The investor library

Nick Sleep

1966- · Nomad Investment Partnership · One idea, held past the point of comfort.

Overview

Ran the Nomad Investment Partnership with Qais Zakaria from 2001 to 2014, returned about 921% before fees against roughly 117% for the world index, then closed the fund at the height of his reputation, gave the money back, and published the letters for anyone to read.

“The single greatest edge an investor can have is a long-term orientation.”

Nick Sleep

Background

He read geography at Edinburgh and joined Marathon Asset Management in London, the house that developed capital-cycle investing: the observation that returns are driven less by demand than by what competitors do with supply when returns look good.

He left in 2001 with Zakaria to start Nomad, and built it deliberately against the industry grain — a small fund, a partnership structure, performance fees paid only above a 6% hurdle and only after years had passed, an explicit intention not to grow, and a decade of letters written to explain the thinking rather than to market it.

Style, and how it evolved

Nomad began as ordinary deep value with a capital-cycle overlay — cheap, unloved, cyclical things. The evolution is the whole story, and it is a movement from price to mechanism.

Scale economics shared. Most companies with a cost advantage keep it, taking a wider margin. A small number systematically hand it back to customers as lower prices, which brings more volume, which lowers costs again. Costco does it by policy — it caps its own markup. Amazon did it deliberately for years while analysts scored it as a failure to earn a margin. The loop compounds, and it is invisible to any model that forecasts margins forward from today.

Destination analysis. Do not ask what the business earns now. Ask what it looks like at maturity, and work backwards. Almost all the disagreement about a compounding business is really a disagreement about its destination.

Turnover as a tax. Activity has a cost — spreads, tax, and the risk of being talked out of something. Nomad's turnover fell towards nothing.

Concentration as a consequence, not a policy. Positions were not sized to a target; they grew because he refused to trim the ones that worked.

Performance

paid offa decisiona losswalked awaythe lifeshaded columns are the crashes — hover any mark

2001-2013: about 921% cumulative before fees, roughly 20.8% a year, against about 117% for the MSCI World index ✓ — published by Sleep himself in the final partnership letter, which is why it is checkable at all. The fund managed around $3bn at close.

✓ documented, and unusually so — the letters are public

Case studies

Amazon, around 2005. He bought it when the consensus read a low-margin retailer burning cash with no obvious path to profitability. His thesis was that the low margin was the strategy: every efficiency was being handed to customers as lower prices, which bought volume, which lowered costs further. The company was not failing to earn a margin; it was declining to. The mechanism: a business deliberately suppressing today's earnings to widen tomorrow's moat looks identical, in the accounts, to a business that cannot earn one. ✓

Costco. The purest form, because it is written into policy: a maximum markup, enforced, regardless of what the market would bear. The company has effectively pre-committed to sharing scale, which removes the possibility of management changing its mind. ✓

2014 — closing it. He wound up Nomad with the record at its best, returned capital to partners, published thirteen years of letters for free, and gave much of his own money away. Whatever else, it settles the question of whether the letters were a marketing document. ✓

The other side of the record

A record this good is where scepticism is most worth spending, so:

It may be one decision. Thirteen years, three main positions, and one of them was the outstanding equity of the era. Strip Amazon out and the record is good rather than remarkable. A method validated by a single holding is a hypothesis with one observation.

Scale economics shared is identified in hindsight far more easily than in advance. Every low-margin retailer can claim to be investing in price. The framework has no test that separates a company suppressing margin to build a moat from one that simply cannot earn one — which is precisely the judgement the whole thesis rests on.

Thirteen years is not long, and he stopped before the weather changed. The record ran through a period of falling rates and expanding multiples that flattered long-duration compounding stories more than any other regime in modern history.

The letters are beautifully written, which is a hazard. Elegant prose is more persuasive than tested propositions, and the Nomad letters have become scripture in a way that should make a careful reader more sceptical, not less.

And the structure removed the hardest constraint. A small fund, closed, with patient partners and a fee that only paid after years, is the ideal laboratory. It is not a test of whether the method survives ordinary redemption pressure — and most capital is ordinary.

Key lessons

• Scale economics shared. A cost advantage given back to customers compounds; a cost advantage kept as margin invites competition.
• Destination analysis. Ask what the business looks like at maturity and reason backwards, rather than extrapolating this year forward.
• Activity is a cost, not evidence of work. Turnover taxes a compounding position twice — in fees and in the chance of talking yourself out of it.
• The hard part is not finding it; it is still holding it in year six. Everything in the Nomad record depends on a decision not to act, repeated for a decade.
• The structure has to permit the strategy. Patient capital, a long fee horizon and a refusal to grow were preconditions, not decorations.

Reading and links

• The Nomad Investment Partnership letters, 2001-2014 — free, and the primary source. There is no book, and the letters are better than most.
• Marathon Asset Management's capital-cycle writing — Capital Returns, edited by Edward Chancellor, for the school he came out of.

Marked ✓ where documented — unusually for this library, the performance figures come from the manager's own published letters rather than secondary accounts. This is a profile of an investor, not a view on any security.

Profiles of investors, not views on any security, and not personal advice. Figures are marked ✓ where they are documented and ○ where they rest on secondary or private accounts — investing biography is heavily mythologised and the well-known numbers drift with each retelling. Capital is at risk.

Corrections and right of reply. Where a criticism is made of a named person it is stated as a specific measure over a stated period, attributed to its source, and separated from opinion. Assessments are opinion, honestly held, on facts believed accurate at the date shown. If anyone profiled here — or anyone acting for them — believes a fact is wrong, it will be corrected promptly and visibly, and a reply will be published alongside it on request.

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