Originally published January 2021.
Nick Sleep is one of the greatest investors I’ve ever come across. Sleep managed the Nomad Investment Partnership for over a decade, along with his partner Qais Zakaria, delivering returns of 921% versus 117% for the MSCI World Index (September 2001 to December 2013).
He has tended to keep a low profile so isn’t as well known as some of the other great investors. That said, he’s started to gain more recognition recently following the publication of the Nomad Investment Partnership letters.
I had the privilege of reading these 245 pages of investing wisdom over the Christmas period and have picked out 35 extracts, organised into 10 key themes. This blog only touches the surface. For a fuller appreciation of this remarkable investor I’d encourage you to read the complete letters.
Nick Sleep on weighing information
“Information, like food, has a sell-by date; after all, next quarter’s earnings are worthless after next quarter. And it is for this reason that the information that Zak and I weigh most heavily in thinking about a firm is that which has the longest shelf life.”
“Investors tend to latch on to what can be measured, aided by the accountants and to some extent by their own laziness. But there is a wealth of information in items expensed by accountants, such as advertising, marketing and research and development, or in items auditors ignore entirely such as product integrity, product life cycles, market share and management character.”
On the value of patience and long-term thinking
“The trick to being a good investor, over the long term, is to maintain your long-term oriented discipline.”
“Active fund managers have to look active. One way to do this is to sell Wal-Mart, which appeared expensive (but actually wasn’t), to buy something that appeared cheaper (but, er, also wasn’t); investors are not long-term and did not look further than the next few years or, more recently, few quarters. Evidence for this can be gleaned from the average holding period for shares, which stands at just a few months; fund managers wish to keep their jobs and espousing a ten-year view on a firm risks being a hostage to fortune; marketing folks require new stories to tell and new stocks in the portfolio provide new stories; fund managers sell their winners in order to appear diversified in the eyes of their clients.”
“We can all do momentum investing, but it is emotional investing and I just don’t think it is that intelligent, or profitable.”
“Good investing is a minority sport, which means that in order to earn returns better than everyone else we need to be doing things different to the crowd. And one of the things the crowd is not, is patient.”
“Business outcomes can be more predictable several years out than they are in the near term. For example we have no idea where the market will end this year but, given corporate strategies, capital allocation and starting valuations, I think we have some idea of how our companies will evolve over the next few years. In other words (at this point economics students may wish to cover their ears) the return from investing in shares can be both increased and de-risked by time.”
“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.”