The Marathon Investor: Nick Sleep's Philosophy of Scale Economics Shared

What if the best business model isn't about maximizing short-term profits, but about systematically giving value back to the customer? What if generosity is the most durable competitive advantage in the world?

This seemingly counter-intuitive idea is the key to understanding the phenomenal success of Nick Sleep and his now-closed Nomad Investment Partnership. From 2001 to 2013, by investing in a handful of companies that embodied this ethos, Nomad delivered a stunning total return of 921%, averaging 20.8% annually.

Sleep is a quiet legend in the investment world. His shareholder letters are passed around like sacred texts among professionals, seen as a modern evolution of the wisdom of Buffett and Munger. He articulated a powerful concept that explains the seemingly invincible moats of companies like Costco and Amazon.

Principle 1: "Scale Economics Shared"—The Ultimate Moat

This is the crown jewel of Nick Sleep's investment thesis.

Here's how a traditional business works: as the company gets bigger, its scale allows it to lower its costs per unit. The company can then keep its prices the same and pocket the difference as wider profit margins, making shareholders happy.

Sleep identified a rare and superior breed of business that does the exact opposite. He called it "Scale Economics Shared." This is their model:

The company gets bigger → Its costs go down → It proactively passes those savings back to the customer via lower prices or better service → Customer satisfaction and loyalty skyrocket → This attracts more customers and repels competitors → The company gets even bigger...

This creates a powerful, self-reinforcing flywheel. The company doesn't hoard the benefits of scale; it shares them, turning its customers into its most passionate advocates and a core part of its competitive moat.

The textbook example is Costco. Its entire business is designed to use its immense purchasing power to secure the lowest possible prices from suppliers and then sell those goods to members at a razor-thin margin. The company's profit comes almost entirely from the annual membership fee. This model makes customers feel like they are winning, leading to renewal rates of over 90% and creating a level of loyalty that is almost impossible to replicate. Amazon's relentless early focus on lower prices, wider selection, and faster delivery is another perfect illustration of this principle.

Principle 2: Invest in the "Destination," Not the Journey

In a world obsessed with quarterly earnings and next year's forecasts, Nick Sleep was a rare long-term thinker. He wasn't concerned with a company's short-term fluctuations, but with its "destination" in ten or twenty years.

When analyzing a business, he would ask:

• If this business model continues to play out, what could this company become in two decades?

• How dominant and entrenched will its market position be?

• How large is the potential addressable market?

If the long-term destination was sufficiently attractive, he was willing to ignore the terrifying volatility along the way. It was his focus on Amazon's destination—powered by its scale economics shared model—that gave him the conviction to hold the stock for over a decade, right through the dot-com crash, for a return of over 100x. This "destination-based" thinking is a powerful tool for tuning out short-term noise and focusing on the long-term signal.

Principle 3: Deep Concentration, Profound Inactivity

"Our best ideas were always meaningfully better than our 20th best ideas."

Based on this logic, the Nomad portfolio was famously concentrated, often holding fewer than a dozen stocks. Sleep believed that truly great companies that met his rigorous criteria were exceptionally rare. When you are lucky enough to find one, you should bet big, rather than dilute the results of your best thinking through over-diversification.

Hand-in-hand with concentration comes profound inactivity. Sleep saw frequent trading as a tax on returns and an admission of not knowing what you're doing. The turnover in the Nomad fund was incredibly low. For him, the hard work was in the initial analysis and selection. Once that was done, the most profitable action was almost always inaction, letting the power of compounding work its magic over many years.

Conclusion: The Best Businesses Win With Their Customers

Nick Sleep's philosophy provides a modern masterclass in long-term, quality-focused investing. He elegantly adapted the wisdom of Buffett and Munger for the 21st-century economy of platforms and networks.

He teaches us that the most powerful and durable business moats are not extractive, but generative. They succeed not by squeezing their customers, but by sharing their success with them. As investors, our task is to find these rare, generous businesses and give them the most valuable asset of all: our time.