Investors Need To Be Nomadic Disciples
The Wisdom Of The Team That Compounded At 19.4% Annually For 13 Years
The London based Nomad Investment Partnership, run by Nick Sleep and Qais Zakaria, operated from the end of 2001 until early 2014. Over the course of its 13 year life, it compounded capital at an astounding average 19.40% annually and turned every $100,000 invested at the outset into over $1 million.
Then Sleep and Zakaria decided to close the partnership and return capital to investors.
Their reasons?
This is the way Sleep explained it:
“Investing is a wonderful, thoughtful, adventure but it can also be self-centered, a tendency that can be reinforced by the wealth that can follow. We think it is true that, once past X-amount, real meaning comes with reinvesting in society through charitable giving, which can also be a thoughtful, challenging, wonderful adventure, but with the added bonus that it feels like the world working properly.”
This wasn’t just lip service, Sleep established his own charitable IGY foundation and continued investing, but this time for the benefit of carefully chosen charitable causes.
He had achieved his ‘X-amount’ - the amount of money that he felt would be required to put food on the table, pay for the kids education, have a nice life-style, own his own home and so on - and not being greedy, he now focuses his efforts on philanthropic work.
He had been invested in Berkshire Hathaway, and this was the way he explained it to Warren Buffett:
His charitable endeavour also extended to publishing all of his Nomad Partnership investor letters, his magnum opus, for others to learn from. They are available at the bottom of this post, but be warned, they run to ~110,000 words, 218 pages, so I have broken them down for you here, pulling out the golden threads.
The Letters
The Nomad Investment Partnership Letters were published every six month through the 13 year life of the partnership. They were written for investors in the fund to update them of the fund’s ongoing performance, the enduring value of these exceptionally well written documents lies in a rich tapestry of timeless wisdom, extending beyond mere investment strategies to encompass profound insights into market psychology and the broader purpose of wealth.
Sleep and Zakaria transitioned from buying statistically cheap stocks to seeking businesses whose competitive edge could endure over long time horizons. Their guiding belief became clear: to achieve compounding over decades, you must invest in companies with structural, cultural, and strategic resilience, what Warren Buffett might call a "moat," and what Nomad assessed through a more customer-centric lens.
Nomad sought businesses where the culture was so strong and consistent that it became a strategic advantage. Their admiration for businesses that prioritize customer welfare, sometimes at the cost of near-term profits, was core to their long-term framework.
Nomad's approach was not just contrarian in terms of investment philosophy, but also in how they ran their firm, eschewing asset gathering, marketing, and the pursuit of scale for its own sake. This commitment to integrity and craft over commercialism is a core part of their legacy. Their letters often carry a subtle (and sometimes overt) critique of the asset management industry, its marketing gimmicks, performance-chasing, closet indexing, and perverse incentives. They had an obvious disdain for what they called “the business of managing money rather than investing it.”
Sleep and Zakaria repeatedly highlight that their broad, unconstrained mandate gave them an edge, they could invest in any geography, asset class (e.g., preferred shares, unlisted equities), industry or market cap, without restriction. Such flexibility is rare in institutional investing but crucial for truly opportunistic, long-term compounding. They were essentially nomadic investors as they would go wherever the best opportunity presented itself and that explains the name of the partnership.
“This breadth of scope is why we named the Partnership 'Nomad'.”
30 June, 2003, interim letter
Nick Sleep had a unique writing style as a pedagogical tool, one that made complex ideas more accessible and memorable. He would use storytelling, historical analogy and dry humor to convey his message.
Here are the key insights and timeless wisdom from the Nomad letters:
I. Investment Philosophy: Patience, Value, and Concentration
The bedrock of Nomad's success was an uncompromising adherence to a long-term, value-oriented, and concentrated investment philosophy.
Genuine Long-Term Orientation is Paramount: The partnership consistently champions a truly long-term investment horizon, standing in stark contrast to the prevalent short-termism of the financial industry. They assert that frequent reporting (daily, weekly, or monthly) is not only unhelpful but can be "counterproductive" for investors focused on distant goals, as it encourages distraction from the fundamental drivers of value creation. Their confidence in achieving satisfactory returns over the long run, even amidst short-term volatility, highlights their conviction in this patient approach. They explicitly state that their partnership is "not suitable for investors with time frames less than five years".
Focus on Intrinsic Business Value, Not Fleeting Market Prices: Nomad's strategy centers on identifying businesses trading at a significant discount to their "real business value". They deliberately ignore short-term market noise and momentum, which they observe can irrationally inflate popular stocks and depress undervalued ones. They cite instances where companies are "punished by the markets for being sensible" by investing for future growth, leading to temporary dips in earnings and stock prices. Such market irrationality, in their view, creates lucrative opportunities for patient investors to acquire "dollar bills for 51 cents".
Concentrated High-Conviction Investments: The Partnership maintains a "concentrated" portfolio of "relatively few investments," which naturally leads to more volatile results than diversified peers. This concentration reflects a deep conviction in their selected businesses, stemming from the belief that truly exceptional investment opportunities are rare and should be exploited fully when found.
Owner-Oriented Management and Prudent Capital Allocation: A critical criterion for Nomad's investments is the presence of "owner-oriented management" teams that implement "capital allocation strategies consistent with long term shareholder wealth creation". One subtle but profound idea in the letters is the “per-share discipline” and the dangers of dilution. It’s not just what companies do with capital that matters, but how they treat existing shareholders' interests over time. This alignment of interests between management and shareholders Nomad considered vital for sustainable long-term success.
Absolute Returns as the True Measure: While Nomad aimed to significantly outperform the MSCI World Index, this was considered a "byproduct" of their primary objective: achieving positive "absolute return" regardless of broader market movements. Their value-oriented approach positioned them to perform "relatively well as the bubble collapses".
II. The Psychology of Investing and Market Dynamics
The letters provide profound psychological insights into how market participants often behave irrationally, thereby creating opportunities for disciplined investors.
The Power of "Pay No Attention": A recurring theme, borrowed from Fred Schwed's "Where are the Customers' Yachts?", is the wisdom of "pay no attention" to short-term market gyrations. This principle advocates for selling during booms and buying during depressions, emphasizing emotional detachment and a contrarian stance. The authors suggest that this simple advice, though intellectually straightforward, is incredibly difficult for most investors to follow.
Short-Termism as an Enduring Competitive Advantage: The authors repeatedly highlight the "dysfunctionality of the short-term investor" as a persistent source of investment opportunities. They observe that many professional investors are driven by quarterly performance targets due to job security concerns, forcing them to prioritize short-term results over long-term value. This prevalent short-term mindset means genuinely strong long-term opportunities are often overlooked, leaving "rich pickings" for those with sufficient patience.
Markets Punishing Sensible Business Decisions: Nomad's letters detail how the market often penalizes companies for making intelligent, long-term strategic investments that might temporarily depress immediate earnings. This irrational market reaction, however, creates compelling buying opportunities for investors who can look beyond the immediate quarter.
Embracing Fallibility and Honest Mistakes: The authors openly admit their own "fallibility" and that they "make mistakes," but stress that these are "honest mistakes". This transparency fosters trust and humility, essential qualities in navigating the uncertainties of investing. They encourage partners to "check everything we say, let us know when we are wrong and forgive our errors".
The Robustness Ratio: Introduced as a framework to assess the durability of a business, the robustness ratio quantifies the amount of money a customer saves compared to the amount earned by shareholders. This ratio is particularly relevant for businesses where the customer proposition is primarily based on price (e.g., Costco) rather than advertising-reinforced purchases (e.g., Nike trainers). A higher ratio suggests a stronger competitive advantage, as it indicates that the company's business model delivers significant value to customers in the form of savings, while still generating profits for shareholders, making it "harder... to compete against". For instance, GEICO policyholders saved a dollar for every dollar it retained for its shareholders, while at Costco, customers saved approximately five dollars for every dollar retained by the company - a testament to a model where competitive strength and customer goodwill reinforce each other.
Scale Economics Shared: This is a powerful concept describing businesses that enjoy economies of scale but choose to share these benefits with their customers, typically through lower prices. This generosity creates a "wonderfully virtuous circle": lower prices drive increased market share and volumes, which in turn lead to even greater scale and buying power, enabling further price reductions. The authors refer to this as the "sharing of the scale economics with the customer that drives this, rather than the scale economics themselves." Companies like Wal-Mart, Tesco, Dell, GEICO, Southwest Airlines, Google, and especially Costco (with its policy of capping gross margins at 14% to ensure customers benefit from savings) illustrate this model. This approach fosters immense customer loyalty and creates a much wider competitive moat than simply hoarding the benefits of scale.
You will note that throughout this narrative, the same company names appear as exemplars of the behaviour that the Nomad Partnership sought. This is no coincidence - great management know which ingredients are necessary to drive success, which is why their companies become exceptionally successful. These were the companies in which the Nomad Partnership invested.
For Nomad, it was about companies that had earned trust, of customers, shareholders, and employees and protected that trust over decades. These were the businesses you could hold forever, and in the rare cases where prices became reasonable, they were the types Nomad invested in heavily and held without distraction.
90% of the fund was eventually invested in just three of these exceptional companies - Berkshire Hathaway, Amazon and Costco. When questioned about this level of concentration, Sleep simply said that he had never found a fourth company compelling enough to warrant reallocating capital from the other three.
III. The Nature of the Partnership and Transparency
Nomad's relationship with its investors, characterized by trust, shared philosophy, and transparent communication, also provides valuable lessons.
A True Partnership, Not Just a Fund: The firm deliberately named itself an "Investment Partnership" (and "certainly not a hedge fund!") to signify a deeper, more collaborative relationship with its investors. They prioritize "keeping existing investors" over constantly "acquiring new" ones, underscoring the importance of shared values and a long-term outlook.
Sufficient Information for Informed Judgment: The letters aim to provide comprehensive information that enables partners to "draw meaningful conclusions about our ability to manage your money". They believe these detailed communications are sufficient for partners to "form a judgement about what and how we are doing".
"No Bamboozlement Here": Borrowing from a sign at an Indian railway station, the authors commit to a straightforward and honest communication style. They disclaim liability for errors while promising "honest mistakes," actively encouraging partners to scrutinize their statements.
Alignment of Interests (Skin in the Game): A crucial aspect of their partnership model is the significant personal investment made by the authors themselves. They state that "one hundred percent of our personal investments will be in Nomad". This "skin in the game" ensures a strong alignment of interests with their partners, reinforcing trust. They also value this quality in the management of the companies they invest in.
IV. Beyond Investing: Purpose and Philanthropy
The letters extend beyond investment mechanics, delving into broader life lessons about wealth and its ultimate purpose.
The "And What Then?" Question: The authors explicitly pose the profound question, "if you are blessed with some success from investing, what then?". Their answer is a timeless one: "once past X-amount, real meaning comes with reinvesting in society through charitable giving". This perspective elevates wealth accumulation beyond personal gain, viewing it as a means to contribute to the greater good. They describe charitable giving as a "thoughtful, challenging, wonderful adventure" that creates a sense of "the world working properly".
Transitioning to "Caring Pursuits": The ultimate decision by Nick Sleep and Qais Zakaria to close the fund and "leave the professional industry behind" to pursue "more caring pursuits" further underscores this philosophy. This demonstrates a belief that genuine fulfillment lies beyond the relentless pursuit of financial returns, in contributing meaningfully to society and engaging in activities that nurture the human spirit.
In essence, the Nomad Letters are a testament to the power of a disciplined, patient, and value-driven investment approach, coupled with a deep understanding of human psychology and a broader perspective on the role of wealth in a meaningful life.
The letters suggest that good investing is as much about mental models, patience, and temperament as it is about accounting or valuation. The investor, in their framing, is a philosopher-practitioner, something that transcends spreadsheets. To that end, these letters serve as an education not just in investing, but in how to think. They are as much about epistemology, how we know and judge things, as they are about finance.
If you want to read the letters, here they are:
