I found this excerpt from Sahil Bloom's Substack (check it out!) to be quite interesting (reposting for reference).
"The 1-in-60 Rule finds its roots in the world of aviation.
It says that a 1 degree error in heading will cause a plane to miss its target by 1 mile for every 60 miles flown.
Simply put, tiny deviations from the optimal course are amplified by distance and time. A small miss now creates a very large miss later.
Consider how this concept relates to your life and growth:
You’re in a starting position today. Let’s call this Point A. You have a desired target for the future—your long-term goal of where you want to end up. This is Point B. You set your course from Point A to Point B based on the current conditions.
You set your course based on the information at hand today. But what if the information or conditions change (as they inevitably will)?
Your course alignment will be off—maybe by 1 degree at first, maybe by 2 degrees or more. Over time, as the 1-in-60 rule tells us, this small deviation will push you hopelessly off course.
This framework instills the importance of real-time course corrections and adjustments as you pursue growth and progress toward your goals.
We need a simple ritual to check in on our course and make any necessary adjustments. Inspired by my friend Codie, I started doing a monthly check-in on the last Friday of each month.
In this check-in, I ask myself the following core questions:
What *really matters* right now in my life? Am I dedicating the necessary energy to it?
Are my current systems and habits aligned with my long-term goals? If not, what adjustments can be made to get into alignment?
What activities are draining my energy or causing me to lose focus?
What am I dreading or actively putting off completing?
Are there any toxic habits or relationships that I need to immediately eliminate from my life?"
The same can be said about investing - especially when you're in it for the long-term. The small/minor red flags that tend to get overlooked are often the sources of concern that emerge as significant problems down the line. If you intend on holding an asset forever, it is critical to do whatever it takes to stay the course no matter how difficult it might be. It also says a lot about folks who may have a short-term perspective as the '1 in 60 rule' won't apply to them and their short-term actions will demonstrate that.
This was an extremely well-done podcast between Will Thorndike and Nick Howley. For those interesting in value investing, it's well worth the time to not only go through the podcast itself but also read through the preparatory materials that the team has put together. I personally will be going through this interview with Thomas Murphy from Capital Cities in December 2000.
Unsurprisingly, the similarities between Transdigm and Constellation Software are quite strong. Nick Howley's view on value drivers really drove that point home to me as it really mirrors how Mark Leonard talks about value-based pricing, cost control and new initiatives.
"Again, three value drivers we focus everybody on: price, cost, and new business. I’ll say again, you obviously have to take care of your existing accounts. They all require the same kind of care and feeding. In pricing, our goal was to price the product not to the cost, but to price it to what we thought the value we provided to the customer, which is a mix of what do you provide and what’s the switching cost. Sometimes you can calculate that pretty closely, but frequently it’s a little bit of trial-and-error to get there. I found in this business, and I subsequently found it in almost every business we bought, that most niche engineered product type of businesses underpriced their product.
In this business, particularly in the aerospace, you’re not going to make a lot of money selling to the OEMs, but you don’t have to lose money, which a lot of people do. And they almost always underestimate the strength of their franchise in the aftermarket, which means they don’t adequately understand the value in the switching cost. So we had to educate people a lot to that. Frankly, we are pretty intense on that. We expect somebody that’s running a business of ours, a president to be intimately involved in the pricing. We don’t think that’s something he can delegate down. He has to have pretty clear rules that elevate the thing quickly right to the top. We don’t want there to be any confusion. If we’re not getting the price, who’s not getting the price? We want to clearly understand why we’re not getting the price.
We have different kinds of techniques to monitor that and watch it and slice and dice the customer base so that we don’t foul it up. One of the things we would say over and over again: rather than worry forever about what you’re going to try, pick a subset that you can afford to either lose and figure out how you’re going to back off if it doesn’t work rather than ring your hands before you try it. It generally has been workable.
In cost, our goal in cost control has always been, and I say this over and over again, we don’t understand fixed from variable. We’re not going to try and get into that argument. We’re just going to say our cost base is your revenue minus your EBITDA. Our goal there is to at least offset inflation every year with savings. Simple way to think about that is if you want to give everybody a 3% raise and your business is flat, you got to take 3% of the people out. Now, when the business grows, you got to do other adjustments for that, but the simple goal is offset inflation. It’s easy to do for a year or two. It’s very hard to do over time. The other trick is you have to count all your cost. Otherwise, what happens is it just becomes a gaming exercise of what can I call fixed and what can I exclude and what is really not addressable. So that we’re pretty rough on that.
On new business, it’s just a detail tracking. Everybody has to be out all over it business by business by business. We want to analyze them, not just can we get the business and not just what the volume is, but are you ever going to make any money? It’s a very common thing we see in acquisitions, hundreds of engineering projects going on, chewing up all kinds of expenses. You could probably throw half of them out almost the day you walk in. Either your chance of winning them isn’t very good, or their price such that if you win them, it isn’t worth winning them. So we try and do a pretty good job gating up front on that, but tracking it, and it’s a key part of your job is to keep that pipeline full."