#364
26 Sep 2024 (2 months ago)
Nick Sleep's Career Path and Investment Philosophy
- Nick Sleep chose fund management as a career path after researching Edinburgh's strengths. (4s)
- Sleep's interest in investing stemmed from his view of it as an "intellectual investigation". (17s)
Nomad Investment Partnership: Founding and Principles
- Sleep and his friend Kais Zakaria started the Nomad Investment Partnership in 2001. (1m52s)
- Sleep and Zakaria managed their fund based on principles of high-quality investing, thinking, and behavior. (2m4s)
Zach Scott's Background and Meeting Nick Sleep
- Zach Scott, after graduating from Cambridge, took a job as an equity analyst in Hong Kong. He was laid off from this job after his boss was fired. (5m39s)
- Zach met Nick while working as a saleside analyst specializing in Asian stocks at Deutsche Bank. (6m14s)
Nomad Investment Partnership: Co-Management and Investment Approach
- In 2001, Nick Sleep started Nomad Investment Partnership with Zach Scott as co-manager. (10m51s)
- Sleep and Scott disregarded short-term information and focused on long-term insights, a practice they called "intentional disconnection". (12m20s)
Nomad Investment Partnership: Identifying Promising Companies
- To identify promising companies, they read annual reports, visited companies, and interviewed CEOs, focusing on questions with long-term implications. (15m32s)
- Destination analysis, a concept applicable to various aspects of life, involves identifying desired outcomes and determining the necessary actions to achieve them. (16m25s)
Nomad Investment Partnership: Influence of Zen Philosophy and David Ogilvy
- Nick and Zach, influenced by Zen philosophy and the book "Zen and the Art of Motorcycle Maintenance," prioritized quality and authenticity in their investment firm, even if it meant rejecting potentially lucrative opportunities. (17m0s)
- David Ogilvy, similar to Nick and Zach, believed in maintaining control over his work and life, as demonstrated by his willingness to decline clients he found disagreeable. (18m20s)
Nomad Investment Partnership: Investment Strategy and Practices
- Nomad Investment Partnership did not use leverage, short stocks, speculate with options or futures, make macroeconomic bets, trade hyperactively, or dabble in exotic financial instruments. (21m13s)
- Nick and Zach, the founders of Nomad Investment Partnership, initially employed a "cigar butt" investment strategy, buying deeply undervalued companies. (22m14s)
Nomad Investment Partnership: Shift in Strategy and Focus on High-Quality Businesses
- After a costly mistake with Stagecoach, a UK bus company, Nick and Zach shifted their strategy to focus on high-quality businesses with long-term growth potential. (23m10s)
- They identified "scale economies shared" as a powerful business model, with Costco as a prime example. (25m10s)
Costco's Business Model and Virtuous Cycle
- Nick and Zach recognized that Costco's low profit margins, seen as a weakness by Wall Street, were actually a strength, reflecting their commitment to low prices for customers. (25m46s)
- (26m1s) Costco's strategy involves satisfying customers, which leads to repeat business and increased spending.
- (26m11s) As Costco grew, it negotiated better deals with suppliers and reduced costs, passing savings to consumers by lowering prices.
- (26m31s) Nick and Zach estimated that Costco members saved $5 for every dollar Costco kept.
- (26m41s) This policy created a virtuous cycle: increased revenues led to scale savings, lower costs, lower prices, and further increased revenues.
- (26m55s) Unlike many large corporations that become mediocre, Costco's willingness to share its scale benefits with customers turned its size into an advantage.
- (27m12s) Costco's low margins reflected patience and a strategy to extend the franchise's life, resulting in high customer loyalty.
Nomad Investment Partnership: Long-Term Investment in Costco and Insights
- (27m46s) Nick and Zach invested in Costco for 18 years, during which its stock price rose from $30 to $380 per share, also paying rich dividends.
- (28m14s) Their strategy of holding investments long-term allowed them to spend time reading, thinking, and discussing business models.
- (28m26s) They concluded that a scale economy shared model fosters corporate longevity.
"Earned Secret" and Successful Companies with Long Shelf Lives
- (28m41s) Cedric Chin's idea of finding and exploiting an "earned secret" for decades aligns with Nick and Zach's approach.
- (29m17s) They studied successful companies with long shelf lives, finding common traits in firms like Walmart, Dell, Southwest Airlines, and Tesco, which kept costs low and passed savings to consumers.
- (30m6s) They also looked at Warren Buffett's investments in Geico and Nebraska Furniture Mart, which similarly drove down costs and saved customers money.
- (30m21s) Historical examples like Henry Ford's use of assembly line production to reduce the Model T's price further supported their findings.
- (30m42s) Nick emphasized that this business model needs to be pursued with evangelical zeal, typically driven by visionary founders.
Successful Business Model: Customer Experience, Cost Cutting, and Passion
- Nick and Zach discovered a successful business model that focuses on improving customer experience, cutting costs, investing in the future, and being passionate about the business. (31m45s)
- Amazon implements this business model by ruthlessly controlling costs, saving money and time for customers, and investing in new business initiatives. (33m0s)
"Slow Then Fast" Approach to Business: Sam Walton and Warren Buffett
- Sam Walton, the founder of Walmart, is an example of the "slow then fast" approach to business, where he spent five years focusing on one store before rapidly expanding his business. (34m59s)
- Alice Schroeder, author of The Snowball, observed Warren Buffet's reading process and noted that his decades of experience allowed him to read annual reports quickly because he could easily identify important information. (36m16s)
Dissolution of Nomad Investment Partnership and Nick Sleep's Net Worth
- Nick Sleep and Zachariah Hans, managers of the Nomad Investment Partnership, dissolved the fund in 2014 after it grew to approximately $3 billion in assets. (39m11s)
- By 2018, Amazon made up more than 70% of Sleep's net worth, leading him to sell half of his Amazon stock for $1,500 a share. (40m33s)