The Man Who Turned $1 Into $10, Then Walked Away
In 2008, as the financial world was caving in, George Soros stood up at an event in New York and named the single stock he was shorting as the apocalypse arrived. Amazon.
Sitting in that room was a English fund manager named . Amazon was his largest position. He had just watched a quarter of his clients yank their money out of his fund in fear. That night he called his partner in London and asked the only question that mattered. Are you sure we know what we’re doing, because everyone here is going the other way.
Either we are brilliant, he thought, or we are toast.
He was right. He was brilliant. Over thirteen years his fund returned 921 percent and beat the world index by more than 800 percentage points. Then, with billions under management and the chance to earn enormous fees forever, he gave the money back to his clients and retired at forty-five to give most of his own fortune away.
Nobody tells this story, because the two men at the center of it never wanted it told. They gave almost no interviews. They worked above a Chinese herbal medicine shop. They put their single Bloomberg terminal on a low table with no chair, on purpose, so your back would start hurting and you would walk away and go think.
I read all of it so you don’t have to.
A failed landscape architect and a frustrated meteorologist
Nick Sleep never wanted to work in finance. He studied geography, took an apprenticeship designing parks, and got laid off a few months in. He only looked into fund management because Edinburgh happened to be good at it.
His partner, Zak Zakaria, wanted to be a meteorologist. His parents thought that was stupid. He landed in finance by default after his own father went bankrupt speculating on tip-sheet stocks, an experience that left Zak with a lifelong disgust for salesmen and get rich quick schemes.
Two outsiders who fell into the industry by accident. That is exactly why they could question everything everyone else accepted without thinking.
In 2001 they launched the Nomad Investment Partnership. It began trading on September 10, 2001. One day later the towers fell and markets collapsed. They did not flinch. They started buying the cheapest, most hated businesses on earth.
First they built the cage, then they hunted
Before the money, they built a system designed to protect them from their own worst instincts.
They threw out the sell-side research that floods every fund. They told brokers to stop calling with tips. They put the Bloomberg on that low table so they could not bear to use it. They ignored short-term economic news the way you ignore food past its sell-by date, because most of it would be worthless in twelve weeks anyway.
Then they aligned the money. Most funds charge one or two percent on assets no matter how they perform. Nomad charged a tiny fee that just covered costs, and took a slice of profits only after clearing a six percent annual hurdle. Perform badly and they earned nothing.
And they chose their investors as carefully as their stocks. Anyone joining had to sign a document acknowledging the fund was wrong for them if they had less than a five-year horizon. They favored endowments and foundations, patient money that would not panic, and turned away rich, irritating clients without a second thought.
The cigar butt years: where they actually went and what they paid
With the cage built, they went hunting in the ugliest corners of the planet for businesses the market had left for dead.
In the Philippines they bought Union Cement, the country’s largest cement maker, after the stock fell from thirty cents to under two cents. The market valued the entire business at one quarter of what it would cost just to rebuild its assets.
In Thailand they bought Matichon, a newspaper publisher, after the stock crashed from twelve dollars to one. It traded at 0.75 times revenue and was worth roughly three times what they paid.
In the United States they bought preferred shares of Lucent Technologies after it had lost 98 percent of its value.
Then in 2004 they crossed from South Africa into Zimbabwe, under Mugabe, with the currency collapsing and farms being seized by mobs. They bought a basket of four near-monopoly businesses trading as if they were worthless. One cement producer, Zimcem, sold for one seventieth of the replacement cost of its assets.
Sleep wrote to his investors about Zimbabwe with something close to joy. The clients will hate it. Compliance will hate it. The consultants will hate it. The opportunity is tiny. It is not in the benchmark. Perfect.
Trading on the Zimbabwe exchange stopped entirely for a while, so Nomad simply valued the basket at zero. When they finally sold the last of it in 2013, those positions had risen between three and eight times. As a souvenir, they mailed every shareholder a worthless 100 trillion dollar Zimbabwean banknote.
By the end of 2003 the fund had already doubled.
The mistake that changed everything
In 2002 Nomad made its biggest bet yet on Stagecoach, a debt-loaded British bus company whose stock had crashed from £2.85 to 14 pence. They figured it could be worth 60 pence. The founder, a former bus conductor turned billionaire, came back from semi-retirement to fix it. The plan worked. Sleep and Zakaria sold around 90 pence and congratulated themselves on a six fold gain.
Then they watched the stock climb to £3.68.
They had treated a wonderful business as a cigar butt and thrown it away too early. In Sleep’s words, they felt like a bit of a horse’s arse.
That mistake reshaped everything. Cheap and ugly works once. But when a cheap stock recovers you have to sell it and find another, and one day there is nothing good left to buy. The better game is to find a great business run by someone you trust, and never have to decide to sell again.
They called it destination analysis. Wall Street obsesses over the next quarter. Sleep obsessed over the inputs that would decide the destination.
Costco, and the one idea that took over the whole fund
They found their model in Costco. When they first bought it in 2002, the stock had fallen from 55 dollars to 30 on worries about thin margins.
Wall Street saw weak margins. Sleep and Zakaria saw the opposite. Costco marked goods up no more than 15 percent while a normal supermarket marked up 30. Every time the company got bigger and squeezed a better deal from suppliers, it handed the savings straight back to shoppers as lower prices. Customers rewarded that with loyalty. More revenue, more scale, lower costs, lower prices, more revenue. A flywheel that feeds itself.
They estimated Costco members saved five dollars for every one dollar Costco kept.
Sleep gave the model a name. Scale economies shared. Most companies chase scale and keep the gains. A rare few give the gains away, and that is exactly what makes them almost impossible to compete with. Once they understood it, this single idea took over the entire fund. As Sleep put it, when you have the best thought you may ever have in your life, it has to dominate everything, because you will not get many insights like that.
The Amazon bet that nearly broke them
Sleep first saw Bezos present in London in 1997, when Amazon was just a bookseller about to go public. He ran back to the office and told his boss it could be huge. His boss asked the right question. What are they doing that nobody else can do. It took years to answer.
The answer was that Bezos was running the Costco playbook, and the internet let him run it at impossible speed. When Amazon launched Prime in 2005, Sleep saw it instantly. Amazon suddenly became Costco on speed.
Nomad started buying Amazon aggressively in 2005 at around 30 dollars a share. They put 20 percent of the fund into it and asked shareholders for permission to go beyond even that. And here is the part worth sitting with. A quarter of their clients pulled their money out, terrified of the concentration. They fled right before the single greatest run in the history of the fund. The people who left were not punished by some villain. They were punished by their own impatience.
Then 2008 came, and the scene this story opened with. Soros shorting Amazon. Bill Miller, who held the largest outside stake, forced to dump shares into the panic to meet his own redemptions. Sleep on the phone at night asking if they had lost their minds.
They did not sell. They used the crash to upgrade, concentrating even harder into Amazon, Costco and Berkshire. Amazon fell almost in half that year and Nomad fell 45 percent. They held an emergency meeting in the only suitably grim location they could find, a McDonald’s, to face the possibility that the fund might not survive.
It survived. From 2009 through 2013, Nomad returned 404 percent. Amazon eventually grew to about 40 percent of the entire fund.
The numbers, and the walk away
Over not quite thirteen years, Nomad returned 921 percent before fees against 116.9 percent for the MSCI World Index. One million dollars in the index became 2.17 million. One million in Nomad became 10.21 million.
In early 2014, with three billion under management and the ability to print fees forever, they closed the fund and handed the money back.
Sleep wrote a thank you letter to Buffett. Buffett wrote back:
“You and Zak have made the right choice, I predict you will find life is just beginning.”
In retirement Sleep put almost everything into three stocks. Amazon, Costco, Berkshire. That was the whole portfolio. By 2018 Amazon alone was more than 70 percent of his net worth. It worried him enough that he sold half his stake in a single day at 1,500 dollars a share. How did it feel. I hated it, he said. I am not sure it was a good decision.
He put the cash into a fourth stock, an online retailer called ASOS. He got that one wrong. The stock would later collapse, a reminder that even the patient master is not infallible.
Zakaria went further. He has never sold a single Amazon share. About 70 percent of his money still rides on it, the rest mostly Costco and Berkshire. He says he occasionally looks at his portfolio and asks what Nick would do. The answer is always nothing. Okay, he thinks. That is done for another six months.
What this means for us
Sleep’s biggest gains did not come from what he bought. They came from what he refused to sell. Eighteen years in Costco. Sixteen in Amazon as it ran from 30 dollars to over 3,000.
The clients who walked away in 2005 were not stupid. They were impatient. And impatience cost them the decade of their lives.
That is the horror of this business. The thing that ruins you is not a lack of intelligence. It is the inability to sit still. Smart people watched the same flywheel Sleep watched, ran the same numbers, and still sold, because they could not bear the discomfort of doing nothing while it worked.
At Cannibal Stocks we think the way Sleep thought. In decades, not quarters. Sleep found that in companies that cut prices for customers. We hunt for it in its sharpest form, the relentless buyback, the share count that shrinks every year so your slice of the business grows while you do nothing.
We can hand you the company. We cannot hand you the temperament. That part is yours.
The only question that has ever mattered is whether you can stay in your seat.
Cheers, Sandro