to simple rules of thumb as heuristics. In normal life heuristics generally work.
A study by Michael Goldstein at Empirical Research, a research boutique, claims that the probability of growth stock failure (company growth slowing) is as high as four in five over five ye ars and nine out of ten over ten years. And in the case of Dell, we would have been wrong.
To the value investor ask, “what is it about your approach that would have stopped you owni ng KMart for much of the last twenty years?” (K as measured by say price to book value –- Mart was a “cheap” stock, but a dreadful investment, recent performance notwithstanding), and to the growth investor ask, “what is it about your approach that would h ave stopped you selling WalMart?”
(there are 100 basis points in one percentage po int).
February 14, 2022
One of the best investing letters that I've read for long term investing. These letters discuss the stocks bought and sold by Nick Sleep's partnership over the years and the rationale behind them.
March 13, 2021
Just like Buffett’s letters, Sleep and Zak’s letters are investment gems while containing healthy doses of worldly wisdom.
I particularly enjoyed the insights on shared scale economics, reasons for business success (such as owner-managers, customer centricity, etc.), alpha creation from long-term orientation and lessons on running an investment partnership.
Thanks to Nick Sleep who recently uploaded the letters on his charity’s website. I am almost certain that I will be re-reading them (at least the highlights!) several times in the coming years.
I particularly enjoyed the insights on shared scale economics, reasons for business success (such as owner-managers, customer centricity, etc.), alpha creation from long-term orientation and lessons on running an investment partnership.
Thanks to Nick Sleep who recently uploaded the letters on his charity’s website. I am almost certain that I will be re-reading them (at least the highlights!) several times in the coming years.
March 22, 2017
Perhaps the best investment literature of all-time
April 12, 2021
This could be one of the greatest investors ever. His communication and focus on truth feels tangible. His humility shone in everything. As a PM myself, it made me dream of what I could become in both communication to his investors, performance, and clarity of insight.
January 13, 2026
Great list of fund letters by 2 of the best portfolio managers ever: Nick Sleep & Qais Zakaria.
20.8% annualized over 14 years.
I decided to read these letters after they were recommended by investors from Monish Pabrai and Cliff Sossin, and I was thoroughly impressed.[
There are several general investing takeaways I got.
1] focus more on what you buy and how long you hold it vs a loss (the magic of investing is upside is infinite, while downside is capped at 100%) - he brings up selling Stagecoach vs buying Conesco as his example
2] there's 2 types of good businesses: a] work hard for pricing power (NKE, KO, Colgate, etc) and b] work hard to keep prices low (COST, AsiaAirline, AMZN, etc)
- the key for [b] to NOT be commoditized is you have barriers to entry outside price (ex. Costco's high upfront CapEx or high FTE wages or AMZN's product selection / control)
3] profits incent competition, so try to keep margins low and earn them for a LT (ex. Zak's family's activity center)
4] be very concentrated (they took up to 20% bets, and let them grow to 60%)
5] in emerging mkts buy equity in the best brands - even with inflation if you own the assets they re-calibrate to growing currencies and appreciate (ex. Zimcem)
6] di-worsification is bad (ex. Stagecoach initially tried to get into US busses in an LBO and it crushed them)
7] underwriting based on mkt cycles is a bad biz - ex. Hertz, MBIA, etc - because it forces risky behavior in downcycles
8] the best CEOs don't care abt money - ex. Bezos, Sinegal, Lord Harris take no Comp
9] good business > valuation, mgmt., literally ANYTHING else
10] discipline is essential - sleep explains this with a buffet example where he wouldn't take 1000x odds to hit a hole-in-one bc "if you don't stay disciplined at the simple things you won't stay disciplined at all
11] 3 ways to get edge: 1] info 2] analytical 3] psychological
12] "robustness ratio" - add up ROI to clients, shareholders, and FTEs = and split it, the best biz has all of it going to customers
13] PE buyouts are usually too cheap - try to re-negotiate w/ mgmt. (ex. HCI)
14] think for the LT - ST OpEx is usually good (ex. Estee Lauder spending extra on S&M and the stock TANKED)
15] draw downs from "fraud" are a good buying op - ex. Xerox (and later MBIA that they missed)
Sleep's admired investors: Ruane, Tweedy, Klarman, Whitman, Hawkins, Miller, Schloss, Berkowitz
The best quotes in my opinion:
- "cancer surgery approach" - a hard skilled turnaround [Munger]
- "Many supermarkets make their money from buying from the supplier. Costco makes money from selling to the consumer." - COST vs other retailer rev model [Sleep]
- "better to be generally right than precisely wrong" [Keyenes]
- "If you are not disciplined in the little things, you won’t be disciplined in the big things" [Buffett]
- “When someone says he is busy, he means that he is incompetent” "having a stupidly busy schedule isn’t a sign of being important. It means that you have become insulated from the world" [Taleb]
Overall, a great investor and this is a good series of letters to understand Sleep/Zak's deep passion for investing, which was central to his world-view rather than looking at money, fame, etc. He closes his fund for that reason...
"It is one thing for capital allocators to be rewarded for their efforts but, in our opinion, taking personal identity in everything above X-amount is not a route to building a better world."
--
Notes:
Sept 2001 (+3%)
- International Speedway: runs car sports (Nascar, F1, etc) | with more consolidation the sport will be run better, higher prize pools create virtuous cycle, and media rights increases 17%/yr (bc only negotiate once| valuation is sub NAV, and they think near-term cycle is bad but will inflect LT
- Matichon: 2nd largest Thai-language Thai newspaper, [200% 5 yr return] | LT trends of higher-ed Thai people, fam-run co., ad-cycle is inflecting - 20% from trough but 50% below past peak |trades 0.75x revenue & 9% dividend yield as the fam that owns 25% of the stock has upped the dividend
June 2002 (-4.6% vs -7%)
- Estee lauder stock (15%) after they cut into EPS to reinvest in the brand
- Xerox failure: sells printers | under SFAS 13 you can book lease rev through 1) operating lease 2) "sale-type" lease -> its about if 90% of econ value goes to the seller | Xerox booked most of it as sales-type even through the printers were sold on 5-yr increments
- Xerox Turnaround: [216% 5 yr return], only 6/90b of rev is sale-type, clients keep paying bills, new accountants, new products launched at the end of the 90s, valuation is 4.5x R&D spend !!!
- "in accounting it is best to think inside the box" - NYT cartoon with 2 accountants that covered Xerox XD
- Mosanto: mfg/mkt seeds/fertilizers, they were with Solutia (chemical biz), and GD Searle (drug ops) | Solutia was spun off, and GD Searle was bought out and then Pharmacia Corp bought Solutia + Searle | issue is that Solutia's PCB Alabama plant had huge clean-up liabilities that flow to Pharamcia | the CATCH-22 is that Mosanto has indemnified Pharmacia for any env. damages -> Nick sold off
Dec 2002 (-2.59% vs -11.97%)
- Conseco: filed for Ch11 and they still own them
- Stagecoach: largest UK bus operator | in early 90s London busses de-regulated to be operated by private mkt, CEO Brian Souter is the GOAT that's increased throughput/fares but left | killer: 1) "diworsi-fied" into Chinese train leasing 2) LBOd Coach USA bus co. at peak cycle and premium | Souter returns: sell off coach biz, pay off debt, re-focus on US biz
- "cancer surgery approach" - Munger
- KO: in 80s was a conglomerate with shrimp and owned bottlers - they spun the bad-cos off to focus on pure-play syrup biz
- COST: 14% markup on all items max, 15% for private-label, most retailers use high/low price strat, 14% growth/yr and no leases needed (Gap's issue), density implies runway for 1000 US stores and 200 in UK, comping HD shows 13 yrs of 10% growth ahead
June 2003 (+26% vs +11.1%)
- got to invest in unlisted equities -> Weetabix Ltd investment
- "diworsification" - Lynch
- screen for no share # changes in the last 10 yrs -> high quality
- share growth is 3% on avg in the US
- Weetabix: cereal distributor, fam-run | high share-of-voice (% mkting spend) exceeded its mkt share -due to higher S&M spend vs peers who cut for investors, 50% redundancy in factories for efficiency | trades cheap bc it's unlisted 3.5x potential
- Lucent Technologies: 8% convert pref w/ liq-pref, and also b/c of .com bubble | they could 1] turnaround biz 2] dilute old holders or 3] buyback debt and turnaround (Sleep's preference) -> they chose #2 which made the prefs SUPER valuable
Dec 2003 (+42.5% vs +19.8%)
- Stagecoach paid for Conesco loss 6x over
- FCF margins are highest in 03' and capital spending lowest - we should focus on high quality turnarounds
- issue where fund does better than individual investments which doesn't give room for full appreciation
--> sol1: take new subs and invest in new ops
--> sol2: rebalance with new subs weighted (but not good qual.)
--> sol3: (what they did) take subs only when needed and put into new ideas
- Weetabix: PE buys it for 25% premium, with only 75% approval needed for the scene arrangement | Sleep thinks it's undervalued by 25% and the buyout isn't good - passive proxy launched
June 2004 (-.97% vs +3.52%)
- partnership grown to $100m
- most investments in turnarounds rn esp in Asia
- Union Cement: Philliphines' largest cement co. priced at replacement cost | new assets (from 90s Asia tiger boom), and FCF used to debt-paydown which puts it in good spot, they could only buy $1mm (even tho it had $200m mkt cap) -> which 10x'd but only 1% of fund | strategic bought a chunk of them at 10x their price
- Jardine Mathesine, Brandes + Marathon seconded a proposition to reog the firm, but mgmt. put it down with thir shares in Jardine strategic
- Kersaf: Allen Gray Ltd + Marathon proposed about-turn strategy that 2x'd value
- HCI: Marathon is suing mgmt. who wants to buy the co. at a discount to fair value | eTV independent owner in South Africa
- National Indemnity: BRK sub | only draft policies when pricing is attractive, and stop when it's not (even when revs decline) -> ex. of "good thinker"
- Funds: Oakmark Select (22.2%/yr - 7yrs); Semper Vic Partners (18.5% - 20 yrs)
- Schering-Plough (SGP): mfg/dist Claritin, in 02' FDA closed down factories and fined $500m as they didn't meet compliamnce, generics ran through + Ref FD violation | BUT, Zocor/Zetia is great and $2bn expected profit by 07'
Dec 2004 (+23.2% vs +11.5%)
- Costco: $45 membership creates share of mind, 14% max mark-up "EDLP", WMT takes ~22% margin
-- 1] maniacal that OpEx are low (measured in bps)
-- 2] they run auctions for 4k SKU spots which creates scarcity + competition for the supplier to take down price (vs peers that make $$ off supplier fees) - also owned stores
-- 3] high revenue (if 1st 2 are one)
- "Many supermarkets make
their money from buying from the supplier. Costco makes money from selling to the
consumer."
- Costco would give excess cash back to customers -> 85% renewal rates
- street view: 1] low 1.6% OPM, but for future growth 2] expensive @ 24x EPS (LOL) 3] costs have risen (only ST)
- Ebay could be better: largest scale, product access, profits to 1 player, higher barriers to entry
- old stores have 4% comps, while new stores are in mkts that are 10% penetrated - past examples see mgmt. also under-shoots new-unit penetration
- COST @ $1k/sq ft, $500 for Sams, $400 for BJs
-> 14% Rev/FCF algo - 4/4/5 - asset turns from exist stores/SSS/new-units
June 2005 (+2.4% vs -0.3%)
- 3 edges by Bill Miller: 1] info 2] analytical 3] psyho/behave.
- "robustness ratio": measures the moat by comp'ing discount to clients + return to shareholders -> have a high one for investing
- Zimcem: Zimbabwe cemest producer, $70-100m replacement cost, priced at 1/70th replacement cost, latent pricing power to fund growth | mkt FX rate was 2x that of the central bank so hey bought through Dutch exchange but need to sell in Zimbabwe (mid point between 2 FX rates
- GEICO: 1/2 return to harehsolsers,40% to clients and 10% FTEs
- Costco: 70% clients, 15% FTEs, 15% shareholders, if Sams trie to match prices + FTE wages = $2.1bn (vs $9bn of sales)
- criitques Zimbabwe govt for taking white farmers' land as it cripples the population
Dec 2005 (+6.8% vs +10.3%)
- Asia + US bond collapse were opportunities
- Matichon Pcl: thai newspaper, got a low LBO offer from the PM, other shareholders convincing Nomad to sell due to "biz pressure"
- Bill Miller @ Legg Mason CM.
- Behavioral: 1] group think 2] availability 3] mis-judgement from inability to probability weight (ext focus on what's bought vs sold) 4] patience
June 2006 (N/A)
- Sleep Zakaria and Co Ltd started
Dec 2006 (+13.6% vs +20.1%)
- admired investors: Ruane, Tweedy, Klarman, Whitman, Hawkins, Miller, Schloss, Berkowitz
- Whithead Mann Plc: largest FTSE 100 headhunter, shares declined from 4E to 50p, and then PE LBO offer @ 52p -> DUMB!
- shift mgmt. fee up to 1% to cover costs, performance fee (20% above 6% hurdle PER YR flow in), but returns below 16% have 20% flow out by the amout below 6%
-- SZ&Co can take 20% out of the bucket each yr
June 2007 (+29.5% vs +23.6%)
- qual of good biz: 1] self fund w/ high ROIC 2] high barrier to entry + moat
- high street store: expensive last-mile retailers
- AMZN: 1] goods bought on demand (better selection + price) 2] controlled exp. 3] quality is fixed
- "We wonder, would selling Amazon today would be the equivalent
mistake of selling Wal- Mart in 1980"
- not issuing more $$
Dec 2007 (+21.2%, +9.0%)
- MDC resi prop. dev | bought prop and recycled cash in land -> works if mkt trends up, otherwise crashes them
- Bank X: same just gave loans at the top of prop cycle | issue was mgmt. incentive for issuing more book
- outsourcing leads to client disloyalty + commoditization | ex. Mattel's Chinese toys, BBC's queen doc, HFs owning CLOs, etc
- Conesco: BX after loss in housing loan securitization trust impaired capital @ insurance sub -> AM Best rating agencu downgraded it | Sleep focused too much on value + behavioral issues
- "better to be generally right than precisely wrong" - Keyenes
- "If you are not disciplined in the little things, you won’t be
disciplined in the big things" - Buffett
- 95% is Crap – A plain man’s guide to British politics - BOOK
- The Memoirs of Walter J. Schloss [BOOK]
- Sleep asked to divest from Sudan -> his resp. that he wouldn't to sway their vote
June 2008 (-18.2% vs -10.7%)
- [onset of GFC]
- Air Asia: largest intl. ULCC | Southwest model (hub&spoke, online tix, no reserved seats, 1 plane -> 3c per seat/km - 4.5c/5.5c/4.5c for Ryanair/Southwest/Malay-air - $22 flight tix!, JV in Thailand/Indonesia = 7x TAM vs Malaysia, firm secured low price for Airbus flights | issues: flight financing is twitchy, malay leading price war (oil = $140/barr)
- Games Workshop: sells Warhammer toys, LOTR led to MASSIVE growth, now have mfg facilities w/ 30% utilization | valuation, slight premium to factories' NAV
- MBIA: muni bond insurance co that started selling insurance to sub-prime debt after muni premiums sank | they took $13bn+ of losses in GFC (Moodys) -> SOLD IT
- short selling works bc insitutions are "weak minded" and buy w/ equity dilution and sell when reports are published
Dec 2008 (-45.3% vs -40.7%)
- “When someone says he is busy, he means that he is incompetent” "having a stupidly busy schedule isn’t a sign of being important. It means that you have become insulated from the world" - Taleb
- Rolls Royce made engineers sign their mfg. parts to quickly assign blame
- AMZN vol grew 16% in GFC! and AirAsia seat rev +33%/yr
- Zimbabwe valued @ Zero (28 bp position): the stock exchange halted trading
- Ferrari was king in the 50s, but lost to Aston Martin / AC Cobra causing them to really push and become dominant in the 60s w/ 250 GTO
June 2009 (+20.9% vs +6.4%)
- best companies are quiet - COST/AMZN don't advertise, and BRK/Games Work. don't give guidance
- the contrary -> GM has the higehst ad budget of $5.3bn but sells little
- Mattel had a big issue after Barbie one - couldn't replicte
Dec 2009 (+71.5% vs +30.0%)
- N/A - great yr!
June 2010 (+38.1% vs +10.2%)
- Welsh insurance: commoditized biz that's bad to be in
- Costco's differentiator is price - but it's sustained LT due to 1] low FTE turnover 2] upfront build out stores 3] lower SKU concnetration 4] membership for loyal clients, etc -> all drives the most efficiency -> LASTLY, inelastic client base as groceries are a NECESSITY
June 2011 (+73.7% vs +30.5%)
- internet retail TAM projected to kee growing
Dec 2011 (-9.9% vs -5.5%)
- 2 biz types: 1] work hard for pricing power (ex. Colgate, NKE, KO) or 2] give clients margin (ex. WMT, COST, AirAsia, AMZN, Asos)
- Black Arrow Group plc: UK firm that's de-listed but issued 1p div = "money from nothing"
June 2012 (-5.4% vs -5.0%)
- N/A
Dec 2012 (+39.8% vs +15.8%)
- Glaswegian Coffee: runs 22% yield w/ Thai big box retailed + pharma biz that mentioned acquisition a yr after lol
- Carpetight: UK retailer that started usin re-usable sales tags with flappable #s and save $10k+/yr in costs per unit
- Zak's activity center: 1] keep prices low (profits incentivize competition) 2] make costs good - they focused on parent coffee vs kids' toys 3] survey clients for that info (loop) 4] use experienced staff (lower turnover)
June 2013 (+36.9% vs +18.6%)
- it's 6% hurdle: b/c up and down draw down is closer to 100% -> important for them since incentive fees are funneled in/out of fund
- best CEOs don't care about comp - the Asos CEO just wanted the business to improve
^^ same w/ Jim Sinegal (COST) and Lord Harris @ Carperight
Dec 2013 (+62.2% vs +26.7%)
- regulators are harping them (4 on them now) treat them like L/S
- Zimbabwe: they owned a cement co, brewer, and construction firm -> even though hyperinflation insued, the equities remained and they sold for 8x gain after
--
Why they closed
1] annoying regulators
2] they owned the best businesses they could
3) get into philanthrop
20.8% annualized over 14 years.
I decided to read these letters after they were recommended by investors from Monish Pabrai and Cliff Sossin, and I was thoroughly impressed.[
There are several general investing takeaways I got.
1] focus more on what you buy and how long you hold it vs a loss (the magic of investing is upside is infinite, while downside is capped at 100%) - he brings up selling Stagecoach vs buying Conesco as his example
2] there's 2 types of good businesses: a] work hard for pricing power (NKE, KO, Colgate, etc) and b] work hard to keep prices low (COST, AsiaAirline, AMZN, etc)
- the key for [b] to NOT be commoditized is you have barriers to entry outside price (ex. Costco's high upfront CapEx or high FTE wages or AMZN's product selection / control)
3] profits incent competition, so try to keep margins low and earn them for a LT (ex. Zak's family's activity center)
4] be very concentrated (they took up to 20% bets, and let them grow to 60%)
5] in emerging mkts buy equity in the best brands - even with inflation if you own the assets they re-calibrate to growing currencies and appreciate (ex. Zimcem)
6] di-worsification is bad (ex. Stagecoach initially tried to get into US busses in an LBO and it crushed them)
7] underwriting based on mkt cycles is a bad biz - ex. Hertz, MBIA, etc - because it forces risky behavior in downcycles
8] the best CEOs don't care abt money - ex. Bezos, Sinegal, Lord Harris take no Comp
9] good business > valuation, mgmt., literally ANYTHING else
10] discipline is essential - sleep explains this with a buffet example where he wouldn't take 1000x odds to hit a hole-in-one bc "if you don't stay disciplined at the simple things you won't stay disciplined at all
11] 3 ways to get edge: 1] info 2] analytical 3] psychological
12] "robustness ratio" - add up ROI to clients, shareholders, and FTEs = and split it, the best biz has all of it going to customers
13] PE buyouts are usually too cheap - try to re-negotiate w/ mgmt. (ex. HCI)
14] think for the LT - ST OpEx is usually good (ex. Estee Lauder spending extra on S&M and the stock TANKED)
15] draw downs from "fraud" are a good buying op - ex. Xerox (and later MBIA that they missed)
Sleep's admired investors: Ruane, Tweedy, Klarman, Whitman, Hawkins, Miller, Schloss, Berkowitz
The best quotes in my opinion:
- "cancer surgery approach" - a hard skilled turnaround [Munger]
- "Many supermarkets make their money from buying from the supplier. Costco makes money from selling to the consumer." - COST vs other retailer rev model [Sleep]
- "better to be generally right than precisely wrong" [Keyenes]
- "If you are not disciplined in the little things, you won’t be disciplined in the big things" [Buffett]
- “When someone says he is busy, he means that he is incompetent” "having a stupidly busy schedule isn’t a sign of being important. It means that you have become insulated from the world" [Taleb]
Overall, a great investor and this is a good series of letters to understand Sleep/Zak's deep passion for investing, which was central to his world-view rather than looking at money, fame, etc. He closes his fund for that reason...
"It is one thing for capital allocators to be rewarded for their efforts but, in our opinion, taking personal identity in everything above X-amount is not a route to building a better world."
--
Notes:
Sept 2001 (+3%)
- International Speedway: runs car sports (Nascar, F1, etc) | with more consolidation the sport will be run better, higher prize pools create virtuous cycle, and media rights increases 17%/yr (bc only negotiate once| valuation is sub NAV, and they think near-term cycle is bad but will inflect LT
- Matichon: 2nd largest Thai-language Thai newspaper, [200% 5 yr return] | LT trends of higher-ed Thai people, fam-run co., ad-cycle is inflecting - 20% from trough but 50% below past peak |trades 0.75x revenue & 9% dividend yield as the fam that owns 25% of the stock has upped the dividend
June 2002 (-4.6% vs -7%)
- Estee lauder stock (15%) after they cut into EPS to reinvest in the brand
- Xerox failure: sells printers | under SFAS 13 you can book lease rev through 1) operating lease 2) "sale-type" lease -> its about if 90% of econ value goes to the seller | Xerox booked most of it as sales-type even through the printers were sold on 5-yr increments
- Xerox Turnaround: [216% 5 yr return], only 6/90b of rev is sale-type, clients keep paying bills, new accountants, new products launched at the end of the 90s, valuation is 4.5x R&D spend !!!
- "in accounting it is best to think inside the box" - NYT cartoon with 2 accountants that covered Xerox XD
- Mosanto: mfg/mkt seeds/fertilizers, they were with Solutia (chemical biz), and GD Searle (drug ops) | Solutia was spun off, and GD Searle was bought out and then Pharmacia Corp bought Solutia + Searle | issue is that Solutia's PCB Alabama plant had huge clean-up liabilities that flow to Pharamcia | the CATCH-22 is that Mosanto has indemnified Pharmacia for any env. damages -> Nick sold off
Dec 2002 (-2.59% vs -11.97%)
- Conseco: filed for Ch11 and they still own them
- Stagecoach: largest UK bus operator | in early 90s London busses de-regulated to be operated by private mkt, CEO Brian Souter is the GOAT that's increased throughput/fares but left | killer: 1) "diworsi-fied" into Chinese train leasing 2) LBOd Coach USA bus co. at peak cycle and premium | Souter returns: sell off coach biz, pay off debt, re-focus on US biz
- "cancer surgery approach" - Munger
- KO: in 80s was a conglomerate with shrimp and owned bottlers - they spun the bad-cos off to focus on pure-play syrup biz
- COST: 14% markup on all items max, 15% for private-label, most retailers use high/low price strat, 14% growth/yr and no leases needed (Gap's issue), density implies runway for 1000 US stores and 200 in UK, comping HD shows 13 yrs of 10% growth ahead
June 2003 (+26% vs +11.1%)
- got to invest in unlisted equities -> Weetabix Ltd investment
- "diworsification" - Lynch
- screen for no share # changes in the last 10 yrs -> high quality
- share growth is 3% on avg in the US
- Weetabix: cereal distributor, fam-run | high share-of-voice (% mkting spend) exceeded its mkt share -due to higher S&M spend vs peers who cut for investors, 50% redundancy in factories for efficiency | trades cheap bc it's unlisted 3.5x potential
- Lucent Technologies: 8% convert pref w/ liq-pref, and also b/c of .com bubble | they could 1] turnaround biz 2] dilute old holders or 3] buyback debt and turnaround (Sleep's preference) -> they chose #2 which made the prefs SUPER valuable
Dec 2003 (+42.5% vs +19.8%)
- Stagecoach paid for Conesco loss 6x over
- FCF margins are highest in 03' and capital spending lowest - we should focus on high quality turnarounds
- issue where fund does better than individual investments which doesn't give room for full appreciation
--> sol1: take new subs and invest in new ops
--> sol2: rebalance with new subs weighted (but not good qual.)
--> sol3: (what they did) take subs only when needed and put into new ideas
- Weetabix: PE buys it for 25% premium, with only 75% approval needed for the scene arrangement | Sleep thinks it's undervalued by 25% and the buyout isn't good - passive proxy launched
June 2004 (-.97% vs +3.52%)
- partnership grown to $100m
- most investments in turnarounds rn esp in Asia
- Union Cement: Philliphines' largest cement co. priced at replacement cost | new assets (from 90s Asia tiger boom), and FCF used to debt-paydown which puts it in good spot, they could only buy $1mm (even tho it had $200m mkt cap) -> which 10x'd but only 1% of fund | strategic bought a chunk of them at 10x their price
- Jardine Mathesine, Brandes + Marathon seconded a proposition to reog the firm, but mgmt. put it down with thir shares in Jardine strategic
- Kersaf: Allen Gray Ltd + Marathon proposed about-turn strategy that 2x'd value
- HCI: Marathon is suing mgmt. who wants to buy the co. at a discount to fair value | eTV independent owner in South Africa
- National Indemnity: BRK sub | only draft policies when pricing is attractive, and stop when it's not (even when revs decline) -> ex. of "good thinker"
- Funds: Oakmark Select (22.2%/yr - 7yrs); Semper Vic Partners (18.5% - 20 yrs)
- Schering-Plough (SGP): mfg/dist Claritin, in 02' FDA closed down factories and fined $500m as they didn't meet compliamnce, generics ran through + Ref FD violation | BUT, Zocor/Zetia is great and $2bn expected profit by 07'
Dec 2004 (+23.2% vs +11.5%)
- Costco: $45 membership creates share of mind, 14% max mark-up "EDLP", WMT takes ~22% margin
-- 1] maniacal that OpEx are low (measured in bps)
-- 2] they run auctions for 4k SKU spots which creates scarcity + competition for the supplier to take down price (vs peers that make $$ off supplier fees) - also owned stores
-- 3] high revenue (if 1st 2 are one)
- "Many supermarkets make
their money from buying from the supplier. Costco makes money from selling to the
consumer."
- Costco would give excess cash back to customers -> 85% renewal rates
- street view: 1] low 1.6% OPM, but for future growth 2] expensive @ 24x EPS (LOL) 3] costs have risen (only ST)
- Ebay could be better: largest scale, product access, profits to 1 player, higher barriers to entry
- old stores have 4% comps, while new stores are in mkts that are 10% penetrated - past examples see mgmt. also under-shoots new-unit penetration
- COST @ $1k/sq ft, $500 for Sams, $400 for BJs
-> 14% Rev/FCF algo - 4/4/5 - asset turns from exist stores/SSS/new-units
June 2005 (+2.4% vs -0.3%)
- 3 edges by Bill Miller: 1] info 2] analytical 3] psyho/behave.
- "robustness ratio": measures the moat by comp'ing discount to clients + return to shareholders -> have a high one for investing
- Zimcem: Zimbabwe cemest producer, $70-100m replacement cost, priced at 1/70th replacement cost, latent pricing power to fund growth | mkt FX rate was 2x that of the central bank so hey bought through Dutch exchange but need to sell in Zimbabwe (mid point between 2 FX rates
- GEICO: 1/2 return to harehsolsers,40% to clients and 10% FTEs
- Costco: 70% clients, 15% FTEs, 15% shareholders, if Sams trie to match prices + FTE wages = $2.1bn (vs $9bn of sales)
- criitques Zimbabwe govt for taking white farmers' land as it cripples the population
Dec 2005 (+6.8% vs +10.3%)
- Asia + US bond collapse were opportunities
- Matichon Pcl: thai newspaper, got a low LBO offer from the PM, other shareholders convincing Nomad to sell due to "biz pressure"
- Bill Miller @ Legg Mason CM.
- Behavioral: 1] group think 2] availability 3] mis-judgement from inability to probability weight (ext focus on what's bought vs sold) 4] patience
June 2006 (N/A)
- Sleep Zakaria and Co Ltd started
Dec 2006 (+13.6% vs +20.1%)
- admired investors: Ruane, Tweedy, Klarman, Whitman, Hawkins, Miller, Schloss, Berkowitz
- Whithead Mann Plc: largest FTSE 100 headhunter, shares declined from 4E to 50p, and then PE LBO offer @ 52p -> DUMB!
- shift mgmt. fee up to 1% to cover costs, performance fee (20% above 6% hurdle PER YR flow in), but returns below 16% have 20% flow out by the amout below 6%
-- SZ&Co can take 20% out of the bucket each yr
June 2007 (+29.5% vs +23.6%)
- qual of good biz: 1] self fund w/ high ROIC 2] high barrier to entry + moat
- high street store: expensive last-mile retailers
- AMZN: 1] goods bought on demand (better selection + price) 2] controlled exp. 3] quality is fixed
- "We wonder, would selling Amazon today would be the equivalent
mistake of selling Wal- Mart in 1980"
- not issuing more $$
Dec 2007 (+21.2%, +9.0%)
- MDC resi prop. dev | bought prop and recycled cash in land -> works if mkt trends up, otherwise crashes them
- Bank X: same just gave loans at the top of prop cycle | issue was mgmt. incentive for issuing more book
- outsourcing leads to client disloyalty + commoditization | ex. Mattel's Chinese toys, BBC's queen doc, HFs owning CLOs, etc
- Conesco: BX after loss in housing loan securitization trust impaired capital @ insurance sub -> AM Best rating agencu downgraded it | Sleep focused too much on value + behavioral issues
- "better to be generally right than precisely wrong" - Keyenes
- "If you are not disciplined in the little things, you won’t be
disciplined in the big things" - Buffett
- 95% is Crap – A plain man’s guide to British politics - BOOK
- The Memoirs of Walter J. Schloss [BOOK]
- Sleep asked to divest from Sudan -> his resp. that he wouldn't to sway their vote
June 2008 (-18.2% vs -10.7%)
- [onset of GFC]
- Air Asia: largest intl. ULCC | Southwest model (hub&spoke, online tix, no reserved seats, 1 plane -> 3c per seat/km - 4.5c/5.5c/4.5c for Ryanair/Southwest/Malay-air - $22 flight tix!, JV in Thailand/Indonesia = 7x TAM vs Malaysia, firm secured low price for Airbus flights | issues: flight financing is twitchy, malay leading price war (oil = $140/barr)
- Games Workshop: sells Warhammer toys, LOTR led to MASSIVE growth, now have mfg facilities w/ 30% utilization | valuation, slight premium to factories' NAV
- MBIA: muni bond insurance co that started selling insurance to sub-prime debt after muni premiums sank | they took $13bn+ of losses in GFC (Moodys) -> SOLD IT
- short selling works bc insitutions are "weak minded" and buy w/ equity dilution and sell when reports are published
Dec 2008 (-45.3% vs -40.7%)
- “When someone says he is busy, he means that he is incompetent” "having a stupidly busy schedule isn’t a sign of being important. It means that you have become insulated from the world" - Taleb
- Rolls Royce made engineers sign their mfg. parts to quickly assign blame
- AMZN vol grew 16% in GFC! and AirAsia seat rev +33%/yr
- Zimbabwe valued @ Zero (28 bp position): the stock exchange halted trading
- Ferrari was king in the 50s, but lost to Aston Martin / AC Cobra causing them to really push and become dominant in the 60s w/ 250 GTO
June 2009 (+20.9% vs +6.4%)
- best companies are quiet - COST/AMZN don't advertise, and BRK/Games Work. don't give guidance
- the contrary -> GM has the higehst ad budget of $5.3bn but sells little
- Mattel had a big issue after Barbie one - couldn't replicte
Dec 2009 (+71.5% vs +30.0%)
- N/A - great yr!
June 2010 (+38.1% vs +10.2%)
- Welsh insurance: commoditized biz that's bad to be in
- Costco's differentiator is price - but it's sustained LT due to 1] low FTE turnover 2] upfront build out stores 3] lower SKU concnetration 4] membership for loyal clients, etc -> all drives the most efficiency -> LASTLY, inelastic client base as groceries are a NECESSITY
June 2011 (+73.7% vs +30.5%)
- internet retail TAM projected to kee growing
Dec 2011 (-9.9% vs -5.5%)
- 2 biz types: 1] work hard for pricing power (ex. Colgate, NKE, KO) or 2] give clients margin (ex. WMT, COST, AirAsia, AMZN, Asos)
- Black Arrow Group plc: UK firm that's de-listed but issued 1p div = "money from nothing"
June 2012 (-5.4% vs -5.0%)
- N/A
Dec 2012 (+39.8% vs +15.8%)
- Glaswegian Coffee: runs 22% yield w/ Thai big box retailed + pharma biz that mentioned acquisition a yr after lol
- Carpetight: UK retailer that started usin re-usable sales tags with flappable #s and save $10k+/yr in costs per unit
- Zak's activity center: 1] keep prices low (profits incentivize competition) 2] make costs good - they focused on parent coffee vs kids' toys 3] survey clients for that info (loop) 4] use experienced staff (lower turnover)
June 2013 (+36.9% vs +18.6%)
- it's 6% hurdle: b/c up and down draw down is closer to 100% -> important for them since incentive fees are funneled in/out of fund
- best CEOs don't care about comp - the Asos CEO just wanted the business to improve
^^ same w/ Jim Sinegal (COST) and Lord Harris @ Carperight
Dec 2013 (+62.2% vs +26.7%)
- regulators are harping them (4 on them now) treat them like L/S
- Zimbabwe: they owned a cement co, brewer, and construction firm -> even though hyperinflation insued, the equities remained and they sold for 8x gain after
--
Why they closed
1] annoying regulators
2] they owned the best businesses they could
3) get into philanthrop
February 6, 2021
Alternative thoughts on:
business models
incentive compensation
capital allocation
mistakes
more mistakes
even more mistakes
lots on psychology
and how to think
lots on attitude.
Fantastic book.
business models
incentive compensation
capital allocation
mistakes
more mistakes
even more mistakes
lots on psychology
and how to think
lots on attitude.
Fantastic book.
December 17, 2018
Very well-written, surprisingly entertaining, incredibly thoughtful and shockingly preminiscent
February 23, 2025
I was visiting a friend's office and he introduced me to the people sitting in his little co-working space. One of them curtly introduced to me as: "Tim, he's a value investor".
"So who's your favorite value investor, Tim?" - "Nick Sleep." - "Never heard of him, but I like to read. Did he write anything?"
And not 2 minutes into this conversation I was presented with a "if you come back, I'll give you my personal copy of his letters" and when I came back, being all too sure Tim had long forgotten about me, there they were. Nothing could have made me happier.
It felt just like hitchhiking (my favorite type of activity to complement any vacation) feels to me: strangers helping you out for no good reason, just because they can. Faith in humanity restored.
---
The book itself is a fantastic read on par with Warren Buffett's shareholder letters.
"""
The criterion was for companies with no increase or decrease in shares outstanding in the last ten years. [...] We knew of two companies that would make the list [...] but were amazed that there were just five others in the US with a market cap above U$50m. [One was] Hershey Creamery, [a] business with reasonable economics, a low valuation and seemingly stubborn resistance to outside influence. So stubborn in fact that we found it difficult to obtain annual reports or proxy statements and resorted to asking the CFO for a copy only to be told "these are mailed out to our shareholders". How then might a potential investor form a judgment whether they would like to become a shareholder without the benefit of an anual report?
"It's a common complaint", came the reply.
This analytical Catch 22 may not be helpful, but it does reveal that some firms remain resolutely independent of mind. [...] As if to prove Groucho Marx right ("I do not care to belong to any club that would accept me as a member"), we have not given up on Hershey Creamery yet, if only to satisfy our curiosity.
"""
"So who's your favorite value investor, Tim?" - "Nick Sleep." - "Never heard of him, but I like to read. Did he write anything?"
And not 2 minutes into this conversation I was presented with a "if you come back, I'll give you my personal copy of his letters" and when I came back, being all too sure Tim had long forgotten about me, there they were. Nothing could have made me happier.
It felt just like hitchhiking (my favorite type of activity to complement any vacation) feels to me: strangers helping you out for no good reason, just because they can. Faith in humanity restored.
---
The book itself is a fantastic read on par with Warren Buffett's shareholder letters.
"""
The criterion was for companies with no increase or decrease in shares outstanding in the last ten years. [...] We knew of two companies that would make the list [...] but were amazed that there were just five others in the US with a market cap above U$50m. [One was] Hershey Creamery, [a] business with reasonable economics, a low valuation and seemingly stubborn resistance to outside influence. So stubborn in fact that we found it difficult to obtain annual reports or proxy statements and resorted to asking the CFO for a copy only to be told "these are mailed out to our shareholders". How then might a potential investor form a judgment whether they would like to become a shareholder without the benefit of an anual report?
"It's a common complaint", came the reply.
This analytical Catch 22 may not be helpful, but it does reveal that some firms remain resolutely independent of mind. [...] As if to prove Groucho Marx right ("I do not care to belong to any club that would accept me as a member"), we have not given up on Hershey Creamery yet, if only to satisfy our curiosity.
"""
April 9, 2022
Average rating of 4.69 !!! Shall I say more.
Nick Sleep and Zak worked at Marathon Asset Management and founded Nomad around 2006. This is the collection of their investor newsletters from 2002 to early 2014. Annualized return after paying management fee were more than 17% and they beat MSCI world almost every year by a huge margin.
It is not as much that they were such great investors, it is how they loved to share their thoughts. They showed intellectual integrity and didn't seem greedy.
A few more observations -
1. Nick shared their investing philosophies or mistakes and exlained the stocks in their concentrated portfolios.
2. They kept pushing the management fee down as AUM grew from around 1% to 10 bps
3. They didn't pay themselves any performance fee unless they delivered 6% every year.
4. They were playing long game and had a very concentrated portfolio. Top ideas include companies run by founders where scale benefits were shared with customers.
5. Innumerable business, psychology and investing nuggets means I plan to re-read soon.
Nick Sleep and Zak worked at Marathon Asset Management and founded Nomad around 2006. This is the collection of their investor newsletters from 2002 to early 2014. Annualized return after paying management fee were more than 17% and they beat MSCI world almost every year by a huge margin.
It is not as much that they were such great investors, it is how they loved to share their thoughts. They showed intellectual integrity and didn't seem greedy.
A few more observations -
1. Nick shared their investing philosophies or mistakes and exlained the stocks in their concentrated portfolios.
2. They kept pushing the management fee down as AUM grew from around 1% to 10 bps
3. They didn't pay themselves any performance fee unless they delivered 6% every year.
4. They were playing long game and had a very concentrated portfolio. Top ideas include companies run by founders where scale benefits were shared with customers.
5. Innumerable business, psychology and investing nuggets means I plan to re-read soon.
May 25, 2025
One of clearest thinkers I’ve encountered. It is amazing how Nick took inspiration from Buffett and Munger and developed his own voice and approach to investing. His explanations on the Costco investment case and, more broadly, the benefits of the scale economies shared model, are amazing. There are many other gems in his letters, such as his own summary of Munger’s psychology of human misjudgment speech.
January 11, 2022
What a great read! So much knowledge on investing, business models, capital allocation and psychology (yup, that too!) is concentrated in theses letters. Great insights from the guys who have proved with their track record that investing can be simple and yet very lucrative, provided that you follow some proven tenets and by having the correct mental models.
February 18, 2022
It's an intellectual sensation. There is no other way around it.
Reading books that talk about investments is a hard thing to do because there are very, very few incredible investors who are able to articulate their differentiated thoughts on a long term basis.
Well done. I think I learned something uniquely helpful from this, dense reading?.
Reading books that talk about investments is a hard thing to do because there are very, very few incredible investors who are able to articulate their differentiated thoughts on a long term basis.
Well done. I think I learned something uniquely helpful from this, dense reading?.
March 16, 2023
Delightful short letters about Nomad Partnership’s investing philosophy and psychology over a little more than a decade (2001-2014). If I have learned anything from them, it is to have more patience (the concept is constantly reiterated in their letters). They have a quiet confidence in what they do that is admirable (as well as the returns to back it).
January 8, 2024
Starts really well with insightful commentary on their investments in the early years. Reading their thoughts about individual stocks and their risks/potential is enjoyable. However, in the latter years of their partnership, the letters increasingly became philosophical and lacked objectivity and focus on their individual investments.
February 22, 2022
https://igyfoundation.org.uk/wp-conte...
@MohnishPabrai refers to these as the Dead Sea scrolls for investing. They point to True North for investors.
https://twitter.com/sanfordchee/statu...
@MohnishPabrai refers to these as the Dead Sea scrolls for investing. They point to True North for investors.
https://twitter.com/sanfordchee/statu...
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March 3, 2021All the investment letters and some new articles are available on Nick’s Foundation’s website -https://igyfoundation.org.uk/
Would highly recommend.
Would highly recommend.
April 9, 2021
Wish I have read this before 2020. Certainly one of the best investment literatures I have read.
May 8, 2021
These letters were excellent. Their writing is so clear and crisp. Their maniac focus on scale economics shared is an excellent framework. Their partnership structure is so incredibly admirable. Simply put, they do everything the right way. You would be hard pressed to find better role models that are actually replicable.
May 20, 2021
Amazing views . Just like the berkshire letters for all the value investors . 💙
June 27, 2021
A gold mine of investment wisdom
November 15, 2021
Pure genius. So thankful that these letters are available for us to read!
March 28, 2022
Excelent investing letters.
April 28, 2022
One of the best resource for value investors.
June 26, 2022
Super good, up there with intelligent investor and securities analysis.
November 13, 2022
Interesting, and free, although I would have liked more depth.
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