YouSaid · the spoken record

Nick Sleep

lines on the record: 51
first: 2024-09-16
most recent: 2024-09-16
sittings or episodes: 1
sources: podcast

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“When I was reading these letters, and it was very clear that Jim Senegal and Costco's obsession was this total commitment to this everyday low price strategy that they had. Everything they were doing was serving that one goal. And when you read that or when you listen to that, you start to think, okay, what is my organization's goal? And so my goal, my one goal, the central organizing principle of my entire life's work is that I want to help other people learn from history as good as entrepreneurs and I want to do that better than anybody else in the world. And so as a byproduct of making this podcast in order to make the podcast, I have to collect and distill the knowledge, the collective knowledge of history's greatest entrepreneurs, and then I use the podcast to spread that knowledge far and wide because I really do think these biographies, these shareholder letters, these autobiographies, I really do think it is an act of service that other people can benefit from a, you know, four, five, six decade long career. And so this obsession takes form of a podcast, but now I've made a tool.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Cultures that care about the little things all the time are very hard to create, and in the opinion of Jeff Bezos almost impossible to create if not put in place at the firm's Genesis. And then I want to end on what I think is the main point and the main idea behind this episode that these ideas are timeless and are transferable to our work. When we study truly great businesses, we find that very often it has been simple human attributes that have led to their success. You feel differently drinking a Coke than a no-brain cola, or you may feel differently towards a business that consistently undercuts the competition in price, or a delivery service that literally goes the extra mile and picks up return items. And the reason you have these feelings and the stimuli that produce them have hardly changed in millennia. It is interesting to note that the business model that built the Ford Empire a hundred years ago is the same that built Sam Walton's in the nineteen seventies, Herb Kelleher's in the nineteen nineties are Jeff Bezos' Today. And it will build empires in the future too.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Them a copy. They framed it and hung it on the office wall. The memo says this is sole price. This is what Jim thought was super important. Although we are all interested in margin, it must never be done at the expense of our philosophy. Margin must be obtained by better buying, emphasis on selling the right kinds of goods we want to sell, operating efficiencies, lower markdowns, greater turnover, increasing the retail prices and justifying it on the basis that we are still competitive could lead to a rude awakening as it has with so many. Let us concentrate on how cheap we can bring things to the people rather than how much traffic, how much the traffic will bear. And when the race is over, Fedmart will be there. This is Nick's commentary. That is the best summary of the business case for scale economic shared that we have come across. Forty three years later, Costco is the most valuable retailer of its type in the world.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Sounds a lot like what Jim Senegal did at the beginning. He was like, hey, suppliers like, hey, we got such a good deal on these designer jeans. We can mark them up another $10. No one will notice. And he's like, no, I'm not going to do that because that violates my internal compass, which points to always doing what's right for the customer. And Jim Synagogue's thinking on this was heavily, heavily influenced by his mentor Sol Price. I've done two episodes on Sol Price. If you haven't listened to them yet, it's episode 304, Sol Price, the founder who taught Jim Senegal, Sam Walton, Jeff Bezos, Bernie Marcus. It's based on a biography written by his son. His son listened to that episode and sent me a very, very kind email. So Zach and Jim, or Nick and Zach rather, are meeting with Jim, and he says Jim suddenly stopped in mid-sentence. His face lit up. I must show you this, he said. And he disappeared into a filing cabinet. He emerged with a memo from 1967 written by Sol Price.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Month and do things that do not seem sensible to most people. For example, if you, the employees, come into the office in the morning thinking how are you going to beat number one, number two, and number three in the industry, then our business is the wrong place for you. We start with the customer and work backwards. He continued that rather than set your standards by what others do, the business benefited from a divine discontent with the status quo, which kept us on our toes and the business improving irrespective of what the competition was doing. In other words, his company had an internal compass with true North pointing to what was right for the customer.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“And what made me want to spend time studying Nick's sleep and Zach and Lulu and Bezos and everybody else is because of this idea. Remember what Lulu said he was asked? He's just like, well, how is your approach different than other investors that are less successful than you? He's like, I don't spend any time worrying about what other investors do. I spend all my time studying great companies and studying great industries. If Nick and Zach were worried about what other investors were doing at this time, they wouldn't be doing what they're doing. They wouldn't have been buying Amazon. They wouldn't have been talking about Costco. And so there's this unnamed founder that is running one of Nomad's investments that said this in a private meeting. This has got to be Bezos. They don't say it's Bezos, but listen to this. And I think, again, let's just assume this is Bezos. Bezos is running his business this way. I would argue that Lilu ran his business this way. And then Nick and Zach were running their business this way. If you want to be successful, and we do, then you have to be willing to be misunderstood. Okay. Come on, this has been a main theme.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“He's like, I got Costco. I got Berkshire. I got Amazon. The key is to not mess that up. The key is to not interrupt these honest compounding machines, which in itself is a decision, a daily decision not to do anything, and arguably more difficult than to do something because I think we're naturally wired to do something, to take action.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Through the stock market these last 18 months. We read a thousand annual reports and visited and interviewed 300 companies. We had four main choices. One, we can add to our existing holdings. Two, we can invest in new businesses. Three, we can invest in growth businesses. Or four, we can invest in cigar butts. Overwhelmingly, we have preferred our existing businesses to the alternatives. We are not saying that Amazon is the next Walmart. Time will tell on this front, but we are asking the question what if it is? And if the answer is yes, then the answer is on the next page. It talks about the investor self-clareman, who wrote Margin of Safety, was once challenged on whether Buffett's track record was statistically significant since he traded so little, to which Clareman answered that each day Buffett chose not to do anything was a decision taken too. When I read that, I assume that Nick is seeing himself in that story. Right now in eight.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Grow for 40 years. That is certainly true, but at its heart, a very few simple things really mattered. In our opinion, the central engine of success at Walmart was a thrift orientation so low cost, low waist, fueling growth with the savings shared with the customer. That is the deep reality of the business. And so you could pause there if you're interested in investing. You say, okay, so who's doing this now? Who today is the Walmart of the 1970s, or you can ask yourself, okay, how do I apply this to my own business? So my business, the one I'm running today, can compound for decades. And he wraps this up beautifully because he's asking essentially the reason they're studying the Walmart and reason they did all the work on Costco is they're like, is Amazon our Walmart? And I absolutely love this section because it's really comes to what you and I have been talking over the past few weeks. Effort and opportunity costs. Munger says that all wise people, the way wise people make decisions is through opportunity costs and then effort. So it says when Zach and I trawl.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“That their sale of IBM 30 years earlier had been a huge error of omission if they had instead kept their IBM shares for the last 30 years, that stake alone would have been larger than the total funds under management. They all agreed to learn from that particular mistake and as so often happens went back to their desks and got on with life before as if nothing had happened. Around the same time that they realized their mistake, they also made the decision to sell their stake in Walmart, which thirty years later would be worth more than their then to be funds under management in terms of dollars of opportunity loss, it is likely to be the biggest single error that firm will make. And so then he makes a point a few pages later. Like you cannot just focus on the outputs. If you do, you're going to sell. You have to really understand the central engine of success. You have to understand that business deeply. This is why he says so few things can actually be known. And if you can only know a few things well, then of course you need to be heavily concentrated in bet heavily. It could be argued that lots of things had to go right for Walmart.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“The Church of Diversification is seen as an insurance against any one idea being wrong. We would propose that if knowledge is a source of value add and few things can be known for sure, then it logically follows that owning more stocks does not lower risk but raises it. Sam Walton did not make his money through diversifying his holdings, nor did Bill Gates, Andrew Carnegie, or John D. Rockefeller, great businesses are not built that way. Indeed, the portfolios of these men were more or less one hundred percent in one company and they did not consider it risky go back to that quote, the best investors of all time are not investors at all. They're entrepreneurs who never sold. And so he's asking the question, why is it that no one but the founding Walton family owned Walmart all the way through? Zach and I were told a story which we enjoyed enormously and might help illustrate this point in the early nineteen seventies a large successful fund management company analyzed its portfolio.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Compared to the overall retail industry, which are down 10%. In the last few months, Amazon has been priced in the market as if it would not grow in the future despite some of the best growth prospects we can imagine. That is a very rare combination. And there's a hilarious illustration at this point that Nick's right, scale economics works well in bad economic times as well as good. This happened in 2008, back when there was a recession in the early 1990s, Sam Walton was asked about the recession that was happening and he said, I've thought about it and I've decided not to participate. When you have order volumes at Amazon growing 16% year over year in one of the worst financial crises that the half a century or whatever, the time frame was, that's Jeff Bezos saying, yeah, I thought about it. I'm not going to participate. And so it's exactly when everybody's panicking when he's investing in Amazon. He says, in our opinion, just a few things in life are noble. And it is because just a few things are knowable that nobed has just a few investments.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“In the middle of this great financial crisis that's happening in 2008. And so he's comparing Amazon's strength with the lack of strength that normal retailers have. So he calls him high low. People that say, hey, they get you in the door by essentially heavily discounting, having like a loss leader in the hopes that once you're in the store, you're going to buy something that they have a higher margin on. So he's going to call them high street peers, okay? Amazon's high street peers could price their products at net income break even and still not undercut Amazon's prices or profitability. For these high street competitors, the game is over. He's writing this in 2008 when everybody's panicking. Nick is thinking very rationally and seeing things unbelievably clearly. They will leak revenues to more efficient rivals as customers respond to the incentives of consistently low prices and convenience. On the busiest day in the run up to Christmas this year in two thousand eight, order volumes at Amazon were sixteen percent higher than the previous year.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“So now we're in the great financial crisis of 2008. Remember, Nick said the greatest speech on investment wasn't about investment. It was about the psychology of human misjudgment. And he's talking about, you know, everybody's panicking. I think they're going to wind up being down like 40% this year, 45% at the end of the year. And he says in the letters before this even happens, I think he's only down to 20% at the time. He goes, I know it doesn't seem like it, but I promise you, this is the best possible time to be an investor. And he's looking at the underlying strength of Amazon. It's completely uncorrelated to stock price, and you cannot believe it. This next section goes over many, many pages. It's one of my favorite parts of his entire letters. And so he's about to make the point using Amazon as an example that, hey, customers respond to incentives like all people do. And Amazon's sharing of these benefits of its scale will make them grow much farther from here. And you can see it with how they're actually performing.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Flung reaches of the globe, but under the headquarters of Exxon in Irving, Texas, and not by Exxon, sometimes what you are looking for is right in front of you. If Exxon can make them a mistake, we all can.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Amazon today be the equivalent mistake of selling Walmart in nineteen eighty. And so he talks about let's invert, let's invert the way to construct a portfolio. The other way to construct a portfolio that's different from how other people do it is to invert and start at 100% weighting and work down. This is what founders do. He's really saying without saying, what if you invested like founders invest? It's 100%. Same Walton, 100% of his net worth was in his company. And he says, now we are not advocating all the fun in Amazon while just not yet at least. And here's the crazy thing. That would have been their best performing decision, assuming you're going to put all your money into what you've already invested in. They didn't know it then, obviously, but the best performing decision would do just that. Allocate the entire fund to Amazon. And he tells a wonderful story why this is so difficult. And this is hilarious. He says it was recently reported that oil had been found, not in the far”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Founder. This combination makes us think that we may have a mouse that can turn into an elephant. To those who argue that Amazon is large already, we ask you two questions. What do you think e-commerce will be as a proportion of U.S. retailing in 10 years' time? And what do you think it was last year? So the answer to that second question is 3.1% of all retail sales happened online in the year 2006. And so then he goes back to this unresolved problem. It's like everybody else is diversified. That doesn't make a lot of sense to us. How should we be thinking about this? This is very difficult. And so since they had bought Amazon, it went up twice. So said after the doubling of the share price, it'd be easy for Zakame to claim victory, high five, and sell our shares in Amazon. In previous nomad letters, we have argued that the biggest error an investor can make is the sale of Walmart or Microsoft in the early stages of the company's growth. We wonder, would selling”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, in one of the 2007 partnership letters, he talks about how and why Amazon can get even better. Now keep in mind, the following year, he doesn't know this yet. The following year, you're going to be able to buy Amazon stock for like $35, okay? So he's asking the question, like, how do we know that a business will actually grow from a mouse to an elephant? And he identifies the same traits that in the physical world that Costco has, and then it could be superpowered by the internet. So, you know, several things are important. A business ought to be able to self-fund its own growth. Second, barriers to entry should increase with size. That way the company's moat is widened as the firm grows. And then the giant advantage that Amazon has over Costco is that on the internet, power law is very high. And this implies that businesses like Amazon have a shot at being far bigger, quicker, and more profitable than their physical world equivalents. And the fact that it's led by a customer-centric”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“That is the end of Bezos' quote. This is Nick's one-word response. Amen. And the next sentence he says, I think Bezos would run a good investment fund, but that is the point. Good investing and good business decisions are synonymous.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Which have now come to dominate nomad which is holding in Costco, Dell, Amazon, and Berkshire The share price is being set by those with an eye on the next data point, then they can't also be looking out for the long-term value. There are few traders that disagree with Bezos value creation process, but they don't think it'll show up in the numbers just yet. The traders have many small ideas, and we have one big idea. Good luck to them. It is not strictly a math-based equation and there's no guarantee that investment spending will always work. And he quotes Bezos again. Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy, it would also significantly limit innovation and long-term value creation.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“An example of that. Our judgment is that relentlessly returning efficiency improvements of scale economies to customers in the form of lower prices create a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow and thereby to a much more valuable Amazon. We have made similar judgments around free super saver shipping and Amazon Prime, both of which are expensive in the short term and we believe important and valuable in the long term. The timing in which Jeff is writing this and which Nick is commenting on it is really important. This is a time when few people are buying Amazon. Nick and Zach have their earned secret. They are half a decade into their partnership. And so Nick writes, this is a summary of the scale efficiency shared model that we dealt with in detail in our analysis of Costco years before and is deployed by companies”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“We'll do this week or this quarter, but you can't say what effect I'll have over the business for five or ten years. This is why one of my favorite lines about what the role of the founder actually is. The founder is the guardian of the company's soul.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Remember that line for when we get to Jeff Bezos' own shareholder letters, who are quoted heavily in Nick's sleep's partnership letters, okay? This really weird thing, we're assuming that observations happen over a short period of time as if cause and effect sit on top of each other. And really this all ties to his main point of why having a longer view, a longer-term view can be just a massive advantage. And he makes the point that both Costco and Amazon at the time, they're penalized by the public markets because they're giving so much of their scale efficiencies back to the consumer. And so he goes, okay, well, how do we think about this? He calls them price givebacks. Here's what Jeff Bezos says, had to say in his last year's annual report. We have made a decision to continuously and significantly lower prices for customers year after year as our efficiency and scale make it possible. This is an example of a very important decision that cannot be made in a math-based way. When we lower prices we go”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Long period of time. In other words, sometimes it turns out that the best financial decision is not a financial decision at all. Now we get to 2006 and they start to realize oh my god, it's not eBay He doesn't say that it's not eBay it's Amazon before he gets into analyzing Amazon though, I think he hits on something that's very fascinating that it's related. It's on the page before he gets on Amazon, but I think it's related to how he thinks about Amazon. And he's like, you know, this is a very weird thing in how we teach economics. He says there's a blind spot as the overwhelming mythology methodology for research and economics has been to take observations over a short period of time as if cause and effect sit on top of each other.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Northwest Airlines rather than the sale of Apple earlier this year. But selling Apple has cost us more. So again, that speaks to Nick's own point about how difficult this was. When he's talking about that firm that sells IBM in the 50s and Walmart in the 70s, he's not like, hey, look at these idiots. They're so stupid. He's making the point that that mistake is repeated over and over and over again when you look through history. It's arrogant to think that you're not capable of making the same mistake. So how do we avoid that? And I think we'll talk about this later, but just in case I forget, the idea that the best investors aren't investors at all, they're entrepreneurs who never sold. That has to do with the love that an entrepreneur feels for the business that they're making, that they're creating. Sam Walton is not looking at his stock in Walmart and maximizing for the best return on the most dollars in his bank account. He was focusing on building something great that served other people over a very”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Of Amazon when Nick Sleep is discovering this earned secret was $18 billion. The market cap in that same time for eBay was $77 billion. In today's world we're living in, that sounds silly. But if you go back to the early 2000s, there was a ton of stuff written on the fact that Amazon stands no chance against eBay. And so on the next page, he gives us his summary of thoughts on Costco. In our judgment, Costco is a cost disciplined, intellectually honest, high product integrity perpetual motion machine trading at a discount of value. I think we will do quite well. Your manager has already made his first mistake in investing in Costco from not buying enough.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Physical things like I do, you can print them out. Some of age 52 on 51, on page 51, they're talking about the benefits of Costco. They talk about the fact that Michael Dell is also using this model by keeping Cost Low and passing back scale benefits to the buyer of his PCs and that Amazon.com might be following this path as well. On page 52, it's like, whoa, Costco would be great, but what if it was on the internet? So maybe it's eBay. And I wrote in giant letters in the margin. The answer was on the previous page. The answer is Amazon. They just don't know it yet. Now they will arrive at that. And I think that the majority of that $2 billion that they made, I think the single company that contributed most of that, if I'm not mistaken, is Amazon. And it's always helpful to think about what was going on when these words were written. So if you go, I went and looked up like what.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Costco has some of these attributes. It is also more asset-like than its peers, but it's not the lightest of them all. For that, one must turn to the internet. I'm going to pause here before I read the next sentence because I promise you you're not going to be able to guess what the next sentence is. We just got going through the benefits of Costco. They mentioned Amazon. They mentioned they can only understand a few business models, and this is one of them. Costco is great, but imagine if you had Costco on the internet given all that we take this strange turn right here because they said, well, for that one, you got to turn to the internet. So in our opinion, a business such as eBay could be the most valuable in the world. So no, Costco is not perfect. Perhaps we should own eBay as well. No. I wrote on the, this is the next page. So you can read these for free online. And if you like,”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“And so as he continues to analyze Costco, he says there's an interesting question what characteristics could one bestow on a company that would make it the most valuable in the world? What would it look like? And he says, such a firm would have a huge marketplace that would offer size. They would have higher barriers to entry, which would offer longevity and very low levels of capital employed, which would offer free cash flow.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“When he is writing this Amazon.com may be following this path as well. And so then he tries to reconcile. He's like, this business model makes sense to us. This is phenomenal. If you're a customer, but why are the shares mispriced? Why is this so cheap? And so he lists what some criticisms that Costco gets at the time. The company has low margins. And it's funny that he's mentioning both Costco and Amazon at this time because remember one of Jeff Bezos' most famous quotes is that your margin is my opportunity. So people are like, well, we don't want to buy the stock because Costco has low margins and Nick sleep says true. But that's the point. The firm is deferring profits today in order to extend the life of the franchise.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“This keeps the old stores growing too. The point is that having shared the cost savings the customer reciprocates. In the office we have a whiteboard on which we have listed the very few investment models that work and that we can understand. Costco is the best example we can find of one of them, scale efficiencies shared. Most companies pursue scale efficiencies few share them. It's the sharing that makes the model so powerful. The company grows by giving back. That is why competing with Costco is so hard to do. The firm is not interested in today's static assessment and performance. It is managing the business as to raise the probability of long-term success. And before I read this next sentence to you, remember it is 2000.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Consistently and voluntarily the lowest possible acquisition price available on all items, a vendor who does not consistently involuntarily quote its lowest price to our buyers will be permanently discontinued as a purchasing source for Costco. This is Nick's response to that. Good grief, one strike and you're out. Number three, revenues need to be very high. Revenues will be high if the other factors, number one and number two, are favorable. If operating costs are low and prices are as competitive as they can be. The issue is what the company then does with the revenue advantage. In the case of Costco, scale efficiency gains are passed back to the consumer in order to drive further revenue growth. That way customers at one of the first Costco stores outside of Seattle benefit from the ferns expansion into, say, Ohio, as they also gain from the decline in supplier prices.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Taking that would cause their customers to maintain this loyalty and this commitment to Costco over a long period of time. I told you last week, you know, my wife's family has been shopping there for almost 30 years. They are extremely committed to Costco. So Nick says, number one, operating costs are low, indeed very low. It is indicative of the paranoia with which the companies run that costs are measured in basis points. Number two, the wholesale price is as competitive as it can be. The key to negotiating terms is that the number of items in a store, so the SKUs, are fixed at four thousand, and the right to fill one of those spaces is auctioned with the supplier that provides the best value proposition to the customer winning space on the shop floor. So he talks about how ruthless they can be with their suppliers that on their website lists the criteria required to become a Costco supplier. And Nick highlights this one section. We expect all vendors to...”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Company sold their client's shares in IBM only for the shares to appreciate to the point that the value of the shares sold would become bigger than the whole fund management company itself. Remember this because he tells the same story many years in the future and I think he does an even better job. What we are trying to do today is to avoid the Baltimore company's second mistake, which was to sell an equally big stake in Walmart in the 1970s. The point he's obviously making is, hey, just hold on to IBM and Walmart and you didn't have to do anything else. So how does one avoid these mistakes? The answer lies in analyzing not the effects and outputs of a business, but digging down to the underlying reality of the company, the engine of its success. One must see an investment not as a static balance sheet, but as an evolving compounding machine. And if you did that you would not have sold Walmart in the nineteen seventies. And so Nick starts sharing his thinking about what is the engine of Costco's success and is there some traits that some actions?”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“In the industry, make. He says successful investing is a minority sport. When I had dinner with Charlie Munger, I have a list on my phone of all the notes I took from the conversation. And one of the last things that Munger said to me at dinner was that being good at investing is a very rare skill. It is not distributed widely and will never be. And that has to do with behavior. So Nick's sleep says the best talk on investing wasn't about investing. And it was Charlie Mugger's talk, The Psychology of Human Misjudgment. And so what Nick is doing here, he's thinking through, he's like, well, the problem is, what if we're right? What if these are wonderful businesses? What if Costco is going to get much bigger from here? Why is it that when you look at the history of investing that so few people cannot see success? And what he means by that is they sell way too early. So he says, we take no comfort from the fact that not seeing success is a perennial investment mistake. In the 1950s, a large Baltimore-based fund management”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Super high quality thinkers will be priced at 50 cents, so there's some kind of pullback in the stock, right? Our betting is that odds are reasonable. The trick is to do the work today so that we are ready. If you go back to the Lilu's lecture with the Columbia Business School students, that's what he kept telling them. You have to be a learning machine. You have to be doing the work now. He referenced many times that it takes a long time now, but it makes you go faster later on, but that you'll study something he would study like an American company for like 15 years. It would take him 15 years to find the Asian counterpart. Nick is telling us something very similar here. We're going to think this through. We're going to analyze this business model. We're going to try to find these super high quality thinkers, these compounding machines. And then we are going to be patient. We are going to wait because the probabilities are high that we'll be able to get a good price to buy in. The trick is to do the work today so that we are ready. And so in addition to spending time analyzing companies and industries and trying to find these compounding machines, they also talk a lot.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“And so then Nick elaborates on the honestly run part of this. Now he doesn't want just a compounding machine. He wants an honestly run compounding machine. What does that mean? 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. If we can find enough of these heavenly opportunities, they will in fact put us out of a job. We will be pleased if a little board. And he arrives at that conclusion because he's like, well, if we can invest in them early, we can invest in Costco and Amazon early. We don't have to do anything else because time is a friend of a good business. In fact, I like the way Buffett put this in his shareholder letters better. He says, time is a friend of the wonderful business and the enemy of the mediocre. And so Nick says today in 2004, we have made two investments in wonderful compounding machines, and only one of those is meaningful represented in our portfolio. That's Costco. What is the probability that say over the next 10 years a good portion of these”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“That their capital will be well allocated for years to come within the business. This list is a group of wonderful, honestly run compounding machines. That is what he's looking for. Honestly run compounding machines. We call this the terminal portfolio. This is where we want to go. The question is, why is this list not the same as the current nomad portfolio? And what I write there is answering the question on the previous page and I wrote fucking bingo. On the previous page, starting to change their mind, when will their actions reflect that? He's having a very honest conversation. He's like, this is the outcome of our own thinking. We have this group. We've identified a handful of potential, honestly run compounding machines. This is our terminal portfolio. This is where we want to go. But then we compare that list to our portfolio. They don't match.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Even if revenues decline, is a wonderful example of capital discipline and good capital allocation. After all, why grow if returns are going to be poor? Surprisingly few companies have the strength to just sit it out. This part made me laugh out loud. We ask companies with poor economics why they want to grow. And senior management look back at us incredulous at our line of questioning. I guess their answer is we'd like to grow so we can lose even more money. The super high quality thinkers are our best guess as those firms whose shareholders could abdicate their right to trade stock, which means you're advocating the right to allocate capital themselves, right? Nick is outsourcing that to the buffets, the bezos, the cynicals. So the super high quality thinkers are the best guest of those firms whose shareholders could abdicate their right to trade stock.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Join and the list currently runs to 15 businesses. Entry is reserved for the intellectually honest and economically rational, but that alone is not enough. There are many companies that do the right thing when their backs are against the wall. The anointed few are there because they have chosen to outthink their competition and allocate capital over many years with discipline to reinforce their firm's competitive advantage. Good capital allocation takes many forms and does not necessarily require a firm to grow. This goes back to the Charlie Munger's Cancer Surgery approach. Okay, so he says the partnership successful investment in Stagecoach has been due to the firm's shrinking strategy, not its growth. At national indemnity, which is an insurance subsidiary of Berkshire, the firm's ability to write insurance only when pricing is good and stand back when pricing is poor.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“From thinking about the Kelly criterion, the common sense outcome of that equation is that if one is certain of being right, one should invest the entire portfolio in that idea. But does anyone do that? So he goes back to history. As far as we are aware, only the early Buffett partnership portfolios had anyone near this level of concentration and then mainly in companies in which Buffett was a controlling shareholder. But is this not the right way to think? The logical extension of this line of thought is that nomad's portfolio concentration has been at times too low. And so in the margin of this homemade book I have, I was like, all right, start and change their mind. When do their actions reflect that? And on the very next page, he has a section called The Likely Evolution of the Partnership Investments. I love this part. I underline almost the entire part. In the office, we keep a list of companies assembled under the title Super High Quality Thinkers. This is not an easy club to do.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, towards the end of the partnership, they are known for their heavy concentration in just three things. And like you and I talked about last week, in one case, 70% of their net worth, I think this was Zach's net worth, 70% of Zach's net worth was in Amazon, just one stock. But we're in the 2004 letters and they haven't yet learned the importance of betting heavy yet. This is what's so remarkable about reading them is you see this constant evolution of thinking. So at this point, they have holdings ranging anywhere from at most, their highest one is 7% of their entire portfolio down to 0.3%. And you see that Nick is thinking about this. He's like, well, this is just like Charlie Munger. Charlie Munger is right. When he says it's aggravating to buy just a little bit, but this is a hard question to answer. So it says in reality, opportunities in which we are comfortable to deploy capital are rare. And the highest conviction idea is the rarest of them all. The issue then is how much to invest in each idea. And this is Nick's takeaway.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“At a micro level, an extra hour of focus on the current project has a much higher return than an hour on something new or worse, five minutes each on twelve new things before you ever do something new, you should understand the opportunity costs for its existing things. Don't rationalize that something you want to do is complementary when it's not. At a macro level, understanding that applied effort has a convex output curve is a very useful discipline when considering new market areas. This convexity means that the opportunity cost of transferring resources from existing projects to new ones is high, unless the new area is incredibly valuable, anything we can do to extend an existing convex curve is worth so much more.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Will grow in time. And so the note I have is actually longer than the paragraph. So the first thing is keep the importance of keeping the main thing, the main thing, the importance of focusing and concentrating. And that is related to part two, which is one of my favorite ideas when they knew that they had uncovered a deep truth. And Nick says, if it's a single best thought you have ever had in your life, it needs to dominate everything because you're not going to get many insights like that. And if it's your single best insight, your single best idea, then obviously it's what you should.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Hensch didn't argue. He said we put the best damn leather straps on that stagecoach you've ever seen. I think what Walt understood is what Jim Senegal said. If I let you do it this time, you'll do it again. This entire organization is going to be committed to this one common goal. Everyday low prices. Or as Jim Senegal's mentor sold price, which we'll talk about later, says, focus on getting the lowest possible price to the customer always. So back to Nick's letters. Many retailers do not operate in such a way. Costco's management describes this strategy as easy to understand and hard to operate. Now, a few years later in 2004, you see this is one of my favorite parts because this happening, this should be happening as you're reading more biographies, you're studying more entrepreneurs, you're studying more companies, you start to see that their ideas, right, you're applying them to your own business. And so they're studying all these, what they want to, you know, hopefully think and will turn into large.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“This is a really important point to consider. Think about this. What the buyer is trying to do is do what's better for the company, what he thought was better for the company, at least what was better for the company in the short term. What Jim Synagogue and other great founders do is they always do what's better for the customer. Because if you do that over the long term, that is then what is better for the company. And so when I read this section, this entire paragraph, I just stared at the page. I was like, I've seen this before. This reminds me of Walt Disney. So then I go to founder's notes. I type in the keyword search Disney leather straps. And what is remarkable is we see a very similar story play out when Walt Disney is building Disneyland. They are over budget. They don't have enough time. They have a specific date that they have to open by. And so you see this conversation that Walt Disney's having with one of his employees. And his employee does the same thing. Let's cut a corner here. Let's compromise a principle because short term, it's better for the company, at least in their misunderstanding. And so they are fine.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Form of lower prices, which in turn encourages growth and then extends scale advantages, and that illustrates a level of commitment that the founder has to this idea. This is what he says, to understand how important EDLP is to Jim Senegal, Costco's founder considered a following story. So what Costco gets this incredible deal, a better deal than they normally get when they buy two million pairs of designer jeans. They wind up getting them for $22. So $10 less than Costco has sold the jeans for in the past. So they offer this huge markup. You could essentially mark it up another 50%. And you'd still be half the cost of most other retailers. So one of Costco's buyers recommends taking a higher gross margin than usual, more than the normal 14% markup, since no one would know. So he says at the Jim Synagogue, and Senegal insists on the standard markup, arguing that if I let you do it this one time, you'll do it again. The contract with the customer, which is very low prices, must not be broken.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“That the leader of a company has to keep the entire organization committed to a common goal. Costco's common goal is that we are going to commit to this everyday low pricing strategy. And they commit to it every single minute, every single hour of every single day as we're about to hear with this great Jim Senegal story in a minute. But I gotta, before I leave this page, this is 2002. And he's just started talking about the scale economy shared and he's just starting to try to think about and understand it's going to take a long time to understand how powerful this idea is, but he starts talking about this new idea of scale economy shared, which is going to be their earned secret, the single best thought that they ever had, the one that they're going to let dominate everything that they do. And so Nick is like, okay, so Costco is committed to this strategy of EDLP. And by them sticking to the standard markup is a way that they, all the benefits that they get from scale as a company are returned to the customer.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“These other investments and just focus on the good stuff. And he's already stumbled onto a really great business. And this is the beginning of his understanding. He doesn't know how deep he's going to go on Costco. So this is 2002. And he's like, well, Costco, we just bought the stock. There's really no need to fix this business because it's performing well already. And so there's something that Nick will mention later on. He's like, well, you know, we're trying to analyze businesses that are a mouse now but may turn into an elephant and try to reverse engineer like how that happens. And so you start to see this at the very beginning when you start talking about Costco. He's like, well, they operate on this everyday low pricing strategy, which he'll refer to moving forward as EDLP. The way I would describe that is if you have not listened to episode 360, listened to episode 360 after you listened to this episode. Try to find that book. It is written by Bob Kierlin, who's the founder of Fastenal. That book and the way Bob ran Fastenal all centers around this one idea.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source
“Berkshire was a big part of that. That strikes us as capitalism working well. For our part, Zack and I are keen to leave the professional industry behind and spend our time in more caring pursuits. Zack has his various charitable causes, and I have in my mind to set up a center to provide respite care. Both of these activities will require long-term funding, and so while you'll lose us as professional investors, we will be able to repurchase our shares both privately and for the charities that we run. You don't get rid of us that easily. We will be keeping the office and a new sign will be hung above our somewhat shabby front door. We look forward to seeing you at the next AGM and extend an invitation to visit us at Burnsall Street. With the warmest regards, Nick Sleep, and then buffet rights back, dear Nick, thanks for sending along the update you and Zach have made the right choice. I predict you will find life is just beginning, best regards, Warren E. Buffett.”
2024-09-16 · Founders · #365 Nick Sleep's Letters: The Full Collection of the Nomad Investment Partnership Letters to Partners · IDENTIFIED FROM THE TRANSCRIPT · source