The incredible story of Sleep, Zakaria and Company, Ltd.
I just finished reading the complete letters (to the LPs) of the Nomad Investment Partnership, an investment firm run by Nicholas Sleep and Qais Zakaria. They ran the fund from 2001 to 2014 and the fund returned 921 percent, or about 18.4 percent per annum (after performance fees). Compare that to the MSCI World Index during the same period, which returned 116.9 percent, or 6.5 percent per annum.
Another way to think about it, is that ONE dollar invested with Nomad at inception, was worth $10.21 (pre-fees) by the time they shut down the fund and returned capital to LPs. In contrast, the same dollar invested in the index would have been worth $2.17.
So, their exceptional performance alone probably makes it worth thumbing through the odd 218 pages of letters. But I was pleasantly surprised because the writing was enjoyable to read, and similar to Buffet and other “value” investors, they didn’t try to hide behind complex language. Indeed I had several takeaways from reading the letters over the past few weeks, including:
The value of studying companies deeply
The nuggets of information gained from meeting with management, and talking to outstanding operators
The competitive advantage of having a long-term focus in a short term world
Observing their increasing fascination with “scale efficiencies shared” first noted with Costco and then repeated with subsequent positions in Amazon, Dell and Berkshire (Geico, Nebraska Furniture Mart)
Similar to Buffet’s evolution as an investor, they started out with some positions best described as “deep discount to replacement cost “ but “with latent pricing power”. Eventually, their mention of these types of positions fades as the years progress, replaced instead by the hunt for outstanding businesses that can be held for the long term.
They did a fantastic job of partnering with LPs who were similarly minded - long-term, patient, contrarian in nature. Indeed, their LPs never panicked, or called for mass redemptions when the market was down in 2008.
Their structure of the management fee for Nomad was truly a case of scale efficiencies shared, one I hadn’t seen before. I’ll likely write in more detail about it in a future post.
Their thoughtful observations on topics like portfolio concentration (vs over-diversification), growth vs value, the economics and business model of Costco, sources of competitive advantage i.e. “the moat”, principal-agent conflict, the psychology of investing, scaling companies in the Internet age and admitting past mistakes were all mini-Masterclasses in themselves, causing me to double-back again and again to re-read and absorb concepts.
But even as I’m writing this piece, I’m consumed by the following question - what would change tactically about their approach if they were to start Nomad today (in 2022)? Would they expand from public to private markets given the tendency for tech startups to stay private for longer? Does an outstanding company that is long-term oriented look different today vs how Costco and Amazon looked in 2001-14? Would their view on crypto / web3 be that it’s a distraction to be ignored, or is this the next paradigm shift in the Internet…..creating new scaling opportunities for wealth generation and distribution? Broadly speaking what new asset classes would they focus on, and which ones would they ignore?
I guess that’s what the best writing is supposed to do. Challenge you to think, and have an opinion about the topic. I’m unsure about the answer to my questions above. Indeed, my investing journey tries to solve that very problem. I highly encourage anyone with a few hours on their hands (or a long weekend with nothing to do) to spend some time studying these investment letters.
