Few things have changed my view of investing as profoundly as Nick Sleep’s letters. Nick and Qais Zakaria (Zak) launched Nomad Partnership in early September 2001 and dissolved it in 2014. For just over twelve years, they managed to turn US$1 into US$10. Old-fashioned stock picking. Nothing more. Nick’s words resonate deeply every time I read them. In more than one letter, Nick wondered whether anyone would make it to the end of his writing:
“…readers that make it to the end of our letters (we may be flattering ourselves)...”
Well, Nick — not only did I make it to the end of every single one, I’ve read them several times. Thank you for everything.
The first time I read the letters, I felt someone was putting into clear words all the vices I perceived in the investment industry that made me uncomfortable. It was like hearing a voice saying “you’re not so wrong.“ Nick wrote these letters twenty years before I read them. Those vices have existed for decades and will continue to exist for many more.
The Nomad letters were the seed of Portico. Even before I realized it myself.
When you read the Nomad letters, you realize that Nick and Zak made exactly the same decision over and over again across different domains: doing things right, with integrity, and without shortcuts. Not because it guaranteed extraordinary results — though it did. But because it was the only way to live coherently with what they believed was right. I am certain that even if Nomad had not multiplied capital tenfold in just over twelve years, Nick and Zak would have made exactly the same decisions. Every single one of them was evidence of the same thing — from the fees to the frequency of their letters, from the companies they bought to the ones they rejected. There is not a single exception.
The financial industry typically charges management fees tied to the size of the fund. Nomad was founded on a different understanding: fees should be a reimbursement of costs, nothing more. Over time, Nick came to recognize that the function of a fund manager does not create wealth. It only redirects capital created by others. The real value they could add was in choosing well who to entrust that capital to. That distinction justified a performance fee, but not an inflated management fee. The management fee was capped and declined as a percentage of the fund as it grew. From the very beginning, they wanted to share any economies of scale with their partners.
The real reward for Nick and Zak would only come if they were able to multiply their partners’ capital over time. The fund started with a success fee of 20% on returns exceeding 6% annually. But the performance at the beginning of the partnership was so strong that Nick realized a perverse incentive was taking root: they could have invested in treasuries and kept collecting success fees for decades. Nomad proposed changing the mechanism to align even more closely with their partners. The performance fee would accumulate in a reserve that would only be paid out if returns were sustained over time. If the fund fell, the money would go back into their partners’ pockets. And it did. During 2008, to the disbelief of their peers in the industry, Nomad returned fees. While some saw it as irrational, they were building long-term relationships with their partners. Skin in the game as few dare to practice it.
“Job one, two and three for your manager is investment performance, not asset gathering.” — Nick Sleep.
When you establish this kind of relationship with your partners — where you stop being the administrator of other people’s money and become a partner with the same destination — the pieces start to fall into place on their own. If your compensation depends purely on performance and not on size, you don’t need to do marketing. If you don’t need marketing, you can close the fund. If you can close the fund, you can choose your partners. And if you can choose your partners, you secure one of the most sustainable competitive advantages in investing: the ability to think and act rationally.
Nick understood that the “aggregated patience of his investor base“ was a real competitive advantage. Not only because it eliminated short-term pressure, but because it allowed manager and partners to make decisions with the same horizon. That is difficult to replicate.
Nick wrote to his partners twice a year and came to question whether that was even too frequent. After all, how much does a company change in six months when your horizon is five years or more?
Life at Nomad was so simple that, seen from the outside, more than one person might have mistakenly concluded they weren’t doing much. A regulator even asked them skeptically whether they had left some zeros off their reported transactions.
But there were Nick and Zak, “in their slippers“, having read more than a thousand annual reports and interviewed more than three hundred companies in just eighteen months. The real work at Nomad — reading, reflecting, deciding — leaves no trace.
You can feel how all those hours of reading and reflection shaped Nick and Zak’s thinking. At the beginning of the partnership there were more than twenty investments — Deep Value, Special Situations, Quality — all bought at what was estimated to be a 50% discount to the replacement value of assets. A tangible, measurable margin of safety, often anchored in the physical.
Over time, the fund began to concentrate into what Nick called the “Terminal Portfolio.“ This was a select group of companies written on a wall — the “wonderful, honestly run compounding machines.”
To make this list, companies had to be led by intellectually honest and economically rational people. All the time. They had to have chosen to outcompete through superior thinking and disciplined capital allocation for many years.
But to earn a place in the “real” portfolio, these companies had to be cheap — or as Nick would say, trading at “fair price.” The margin of safety evolved and required a price that reflected a no-growth scenario — because if your analysis of the business model anticipates that the company will grow for decades, all of that optionality comes for free. You buy a mouse that will become an elephant.
Nick and Zak were patient. They knew that Mr. Market, obsessed with the short term, would eventually offer those prices. Amazon lowered prices when it could have raised them. Costco maintained low margins and paid its employees 80% more than its competitors. These kinds of companies shared their economies of scale with their customers. And in the sharing lies the key. While Mr. Market only saw costs and depressed margins in the quarter, these decisions were securing decades of growth. “It’s all about the destination,” as Nick would say.
Paradoxically, these companies were mirrors of Nomad. Founders motivated primarily by building something extraordinary, not by getting rich. Willing to sacrifice the short term for the long term. These founders practiced the same deferred gratification that Nick and Zak practiced at Nomad. The conviction that if the product is extraordinary, customers will eventually respond.
Once Nick and Zak found them at a discount, they pulled the trigger, and the three pieces fell into place. Manager, partners, and founders looking in the same direction. Focused on the destination. All coherent.
And then came the hardest decision: not selling. Nick recounted the case of a well-known asset management firm that, in the 1970s, discovered that having sold IBM thirty years earlier had been a colossal mistake — that single position would have been worth more than all of their assets under management. No doubt everyone agreed to learn from the mistake. And they went back to their desks as if nothing had happened. Around the same time, they sold Walmart. Thirty years later, that position would also have been worth more than all of their assets under management.
Nick constantly asked himself whether they should sell Amazon after it had doubled. But they would review new opportunities, and always reached the same conclusion: the best opportunities were already in the portfolio. Sometimes, what you’re looking for most is right there, in front of your nose.
Every day you don’t sell is a decision. It sounds easy. But it is incredibly difficult to sustain over time.
Nick and Zak must have spent 99% of their time understanding the “engines of success“ of their companies and their destinations. But they also defined key variables to monitor along the way. For Amazon, it was market share gains and positive growth during the Great Financial Crisis. For Costco, it was sales growth as it reached greater scale and was able to lower prices further.
Defining key variables not only provides analytical grounding for an investment thesis. It prevents you from falling in love with attractive narratives. But more importantly, it is what distinguishes “intelligent patience” from “stubbornness.” If the variable is progressing as expected, you have evidence to maintain conviction. If it deviates, you are obligated to revisit your beliefs. Without it, there is no way to tell one from the other. And if you waited five years observing nothing and lost everything, nobody rewards that patience.
Key variables also serve as psychological support during the journey. A long-term investor decides to buy in a minute. Let’s say their horizon is five years. The next 2.6 million minutes, in theory, they will do nothing. Every minute of inactivity is a decision in itself. It becomes deeply necessary to define something observable that confirms or rejects the initial thesis. Something that allows you to step back from the swings of the market — or rather, to take advantage of them.
In my experience, when there is little skin in the game and compensation depends little on performance, investment ideas are defended as part of your identity. The ego replaces capital as what is at stake. Gratification no longer comes from generating returns but from being right — or worse, from appearing to be right. Skin in the game forces you to stay rational, flexible, and humble. Because when it is your own money and your own freedom on the line, admitting a mistake is a rational economic decision. Nothing more.
Being rational, flexible, and humble means acknowledging something uncomfortable: “Just a few big things in life are knowable,” as Nick would say. And this had direct consequences for his portfolio: “And it is because just a few things are knowable that Nomad has just a few investments.”
Contrary to popular belief, for Nick, diversification was not prudence but insurance against lack of conviction. The industry diversifies not because it has many ideas, but because it has very few. And this is just one more expression of their process: focus on what matters, leave the rest out.
Nick did not reach these conclusions overnight. He discovered them over years of observation, practice, and reflection. And he was able to do so because he eliminated everything that could distract him. What remained was a space for reflection. And what emerged from that space was surprisingly powerful.
“Good investing is a minority sport,” as Nick would say. And it probably always will be. I do believe it is a skill that can be learned, but I also believe that much more is needed for it to fully develop: a conducive environment, a calm mind, and the willingness to do things right even when no one is watching.
Nick and Zak did it for just over twelve years. Then they dissolved Nomad because they had reached their destination. They had the companies they wanted. They were not going to sell any of them. The work was done. What remained were the letters — more than a decade of thought written with an honesty that the industry rarely allows itself.
Portico was born from those letters. But that is another story.