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Nick Sleep & Qais Zakaria managed the Nomad Investment Partnership for 12yrs from 2001-2013.
During that time they delivered 921% returns vs. 117% from the MSCI world index.
Their letters to shareholders have become one of the best resources available to investors.
Nick Sleep & Qais Zakaria managed the Nomad Investment Partnership for 12yrs from 2001-2013.
During that time they delivered 921% returns vs. 117% from the MSCI world index.
Their letters to shareholders have become one of the best resources available to investors.
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Nick Sleep has an endless amount of valuable lessons in his letters. I'd suggest any investor who hasn't read the letters to prioritise it.
Nick Sleep has become famous in the investing world for a lot of reasons, but most notable is his early investment in $AMZN and $COST
Nick Sleep has an endless amount of valuable lessons in his letters. I'd suggest any investor who hasn't read the letters to prioritise it.
Nick Sleep has become famous in the investing world for a lot of reasons, but most notable is his early investment in $AMZN and $COST
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Is this thread, I'm going to share Nick Sleep's original thesis on $COST in 2004.
He invested in Costco in 2002, but wrote extensively about the company in 2004. He never sold his shares. Since purchasing, Costco's share price has appreciated ~1400%.
Is this thread, I'm going to share Nick Sleep's original thesis on $COST in 2004.
He invested in Costco in 2002, but wrote extensively about the company in 2004. He never sold his shares. Since purchasing, Costco's share price has appreciated ~1400%.
3/
"Costco Wholesale is a member-only wholesaler of consumer goods. Membership is available at a price of $45 per annum. Purchasing a membership has the effect of raising $COST share of mind with the customer in the same way that companies hope to achieve with conventional ads"
"Costco Wholesale is a member-only wholesaler of consumer goods. Membership is available at a price of $45 per annum. Purchasing a membership has the effect of raising $COST share of mind with the customer in the same way that companies hope to achieve with conventional ads"
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"At $COST, the consumer has chosen to commit to the retailer. In other words, people shop at Costco because it is Costco, not because Costco stocks Coke. And the reason they shop is that goods are priced at a fixed
maximum 14% mark up over cost"
"At $COST, the consumer has chosen to commit to the retailer. In other words, people shop at Costco because it is Costco, not because Costco stocks Coke. And the reason they shop is that goods are priced at a fixed
maximum 14% mark up over cost"
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"The fixed mark-up is referred to in the industry as 'everyday-low-pricing', in order to differentiate it from normal industry practice of changing prices in an attempt to influence traffic, or so-called high-low pricing"
"The fixed mark-up is referred to in the industry as 'everyday-low-pricing', in order to differentiate it from normal industry practice of changing prices in an attempt to influence traffic, or so-called high-low pricing"
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Most supermarkets mark-up goods in aggregate by twice as much as $COST and even the mighty Wal-Mart marks up by half as much again as Costco. In order to make money at such low (gross) margins $COST must ensure that: (1) Operating costs are low, indeed very low.
Most supermarkets mark-up goods in aggregate by twice as much as $COST and even the mighty Wal-Mart marks up by half as much again as Costco. In order to make money at such low (gross) margins $COST must ensure that: (1) Operating costs are low, indeed very low.
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"It is indicative of the paranoia with which the company is run that costs are measured in basis points. This makes life difficult for Wal-Mart and the hypermarkets who cannot price at aggregate Costco levels and make money as their cost bases are too high"
"It is indicative of the paranoia with which the company is run that costs are measured in basis points. This makes life difficult for Wal-Mart and the hypermarkets who cannot price at aggregate Costco levels and make money as their cost bases are too high"
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"(2) That the wholesale price is as competitive as can be. The key to negotiating terms is that the number of items in a store are fixed at 4k, and the right to fill one of these spaces is auctioned to the supplier that provides the best value proposition to the consumer"
"(2) That the wholesale price is as competitive as can be. The key to negotiating terms is that the number of items in a store are fixed at 4k, and the right to fill one of these spaces is auctioned to the supplier that provides the best value proposition to the consumer"
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"Contrast this to normal industry practice whereby the supermarket assumes the role of landlord, auctions space to the highest bidder and pockets the rents (“slotting fees” in industry parlance). Many supermarkets make their money from buying from the supplier."
"Contrast this to normal industry practice whereby the supermarket assumes the role of landlord, auctions space to the highest bidder and pockets the rents (“slotting fees” in industry parlance). Many supermarkets make their money from buying from the supplier."
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"(3) Revenues need to be very high. This last factor is partly a self-fulfilling prophesy – revenues will be high if the other factors, (1) and (2), are favorable. The issue is what the company then does with this revenue advantage".
"(3) Revenues need to be very high. This last factor is partly a self-fulfilling prophesy – revenues will be high if the other factors, (1) and (2), are favorable. The issue is what the company then does with this revenue advantage".
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"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 benefit from the firm’s expansion as they also gain from the decline in supplier prices"
"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 benefit from the firm’s expansion as they also gain from the decline in supplier prices"
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"This keeps the old stores growing too. The point is that having shared the cost savings, the customer reciprocates, with the result that revenues per foot of retailing space at Costco exceed that at the next highest rival (WalMart’s Sam’s Club) by about fifty percent".
"This keeps the old stores growing too. The point is that having shared the cost savings, the customer reciprocates, with the result that revenues per foot of retailing space at Costco exceed that at the next highest rival (WalMart’s Sam’s Club) by about fifty percent".
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"In the office we have a white board 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, but few share them"
"In the office we have a white board 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, but few share them"
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Sleep then continues to break down the investment case and unit economics of the $COST business. But I'll let you go out and read that in full.
The key take-away here in the 'scale efficiencies shared' concept that Sleep coined.
Sleep then continues to break down the investment case and unit economics of the $COST business. But I'll let you go out and read that in full.
The key take-away here in the 'scale efficiencies shared' concept that Sleep coined.
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The business model that Sleep and Zakaria identified was a key reason to their success. It was the reason they were confident as early investors in $AMZN when the market was pessimistic on their reinvestment. It gave them conviction to be long-term holders of $COST and $AMZN
The business model that Sleep and Zakaria identified was a key reason to their success. It was the reason they were confident as early investors in $AMZN when the market was pessimistic on their reinvestment. It gave them conviction to be long-term holders of $COST and $AMZN
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I'll finish with recommending the Nomad Partners letter again. Arguably one of, if not the, best investment resource available. And it's free... you can check out the full partnership letters here:
igyfoundation.org.uk/wp-content/upl…
I'll finish with recommending the Nomad Partners letter again. Arguably one of, if not the, best investment resource available. And it's free... you can check out the full partnership letters here:
igyfoundation.org.uk/wp-content/upl…
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