Nick Sleep letters

I started reading the Nick Sleep letters. For those of you who’ve never heard of them, they are letters written to the investors in the Nomad Partnership. One of the partners, Nick Sleep, has a foundation where you can download the letters.

I first heard about the letters after hearing Mohnish Pabrai talk about them. The letters can be downloaded at the I.G.Y. Foundation website.

Like I said, I only just started reading the letters but here’s a quote I enjoyed.

How do we know we are taking a different view to the crowd? A clue can be gleaned from the period that other investors typically hold the shares of the companies in the Partnership. If Berkshire Hathaway (US), Jardine Matheson (Hong Kong) and Next Media (also Hong Kong) are excluded (these firms are in a class of their own due to either stock illiquidity or investor education) then other investors hold stocks in our portfolio for on average twenty weeks. We expect to own shares for around two hundred and sixty weeks! So, what is going on? It seems to us that most investors look at the accounting outputs of a company (the reported financial data) as a guide to near term price movements and play the market accordingly. As stated in the investment objective section of the Nomad prospectus our goal is to “pass custody (of your investment) over at the right price and to the right people”. That’s what investing is. Zak and I concentrate on a deeper reality: the inputs to future value moves. Our peers are trading shares at the short end of the equity yield curve where the competition is the greatest, and we are investing at the long end where competition is the least. We respond to completely different stimuli.

As you can see, Sleep appreciates the value that comes from holding onto his investments over long periods of time. Value is the reward to those who are patient.

I’m sure I’ll be talking more about these letters in the future.