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The second thread in the Nick Sleep series is on business quality versus valuation...
"One of the things we have learnt over the last few years is that our most profitable insights have come from recognising the deep reality of some businesses, not from being more contrarian"
"One of the things we have learnt over the last few years is that our most profitable insights have come from recognising the deep reality of some businesses, not from being more contrarian"
"There is a dark corner of the portfolio, single digit in percentage terms, where the economic reality is troubling…If we had our time again, we would hope not to be seduced by their (apparent) mathematical cheapness but weigh more heavily their DNA"
"There are, broadly, two ways to behave as an investor. First, buy something cheap in anticipation of a rise in price, sell at a profit, and repeat. Almost everybody does this to some extent. And for some fund managers it requires, depending upon the number of shares in a...
…portfolio and the time they are held, perhaps many hundred decisions a year. Alternatively, the second way to invest is to buy shares in a great business at a reasonable price and let the business grow. This appears to require just one decision(to buy the shares) but, in...
…reality, it requires daily decisions not to sell the shares as well! Almost no one does this, in part because it requires patience - and the locker room set does not do patience - but also because inactivity is the enemy of high fees."
"Factors such as culture, because they are hard to quantify, often go undervalued by investors; investors presume regression to the mean starts at the time of their analysis or, as CFA students may recognize, in year three or five of a DCF analysis!"
"Conventional thinking has it that good things do not last, and indeed, on average that’s right…Investors know that in time average companies fail, and so stocks are discounted for that risk. However...
…this discount is applied to all stocks even those that, in the end, do not fail. The shares of great companies can therefore be cheap, in some cases, for decades."
"A business is worth the free cash flow that it can be expected to generate between now and judgment day, discounted back at a reasonable rate. Period. Growth is therefore inherently part of the value judgment, not a separate discipline."
"When we think about companies, the over-riding analytical consideration is the quality of the business and quality of management’s capital allocation decisions. The longer investors own shares the more their outcome is linked to these two metrics."
Complete letters of Nomad investment partnership available here https://b-ok.asia/book/7218544/b9eac5
FYI - I will be compiling a blog containing all of these tweets from the Nick Sleep letters in due course which I will make available on my website http://theundercoverfundmanager.com/
FYI - I will be compiling a blog containing all of these tweets from the Nick Sleep letters in due course which I will make available on my website http://theundercoverfundmanager.com/
