Performance comes before asset gathering
“Job one, two and three for your manager is investment performance, not asset gathering.”
Investing
Nick Sleep and Qais Zakaria's June 2004 letter to Nomad partners, one of the letters in Nomad Investment Partnership Letters, 2001–2014.
Time fund growth to depressed prices
“Common sense and simple maths dictate that it will be opportune if growth can be channeled to coincide with depressed prices, and not market tops.”
Investment money in a separate psychic space
“Investment dollars work best when they occupy a different psychic space to almost any other form of savings you may have.”
Price discipline makes position size uncertain
“A consequence of price discipline is that one cannot be certain of the size of the investment opportunity in advance.”
High conviction ideas are the rarest
“In reality opportunities in which we are comfortable to deploy capital are rare, and the highest conviction ideas the rarest of them all.”
Accepting volatility for better five-year results
“At Nomad we would rather results were more volatile year to year but maximized our rolling five-year outcome.”
More holdings mean less care for each
“The more stocks you own the less you care about each one individually.”
Diversified investors fail to police management
“When over - diversification becomes the industry norm then in aggregate investors risk failing to police bad corporate behavior. Would fund managers be so liberal with dysfunctional management if the holding was 20% of the portfolio rather than 0.2%?”
Selling out does not stop the theft
“To stand by and watch whilst we are having our wallet lifted makes little sense to us. Selling the shares and buying something else does no one any good either, even though this is common practice in the industry.”
Good capital allocation takes many forms
“Good capital allocation takes many forms and does not necessarily require a firm to grow.”
Long holding ties returns to business quality
“When we think about companies, the over-riding analytical consideration is the quality of the business and quality of management’s capital allocation decisions. The longer investors own shares the more their outcome is linked to these two metrics.”
Honest appraisal separates heroes from loons
“What separates a corporate hero from a loon is an intellectually honest appraisal of business prospects and armed with that knowledge an appropriate allocation of discretionary resources .”
Companies behave well by choice or compulsion
“There are only two reasons companies behave well. Because they want to, and because they have to. Our preference is to invest in those that want to.”
Volatile prices eventually misprice every business
“Over time, [volatile stock prices] offers the prospect that any business, indeed all businesses, will be meaningfully mispriced.”
Doing the work before prices fall
“Even though prices are generally high, the trick is to do the work today, so that we are ready.”
Frequent reports hinder long-term investors
“Nomad’s orientation is genuinely long-term, and more regular reports, daily, weekly, monthly, or otherwise, are likely to be of little value to you, and may even be counterproductive.”
Partner patience as a lasting advantage
“If Nomad is to have a sustainable comparative advantage, this will come from the capital allocation skills of your manager and the patience of our Partners.”
Misjudged capital allocation is the common mistake
“Our most common mistake is to misjudge capital allocation decisions by our companies: firms which articulate a share repurchase/debt repayment strategy and have incentives to reinforce that outcome, throw caution to the wind and make acquisitions instead.”
Cheap mistakes tend to atrophy, not collapse
“We have therefore tended to find that our mistakes atrophy (stay cheap) rather than collapse, although we can all name one collapse!”