Loading...
September 10, 2024 • 44min
#364 Nick & Zak's Excellent Adventure: How Nick Sleep and Qais Zaharia Built Their Investment Partnership
Founders
This episode discusses the story of Nick Sleep and Qais Zakaria, who built an unconventional and highly successful investment partnership called Nomad Investment Partnership. Their approach focused on buying high-quality businesses and holding them for the long-term, while ignoring short-term market noise. The episode is based on a chapter from William Green's book "Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life".
#364 Nick & Zak's Excellent Adventure: How Nick Sleep and Qais Zaharia Built Their Investment Partnership
0:00
-0:00
Key Takeaways
- Nick Sleep and Qais Zakaria built an unconventional investment partnership called Nomad Investment Partnership that generated exceptional returns by focusing on high-quality businesses and ignoring short-term noise
- They developed the concept of "scale economies shared" as their key insight into what makes great businesses durable over the long-term
- Nomad concentrated heavily in a small number of stocks like Costco and Amazon that exemplified the "scale economies shared" model
- Their approach was influenced by Warren Buffett and Charlie Munger's philosophy of buying great businesses and holding for the long-term
- They practiced "intentional disconnection" from short-term market noise and focused on deep research into a small number of companies
- Nick and Zach prioritized quality over profits in how they structured their firm, turning away difficult clients regardless of how wealthy they were
- After closing Nomad in 2014, Nick and Zach continued to invest personally with extreme concentration in their highest conviction ideas like Amazon
- Their story demonstrates the power of developing deep knowledge in a specific area and exploiting that "earned secret" over decades
Introduction
This episode discusses the story of Nick Sleep and Qais Zakaria, who built an unconventional and highly successful investment partnership called Nomad Investment Partnership. Their approach focused on buying high-quality businesses and holding them for the long-term, while ignoring short-term market noise. The episode is based on a chapter from William Green's book "Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life".
Topics Discussed
Background on Nick Sleep and Qais Zakaria (08:01)
- Zach was born in Iraq in 1969 to a privileged family but had to flee to the UK in 1972
- Nick studied geology and geography in college before stumbling into investment analysis
- They met while working at different firms during the 1997 Asian financial crisis
- "My father had made his money on things he understood and lost them on things he didn't understand," Zach said about his father's bankruptcy
Founding of Nomad Investment Partnership (14:01)
- Nick and Zach started Nomad in 2001 within Marathon Asset Management
- They viewed it as an "act of rebellion" against conventional investing wisdom
- Their simple goal was to achieve a 10x increase in net asset value
- They focused on what to ignore, disregarding "ephemeral information" that distracts most investors
- Practiced "intentional disconnection" from market noise to think independently
Investment Philosophy and Approach (20:02)
- Initially bought "cigar b**t" stocks but shifted to high-quality businesses
- Developed the concept of "scale economies shared" as their key insight
- Focused on businesses that shared efficiency gains with customers to drive loyalty
- Costco was their first major investment exemplifying this model in 2002
- Studied historical examples like Walmart, Southwest Airlines, and Henry Ford
- "This is not a new business model, but it does need to be pursued with evangelical zeal," Nick said
Concentration in Amazon (36:04)
- Recognized Amazon as the ultimate example of their "scale economies shared" model
- Started buying aggressively in 2005 at around $30 per share
- At one point, Amazon made up 70% of their fund's assets
- Held through 50% drawdowns, demonstrating their conviction and temperament
- "Oh my God, I know exactly what game they're playing," Nick thought when Amazon launched Prime
Building Deep Knowledge Over Time (38:04)
- Nick and Zach spent years studying businesses before developing their key insights
- This "encyclopedic base of knowledge" allowed them to move quickly on opportunities
- Demonstrates the "slow then fast" nature of developing expertise
- Similar to Warren Buffett's ability to quickly assess businesses after decades of experience
Closing Nomad and Personal Investing (42:04)
- Dissolved Nomad in 2014 after growing to $3 billion in assets
- Nick and Zach continued to invest personally with extreme concentration
- Zach kept 70% of his money in Amazon
- Nick invested in just three stocks: Amazon, Costco, and Berkshire Hathaway
- "There are very few businesses that are investing in the future the way they are," Nick said about these companies
Lessons on Quality and Simplicity (22:02)
- Nick was influenced by the book "Zen and the Art of Motorcycle Maintenance"
- Focused on doing everything with quality as the primary goal
- Simplified their approach by eliminating complexity:
- Never used leverage
- Never shorted stocks
- Never used options or futures
- Never made macro bets
- Prioritized quality over profits in how they structured their firm
- Turned away difficult clients regardless of how wealthy they were
Importance of Temperament (40:04)
- Held through 50% drawdowns in Amazon during 2008 financial crisis
- Used market panic as opportunity to upgrade portfolio quality
- Demonstrates importance of emotional stability in investing
- Similar to experiences of other great investors like Warren Buffett and Charlie Munger
Conclusion
The story of Nick Sleep and Qais Zakaria's Nomad Investment Partnership demonstrates the power of developing deep knowledge in a specific area and exploiting that "earned secret" over decades. Their unconventional approach focused on identifying high-quality businesses with durable competitive advantages, particularly those that shared efficiency gains with customers. By ignoring short-term noise and maintaining extreme concentration in their highest conviction ideas, they were able to generate exceptional returns for their investors.
Their experience highlights several key lessons for investors and entrepreneurs:
- The importance of developing deep domain expertise over time
- The value of ignoring short-term noise and focusing on long-term fundamentals
- The power of identifying and exploiting an "earned secret" or key insight
- The benefits of extreme focus and concentration in your highest conviction ideas
- The critical role of temperament and emotional stability in achieving long-term success
Ultimately, Nick and Zach's story serves as an inspiring example of how unconventional thinking, rigorous analysis, and unwavering conviction can lead to extraordinary results in investing and business.