Nick Sleep's Nomad Investment Partnership: How great compounding machines are built

Executive overview

Most investors sell winners too early and diversify away their best ideas. Nick Sleep and Zach Lulu spent 13 years running the Nomad Investment Partnership by doing the opposite — concentrating heavily in a handful of "honestly run compounding machines" and holding through volatility.

Their core discovery: a handful of founders — Sinegal at Costco, Bezos at Amazon, Walton at Walmart — all used the same model. They passed scale efficiencies back to customers rather than pocketing them, creating a self-reinforcing growth loop that competitors couldn't replicate.

The best investors aren't investors at all — they're entrepreneurs who never sold.

Scale economies shared: the model that builds empires

• Most companies pursue scale efficiencies; few share them. The sharing is what makes the model defensible.
• Costco fixes its SKU count at 4,000 and auctions shelf space to suppliers who offer the best customer value — one strike and a supplier is permanently cut.
• When Costco gets an unusually good deal on jeans, Jim Sinegal insists on the standard 14% markup anyway: "The contract with the customer must not be broken."
• Bezos articulated the same logic: price reductions hurt short-term math but compound into outsized long-term free cashflow — a judgment-based decision that can't be modelled quarterly.
• Sol Price's 1967 memo, which Sinegal framed and hung in his office: "Let us concentrate on how cheap we can bring things to the people rather than how much the traffic will bear."
• The same model built Ford 100 years ago, Walmart in the 1970s, Southwest in the 1990s, and Amazon today — it will build empires in the future too.

The terminal portfolio and super high quality thinkers

• Nomad maintained a whiteboard list of businesses with only two entry criteria: intellectually honest and economically rational — and chosen to out-think competition over years, not react to pressure.
• Nick called this the "terminal portfolio" — where the fund ultimately wanted to go — and measured it against the actual portfolio, noting honestly when they didn't match.
• Companies behave well for only two reasons: because they want to, or because they have to. Nomad only wanted to own the former.
• Time is the friend of the wonderful business and the enemy of the mediocre: the goal was to find compounding machines early and let them run.
• In 2004, Nick realised Costco was a "cost disciplined, intellectually honest, high product integrity, perpetual motion machine" — and admitted his first mistake was not buying enough.

Concentration and the Kelly Criterion

• The common-sense output of the Kelly Criterion: if you're certain you're right, invest the entire portfolio. The logical extension is that Nomad's concentration was at times too low.
• In the early years, holdings ranged from 0.3% to 7%. By the end, Zach's net worth was ~70% in Amazon alone.
• The rule on inverting portfolio construction: start at 100% and work down — what founders do naturally with their own companies.
• Successful investing is a minority sport; the relevant skill is rare and behaviorally driven, not analytically driven.
• "The traders have many small ideas and we have one big idea. Good luck to them."

The cost of selling winners

• A Baltimore fund sold IBM in the 1950s; decades later, the value of those shares exceeded the entire fund. The same firm then sold Walmart in the 1970s — the same mistake, repeated.
• Nick sold Apple while holding Northwest Airlines — losing more from the Apple sale than any airline underperformance.
• The failure mode is not owning something into bankruptcy; it's selling something that goes on to rise tenfold.
• To avoid it, you must understand the central engine of success — not outputs like margins, but the deep reality of the business.
• At Walmart, that engine was thrift: low costs, low waste, growth funded by savings shared with the customer.

Amazon in 2006–2008: the game was already over

• In late 2004, Amazon's market cap was $18B; eBay's was $77B. Nick initially wondered whether eBay, not Amazon, was the internet-era Costco.
• By 2006, Nick saw that Amazon's costs were so low the game was over — competitors just didn't know it yet.
• Amazon's high-street peers could price at break-even and still not undercut Amazon's prices or profitability.
• During Christmas 2008, in the depths of the financial crisis, Amazon's order volumes were 16% higher year-over-year while overall retail was down 10%.
• Nick's conclusion during the crisis: "In our opinion, just a few things in life are noble. And it is because just a few things are noble that Nomad has just a few investments."

Patience as competitive advantage

• Nomad's structural edge was the aggregate patience of its investor base — genuinely investing for the long term when few were.
• Only by looking further out than the short-term crowd can you expect to beat them.
• Each day Buffett chose not to do anything was a decision too — not interrupting a compounding machine is harder than acting, because action is instinctive.
• "If it's a single best thought you've ever had in your life, it needs to dominate everything — you're not going to get many insights like that."
• The "cancer surgery" approach: strip away the diluting projects and return to the jewel at the heart of the business.