Nick Sleep ran the Nomad Investment Partnership alongside Qais Zakaria from 2001 to 2014.
Nick Sleep ran the Nomad Investment Partnership alongside Qais Zakaria from 2001 to 2014. ◦ The fund launched in 2001 under Marathon Asset Management, and by 2006 Sleep and Zakaria spun out to operate independently. ◦ In 2014, after 13 years of outperformance, Sleep and Zakaria closed the fund voluntarily because they had decided they had made enough and wanted to dedicate their time and wealth to philanthropic causes instead. ◦ Sleep summarized his temperament by stating, "Zak and I don't want to be busy; we want to be right." ◦ Capacity at Nomad was deliberately low, operating with "few investments, held for long periods." ◦
Sleep's recurring maxim is to "take a simple idea and take it seriously." ◦ He believes that a single great insight should govern everything, stating, "That's the best single thought you may have ever had in your life. It needs to dominate everything because you're not going to get many insights like that." ◦ Sleep treats equity as the most durable claim in a company, noting that "as investors we own the only permanent capital in a company's capital structure, everything else in the company: management, assets, board, employees, can change but, absent bankruptcy, our equity will still be there!" ◦ He diagnosed that markets underprice durable compounders because "investors tend not to believe in 'longevity of compound'." ◦ Sleep distrusted rules-based culture, approvingly quoting Erie Indemnity founder H.O. Hirt's notice that "RULES Are for INFANTS, INCOMPETENTS, INCARCERATED CRIMINALS and IMBECILES," and warning that "rules do not require people to think." ◦
Sleep uses "destination analysis" as a central framework for analyzing businesses, stating that "Destination analysis is consciously central to how we analyse businesses these days. It helps us ask better questions and get to a firm's DNA." ◦ He argued that over-diversification breeds "complacency which allows one to ignore the only real, long term risk, which is the risk of misanalysing a company's destination," and warned that "Diversification used in this way tries to turn ignorance into an asset." ◦ On concentration, he reasoned that "if knowledge is a source of value added, and few things can be known for sure, then it logically follows that owning more stocks, does not lower risk but raises it!" ◦ Sleep prized inaction, quoting Charlie Munger that "you make your real money sitting on your assets!" and even joked about a "Nomad Inactivity App" to report Nomad's level of inaction in real time. ◦ He noted that "a long investment holding period allows one time between decisions to 'retreat and simmer' a little." ◦ Sleep described his tendency to "return to the basic questions." ◦
Scale efficiencies shared: "Most companies pursue scale efficiencies, but few share them. It's the sharing that makes the model so powerful." ◦ Robustness ratio: measuring value passed to customers against value kept for shareholders as a measure of how hard a business would be to compete against. ◦ Destination analysis: focusing on a firm's ultimate trajectory rather than short-term metrics. ◦ Longevity of compound: recognizing that durable compounding businesses are systematically underpriced because conventional thinking assumes good things do not last. ◦ Equity as permanent capital: viewing equity as the only permanent capital in a company's capital structure. ◦
Sleep specialized in identifying business models characterized by "scale efficiencies shared," using Costco as the best example. ◦ He developed the "robustness ratio" — value passed to customers divided by value kept for shareholders — as a measure of how hard a business would be to compete against, estimating that at Costco "the customer saving is around five dollars, compared to shopping at most supermarkets, for every dollar retained by the company." ◦ He contrasted this with the investment industry, noting that "fees can be levied regardless of performance – that's not much of a robustness ratio." ◦ His destination focus informed specific investment decisions, keeping Nomad out of US banks and continuing to own Amazon. ◦
Sleep makes points by quoting others, citing Charlie Munger on inaction, gardener Charles Jencks that "understanding requires a certain slowing of time. Why else enter a garden? ... There is a lot to be said for gentle contemplation," and H.O. Hirt on rules. ◦ He even joked about a "Nomad Inactivity App" to report Nomad's level of inaction in real time. ◦
Sleep and Zakaria closed Nomad voluntarily in 2014 after delivering roughly 921% over thirteen years, an act described as deciding "they had made enough," which is unusual in asset management. ◦ He rejected diversification as a risk management tool, arguing that owning more stocks raises risk rather than lowering it. ◦ He embraced inactivity and low capacity, operating with "few investments, held for long periods." ◦
Focus on the destination rather than annual results, asking whether the destination is secure. ◦ Sleep suggested that if an investment could turn $1 into $16, "does it matter if it takes 18 years or 22 years?" ◦ Return to basic questions and take simple ideas seriously. ◦ Avoid rules-based frameworks that substitute for thinking. ◦