Nick Sleep letters – Chapter One

It’s interesting to see how successful investors like Nick Sleep think through their analysis for investing. At the very outset, he states his higher-level rules for what makes a good investment.

Three simple criteria for good investments.

1. Find businesses that are trading at around half their value.
2. Find businesses that have owner-oriented management.
3. Find businesses that demonstrate wealth creation for shareholders long term.

From the higher-level principles he then gets into how those principles are applied with a specific example of the Thai newspaper Matichon.

You can see how simple the logic behind his hypothesis is here. It’s so simple that anyone can follow it.

Criteria One: Is it trading at half the value of the company?

Yes. The price of the shares have declined much further than are warranted considering the improving advertising margins. The company has no debt and is trading at about 0.75x revenue. It’s about 1/3 of what it’s worth and possibly worth more if you compare to western newspapers.

Criteria Two: Is it owner-oriented management?

Yes. It’s primarily owned by a family that has a 25% stake in the company.

Criteria Three: Does it demonstrate long-term wealth creation to shareholders?

Yes. It’s taken gains from cost cutting to raise the dividend to a 9% yield.

As you can see, the Nick Sleep letters are a great way to learn how a successful investor creates a system to help in deciding where to put his money so it appreciates in value. The criteria he uses remind me of the criteria that Warren Buffett eschews in his shareholder letters.