High-conviction, long-term value creation relies on a disciplined alignment between business strategy and management incentives. TransDigm exemplifies this through its "three Ps"—pricing, productivity, and profitable new business—which permeate its decentralized organization and drive consistent performance. By adopting private equity-style compensation that heavily favors equity over cash, the company ensures that leadership remains focused on long-term shareholder returns. Investment success requires the courage to maintain or increase positions in high-quality businesses during market volatility, such as the COVID-19 pandemic, while simultaneously utilizing data-driven models to manage risk. Ultimately, the most costly investment errors often stem from premature selling of exceptional assets due to a failure of imagination regarding their long-term compounding potential. This conversation explores these principles through the lens of Rob Small’s extensive experience as a board member and investor at the investment group of Santa Barbara.
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