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“The trick, it seems to us, if one is to be a successful long-term investor, is to recognize the sources of enduring business success, get in early and own enough to make a difference.
Which raises two questions: what are the sources of success and second, if these are so readily recognized up front why are they not discounted in prices already?” - Nick Sleep

My favorite chapter in William Green’s book Richer, Wiser, Happier is the story of Nicholas Sleep and his partner Qais ‘Zak’ Zakaria, two young analysts with strong opinions about the investment industry who started their own partnership, Nomad Investment Partners. Sleep had been an analyst at value shop Marathon Asset Management and met Zakaria, a misfit at Deutsche Bank, while digging through discounted stocks in the wake of the Asian financial crisis. The two partnered up (first under the Marathon umbrella) and, from 2001 to 2014, crushed the market.

Not only that: after reading their letters, I am convinced that they had an absolute blast investing together. They did what they loved: studying companies, talking to operators, reading broadly to accumulate worldly wisdom, and reflecting deeply on what they learned. They practiced their craft with a dedication to quality, curiosity, introspection, long-term focus, and ethical partnership with their investors.

Their journey took them from deep value (turnarounds, out of favor emerging markets, companies tainted by scandal) to Costco and its model of “scale efficiencies shared.” Armed with this idea, they did what Munger suggested: they took it seriously and considered all its implications. They searched for historic case studies, looked for more companies with the same model, and contemplated how the model affected the company’s risk profile and therefore size in the portfolio.

As William Green pointed out in his wonderful book, this commitment to purity of craft came at an expense: when Sleep and Zakaria asked their investors to let them increase the concentration limit, a quarter of them redeemed.

Today, we can read the letters for free here (kicked off by a letter from Warren Buffett who congratulated them on their decision to retire and spend their time on charitable projects.) I also posted my preliminary notes on Twitter.

I highly recommend the letters to any investor for three reasons: Sleep and Zakaria were astute and successful investors and provided helpful case studies and discussions of business models. Second, you can follow their journey through an entire market cycle and evaluate how early decisions panned out. Lastly, Sleep and Zakaria had some strong opinions about the investment management industry. I respect that they took a principled stand and designed the partnership to fit their unique approach, rather than optimizing for growth in assets under management and the needs of institutional allocators.

The letters are also compelling because Sleep drew on insights from a wide variety of disciplines. This reminded me of Bill Miller who I believe mentored the two. Sleep and Zakaria quoted Miller, attended his Legg Mason Investment Conference, used Dell as a case study (Miller was a big investor), and invested in Amazon (Miller was the biggest outside shareholder). They also joined the Santa Fe Institute where Miller served as Chairman. They even studied gamblers, just like Miller did.

In this piece I’m going to share some of my favorite quotes and learnings. If you don’t have the time to read 225 pages of letters, you can use this as a reference. All quotes are by Sleep and Zakaria and almost all are from the letters though a handful are from Richer, Wiser, Happier.

“Investing is, at its heart, a very simple discipline. Simple, perhaps, but not easy. And judging by my efforts, certainly hard to communicate. The truth is that there is not that much to say, at least, not much that hasn’t been said before.”

Table of Contents

Philosophy.
Intrinsic motivation.
Minimize distractions through simplification.
Long-term orientation.
Trust creates flexibility.
Focus.
Long shelf life insights.
Discussing stocks in public.
Case studies.
Costco leads to the big idea.
Thought exercises.
More case studies.
Inverting the question.
Mistakes.
Bezos.
Culture.
Misunderstood.
Anti-culture.
2008.
Deep realities.
Inactivity is a decision.
Incentives.
Analogies.
Closing quotes.

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Frederik G.

The Nomad Partnership Letters (Nick Sleep…

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