Book Summary of Where the Money Is: Value Investing in the Digital Age

In this chapter-by-chapter book summary of Where the Money Is: Value Investing in the Digital Age, you’ll learn to embrace the seemingly expensive tech stocks, why they are considered the most powerful business models the world has ever seen, how to analyze and value them, and a whole lot more. It is one of the best investment books I’ve ever read. Big shout-out to Adam Seessel for having written such a valuable and contemporary book with a fresh and much-needed perspective on value investing.

Introduction: So Big, So Fast

In the introduction, Adam quotes a paragraph from Peter Lynch’s One Up On Wall Street: “In the end, superior companies will succeed and mediocre companies will fail, and investors in each will be rewarded accordingly.” While Adam believes Peter’s words to be as true as ever, he encourages readers to acknowledge that the landscape today is very different from the era depicted in One Up on Wall Street. Namely, technological change has altered what constitutes a superior business.

Tech’s motto, if it had one, would be “Faster, Cheaper, Better”. Technology saves us time, money and make our lives easier and better. Technology have transformed our daily lives as well as the world economy and stock market. Since 2016, two-thirds of the market’s appreciation has come from the information technology sector. Though the ‘FAANG’ stocks have been hyped, Adam disagrees with pessimists who believe we’re in for another bust. He believes today’s tech companies have “put down powerful and profitable roots in ways that the first wave of dot-com companies never did.”

He goes on to state that “the world has never witnessed such powerful business models.” He says mature tech companies operating at scale enjoys profit margins that are 3-4 times higher than your average business. Tech companies don’t require factories or production lines, only laptops and engineers. To expand, one merely needs to write or alter the software’s code before hitting “deploy”, instantaneously available without any incremental cost. This mix of higher profitability and lower asset intensity equals the highest return on capital the corporate world has ever seen.

As tech stocks have grown and appreciated so rapidly, one might think the digital revolution is complete. But Adam believes we’ve only seen the beginning.

Chapter 1 – The World Has Changed

In the first chapter of Where the Money Is, the author outlines some of the corner stones of value investing (read What is Value Investing?). For instance, Adam emphasises that value investors do their research; scorn the idea of randomness; adhere to a set of rules and principles; excerpt discipline in the price we pay by using Mr. Market’s mood-swings to our advantage by “[buying] a stock when the market is voting on it, then wait until the market weighs it.”

Technology stocks haven’t fit into the value investing framework pioneered by Graham, however. This perception has been one of the main reasons why Graham’s star student, Warren Buffett, never invested in tech until his notorious purchase of Apple stock. Both Buffett and Munger have since recognised the power of these businesses. Google, Facebook and Apple all possess the brand loyalty and generational growth potential that Buffett has been scouting for his entire career. As Buffett said during one of the annual meetings: “The idea that you could create hundreds of billions of value [fast] essentially without assets.. You literally don’t need any money to run the five tech companies that are worth collectively more than two and a half trillion dollars in the stock market.” During the same occasion, Munger expressed grief of not having invested in Alphabet.

In short, the chapter urges the reader to evolve one’s traditional value investing mindset in order for us to appreciate the value of these digital businesses.

Chapter 2 – Value 1.0: Ben Graham and the Age of Asset Values

During the book, Adam chronicles how the value investing framework have evolved from Value 1.0 to 2.0 before reaching today’s version: 3.0. The ‘Father of Value Investing’, Ben Graham, was obviously the mastermind behind Value 1.0 and the ‘constitutional documents’: Security Analysis and The Intelligent Investor.

I’ve covered his ‘cigar butt’ or ‘net nets’ approach various times on this blog (read e.g. Value Investing Made Easy), but to summarise: Value 1.0 focused on a business’ asset values relative to the stock price. Graham wanted to buy stocks in companies where the sum of the current assets (adjusted to reflect liquidation value) exceeded the sum of all its short and long term debt obligations with at least a 30% margin of safety.

The system was rigorous, disciplined, repeatable and verifiable. However, even Graham came to realise the limitations of this approach in his later writing, as he compared it to buy-and-hold investing in great businesses such as GEICO. He writes: “Ironically enough, the aggregate of profits accruing from this single investment decision far exceed the sum of all the others realised through 20 years of wide-ranging operations in the partners’ specialised fields, involving much investigation, endless pondering, and countless individual decisions.” Adam concludes: “In other words, a single investment in one great business made Graham more money than a generation’s worth of cigar butts combined. […] One lucky break, or one supremely shrewd decision— can we tell them apart? —may count for more than a lifetime of journeyman efforts.”

Chapter 3 – Value 2.0: Warren Buffett and the Brand-TV Ecosystem

Value 2.0 emerged with Warren Buffett who (with time) realized the limitations of Graham’s fire-sale-asset values approach. Inspired by John Burr Williams’ The Theory of Investment Value – an optimistic forward-looking book focusing on finding businesses that can produce durable profits over time – and nudged by Munger, Buffett came to appreciate and search for great companies that could compound, grow and prosper thanks to both the quality of the business and the management team.

Graham’s approach was statistical and quantitative whereas Buffett’s – or, Value 2.0’s – requires qualitative judgment. Buffett was a master at identifying these great businesses with durable competitive advantages – or moats – during the Value 2.0 era.

In Value 2.0, business quality was the determinant factor of a superior investment rather than Value 1.0’s sole focus on price. Price still matters in Value 2.0, but in Adam’s words, “a good business’s growing earnings stream overwhelms the “high” initial price you pay for it. Over time, business quality trumps price paid.”

Buffett acknowledged a shift from Value 1.0 to 2.0 was necessary, and so too does Adam believe investors today should recognise that Value 2.0 is beginning to fail us: “As the economy changes, the moats that protect many of Buffett’s classic postwar franchises are weakening. At the same time, Buffett’s valuation framework, with its focus on mature companies generating lots of current earnings, hasn’t captured the enormous value being created in the Digital Age. While Value 2.0 was exquisite in capturing where the money was, it’s not capturing where the money is.”

Chapter 4 – Value 3.0 and the BMP Checklist

As Adam studied the sotftware-based business models of e.g. Alphabet and Amazon, he wondered whether one should settle for the mature, battleship franchises that Buffett favoured? He reckoned one shouldn’t. Thanks to the introduction of the digital economy, businesses with both moats and exponential growth potential were no longer as rare as they once were.

Adam identified the three critical drivers of stock price performance in what he dubbed the BMP checklist: the quality of the business (B), the quality of the management (M), and the price the market is asking us to pay (P).

To assess the quality of the business, he asks three questions: do the business in question possess..

• .. a low market share..
• .. of a large and growing market..
• .. with a clearly identifiable competitive advantage..

.. that will allow the company to grow sales and profits for years to come. Does a company have a low market share of a large and growing market, and does it have a durable edge? The former gives the company exponential growth potential; the latter gives it a moat.

On top of these three business quality questions, Adam added two management questions:

• Do managers think and act like owners?
• Do the managers understand what drives business value?

The final question revolves around price:

• Can you arrive at a reasonable earnings yield, i.e. over 5%?

“What am I getting in return for what I’m paying?” remains the central girder of any value-based investment framework, as Adam puts it. However, price is a bit more difficult to assess in Value 3.0 mainly because current accounting rules distort the current earnings of tech companies. Hence, Adam suggests one should adapt new methodologies to measure price paid versus value received.

Chapter 5 – Competitive Advantages Then and Now

In this chapter, we dive into the business quality component of the BMP checklist. As business quality is the main driver of long-term investment performance, one must understand what makes a company superior: competitive advantages. To restate the business quality questions from above, one should search for businesses with..

.. a low market share..
.. of a large and growing market..
.. with a clearly identifiable competitive advantage..

Questions 1 and 2 can easily be answered by estimating the total addressable market (TAM). If, for instance, one wishes to estimate Amazon’s TAM, you Google “U.S. retail sales 2020” to learn that the National Retail Federation reports total U.S. retail revenues were $4.1 trillion. Canada’s was $600 billion. Compare those $4.7 trillion to Amazon’s reported sales of $236 billion, and you’ll arrive at a 5% market share figure.

The third question, however, requires qualitative judgment. Here, you need to assess whether the business possesses one or more moats:

• Low-cost producer: In commodity markets (corn, sugar, steel), people don’t care about brands or quality (beyond a certain base level), so whoever can provide the product more cheaply will win market shares.

• Brand: People are willing to pay a premium and excerpt loyalty towards brands/products with which they have a connection such as Coca-Cola. Brands that symbolize coveted traits such as luxury items that halo onto the wearer/user of the products can also demand premium prices, exemplified by Hermés’ $25,000 scarfs and pocketbooks.

• Platforms and switching costs: If a company becomes the go-to application for search, e-commerce or social media, consumers gravitate towards it in masse. Apple serves as an example of a platform business. If you’re an app developer who wants to distribute your application to iPhone users, you’ll have to pay 30% of the revenues it generates to Apple as a ‘fee’ to be on the App Store platform. Many companies wish to become platform companies, as the deeper a company gets its hooks into you, the harder it is to leave. In business jargon, the harder it is to leave, the higher the switching costs. Adam states: “Switching costs are more substantive than brands. Customers hate to change once they’re comfortable with a product. Once customers get used to a product, the drawbridge over the moat goes up.”

• First movers and fast movers: “In a new market, whoever stakes first claim to the territory often gets the best land, leaving the competition to settle for second best.” Be aware, however, that while being first may secure the best land, one needs to establish secondary advantages to keep marauders away, e.g. a low-cost position, a trust brand or an extensive distribution network.

Chapter 6 – Management: Some Things Never Change

To assess the management team of any business (whether it be a Value 2.0 or 3.0), Adam asks the two questions we covered earlier:

• Do managers think and act like owners?
• Do the managers understand what drives business value?

To answer the first question, we need to assess if the management team acts as owner operators. Do they put long-term stewardship ahead of self-interest? Acting like an owner is not enough, however. Managers also need to understand the key metrics that correlate with long-term wealth creation. These metrics will measure how well management are translating their company’s qualitative edge (moat) into quantitative, market-beating results.

To Adam, return on capital (ROC) is the metric that captures this ability: “The more profit you can earn from the least amount of assets over a sustained period is the key quantitative measure of a successful long-term business.”

You need managers who act with integrity, stewardship and financial savviness when it comes to capital allocation. To Adam, Jeff Bezos exemplifies the ideal Value 3.0 manager. In his very first letter to shareholders, he listed the key principles of his aspirations for Amazon, his management team and himself:

• Think and act like an owner.
• Be smart and targeted with your spending.
• Understand the interplay between financial metrics like return on capital and more qualitative measurements like competitive advantage.
• Drive for first-mover advantage and scale, then use both to drive to higher returns on capital.
• Invest for the long term.
• Judge yourself by long-term stock market success.

In subsequent letters, Bezos’s combination of discipline and sophistication continues to shine through. “To our shareowners,” he began the 2014 letter. “A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time—with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”

Chapter 7 – Price and the Value 3.0 Toolbox

As mentioned earlier, value investors have steered away from tech stocks because they’re “expensive” measured on traditional metrics such as P/E and P/B ratios. These metrics have, however, not captured the value that tech has created. As a result, value investors have “missed out on nearly a generation of wealth creation.”

Adam thus saw it fit to alter the P/E construct in two ways. First, instead of looking at current earnings or next year’s, he looks at earnings 2-3 years out.

Second, instead of trusting reported earnings, one should assess a business’ earnings power. Reported earnings artificially depress tech companies’ financial performance. Namely, GAAP is rooted in the Industrial Age and haven’t adapted to the realities of the 21st century, as explained in this quote:

“As a result, it rewards old-economy investments like factories and penalizes new-economy spending on items like research and development. Specifically, GAAP requires nearly 100% of R & D and marketing outlays to be immediately expensed, while it allows hard assets like property, plant, and equipment to be depreciated over many years. To depreciate means to amortize, or slowly kill; so when a company depreciates an asset, it recognizes the expense only gradually. Old-economy assets like factories are considered long-term investments, and expenditures on them can be recognized through the income statement over 20 to 30 years. Tech companies, however, have little need for factories. Their biggest investments are in developing and marketing their products—but according to GAAP, most of these expenses must be recognized immediately. Such differences in accounting treatment lead to startling differences between the income statement of an old-economy company and the income statement of a digital company. An industrial business that invests $100 million in a plant with an estimated twenty-five-year life recognizes only $4 million a year in expense for that plant. By contrast, a tech company that spends $100 million on consumer-focused research and development must recognize that entire $100 million as expense right away.”

In length, Adam concludes that “today’s accounting rules make old-economy income statements look unreasonably attractive and new-economy ones look unreasonably ugly.” Hence, we need to adjust tech companies’ income statements to arrive at their earnings power, i.e. what are these companies’ earnings potential if they weren’t investing heavily in growing their markets.

Chapter 8 – Earnings Power

In length of the previous paragraph, to assess the earnings yield of a tech company, one needs to make certain adjustments. Adam uses Amazon as the case-study to illustrate how one should conduct such an analysis.

Step 1 – Roll Amazon’s revenues three years forward: Adam argues that “e-tail” still represents only a small part of total retail sales. He believes Amazon’s e-commerce segment will be able to continue its historic growth rate at 20% per annum. To be conservative, he ‘only’ applies a 30% growth rate to the cloud computing (AWS) segment despite said segment having grown at 35% p.a. for the past five years.

Step 2 – Adjust Amazon’s margins to reflect economic reality: Amazon consolidates all its many different businesses under six segments. Amazon provides revenue numbers for each segment, but no profit disclosures. Hence, to assess Amazon’s earnings power, he tried to create a profitability profile for each one:

• Online Stores: “Common sense” told Adam that this segment’s margins should be at least equivilant to Walmart’s 6%. However, Amazon has none of the depreciation expenses (2% of sales) nor ‘shrink’ (1%), so it had to be higher. For these reasons, Adam applied a 10% operating margin to Amazon’s $140 billion of e-commerce sales, equalling $14 billion in earnings power.

• Physical Stores: Whole Foods Markets constitute the ‘physical store’ segment. Again, as Amazon doesn’t disclose its profit margins nor figures, Adam had to use the 5% range that Whole Foods reported in 2017 prior to the acquisition.

• Subscription Businesses: Amazon Prime is a break-even business. People pay $139 a year for Amazon Prime delivery and receives its video service for free. It’s thus not intended to turn a profit, but to build a switching cost moat. Having Prime Video makes customers less likely to drop their annual subscription for e-commerce delivery, where the company does make money.

• Third-Party Seller Services: Amazon has succeed in becoming a platform company: “Amazon has opened its website to merchants who lacked their own online presence. Today, roughly two-thirds of all sales on the company’s platform come from outside merchants. These third-party sellers pay for the goods they sell on Amazon, and this arrangement has material implications for Amazon’s profitability. […] Amazon charges these merchants a fee for the right to transact business on its platform. Because Amazon dominates e-commerce, merchants are happy to—or are forced to—pay for access to Amazon’s eyeballs. […] To use Buffett’s metaphor, Amazon has become a toll bridge, and in 2019 it collected $54 billion in tolls from third-party merchants.” Using eBay’s profit margin of 25% as a benchmark, Adam assigned said percentage to Amazon’s $54 billion, thus resulting in $14 billion in operating income.

• Amazon Web Services: This is the only segment in which Amazon discloses its operating income. It produces $9.2b of income on revenues of $35b, which equals a 25% operating margin. As this segment already operates at scale, he didn’t need to make any adjustments to approximate its earnings power.

• Other/Advertising: As Amazon averages 90 million visitors per day, its website has become a popular place for companies to advertise. This segment generated $14 billion in revenue, and while Adam is tempted to assign a 100% margin on this segment because it doesn’t theoretically cost Amazon anything, he applied a 50% margin to err on the side of conservatism. This translates into $7 billion of earnings power.

Amazon’s reported profits for 2019 was $5.3 billion, but its earnings power amounted to $35 billion. Hence, “the price the market was asking me to pay” changed drastically. The P/E on reported 2019 earnings was 87, but only 15 times the 2022’s earnings power, moving the earnings yield from 1% to 7%.

Chapter 9 – BMP Case Studies: Alphabet and Intuit

This chapter applies the BMP checklist on both Alphabet and Intuit, both of which are Value 3.0 businesses. I’ll focus on the lesser-known of the two companies.

The Business & Management
In the case of Intuit, Adam evaluates the business quality and management as one because they’re too tightly intertwined. Intuit is composed of two segments:

• 1) TurboTax, a mature Value 2.0 business that currently helps 30% of Americans files their tax returns. It has a moat, but a small and slowly growing market share.

• 2) QuickBooks, a small-business accounting software. It has a strong switching-cost moat, as changing one’s accounting system means “[ripping] the guts out of his or her back office and start over with a new one.” Furthermore, it possess a brand and scale moat, since it’s three times larger than its next competitor in terms of subscriptions. “More subscribers mean more revenue than the competition, which means more ammunition to spend on marketing and R&D.” It spends twelve times more than Xero on those areas, which “guarantees that QuickBooks will not only hold its market share but also grow it. With more marketing dollars to advertise and more R&D dollars to improve the software, how can there be any other outcome?”

QuickBooks’ total addressable market is 200 million worldwide. Compared with Intuit’s 4.5 million subscribers, there’s still 98% left to conquer. In other words, Intuit has a low market share of a large and growing market with a clearly identifiable competitive advantage. Adam too concluded that Intuit’s management team was competent and acted in the interest of shareholders.

Price
In late 2019, Intuit traded at $300 per share, or 51 times reported earnings. Similar to the Amazon analysis in the previous chapter, Adam adjusted the operating margin from 25% to 40%; he estimated revenues to grow at 17% per annum till 2022; and he factored in a share buyback rate of 3%. Having crunched the numbers, Adam arrived at a 19 P/E of 2022 estimated earnings power. As such, Adam secured the required 5% earnings yield, so he invested – and did quite well for himself. Intuit is trading at $470 per share as of primo august 2022.

Chapter 10 – Investing in Non-Tech Companies

Investors should assess old-economy companies the same way it should new-economy companies. You still want to find businesses with a “small share of a large market, coupled with a sustainable competitive edge; a management team that thinks like owners and knows how to drive business value; a price that gets you under twenty times earnings power.”

When assessing old-economy businesses, Adam advises that you ask three questions to make sure they’re not vulnerable to technological disruption:

• 1) Is the product the company makes tech-proof? Adam uses Sherwin-Williams as an example, as “you just can’t render paint digitally, at least not yet.” He makes an interesting analysis of why Sherwin-Williams is a great business (despite being of the Value 2.0 variety) with an expanding moat. The company realized that time is money for painters, so they’ve build its business around presence, convenience and speed. For instance, its network of 5,000 company-owned stores (compared to the nearest competitor’s 1,000) allows painters to pick up paint on their way to the next job; they offer free curb-side pickup; and they have a fleet of 3,000 trucks who make runs to job-sites.

• 2) Is tech making a superior business even better? In industries where tech does play a role, make sure you find businesses that can benefit from technological advances rather than being outsmarted by new entrants.
  
  Equifax serves as a case. It is one of three companies that produces the raw data used to determine FICO scores. Banks and other financial institutions give Equifax data on their consumers, which it then crunches in sophisticated ways and sell it back to the same financial institutions. While Equifax is operating in the digisphere, new competitors will likely not try to breach the castle, as the business is protected by high barriers to entry: “Equifax and its two major competitors have each been in business for generations; banks are habituated to doing business with them; and because banks gain valuable insights thanks to the bureaus’ analytics, they aren’t interested in providing the same raw credit data to a new entrant for free. […] Their product is nonphysical—it’s just zeros and ones—and every time a financial institution pays to access that data, the incremental profit margin to Equifax approaches 100%.”
  
  Hence, in this case, technology is making a superior business even better: “Already protected by high barriers to entry, Equifax is using tech to accelerate its revenue growth, its profit growth, and, most important of all, its competitive edge.”

• 3) Is the business serving those the digital revolution has left behind? This point is exemplified with Dollar General. It’s a chain of corner-stores in rural, lower-income areas who are not digital literates.The annual income of a Dollar General customer is half the average American’s. Its customers can’t afford Amazon Prime subscriptions or the mark-up of the likes of InstaCart. Furthermore, its competitors have abandoned these areas. It still sets its prices at a 40% discount to CVS and Walgreens, so by putting itself on its customers’ side, Dollar General is prospering. It has a low-cost advantage, convenience and the trust of its customers.

Chapter 11 – Buy What You Know – With a Twist

In this chapter, Adam advises new investors on where to begin one’s search for investment opportunities. The answer: “Start with what’s right under your nose. Don’t take your experience for granted; tap into it.”

• Using your own experience in the workplace: “Familiarity breeds contempt, so you’re probably unaware just how much of an edge you have in your everyday work life. You understand better than 99% of other investors which companies are thriving and which aren’t in your own little corner of the economy.”

• Using your own experience as a consumer: In classic Peter Lynch style (see Beating the Street), consider which products and brands you fancy, and start running them through the BMP checklist. Yet, in the digital era, one might need to look a layer deeper. For instance, most people are familiar with Netflix and other such streaming services, but few people know that Roku dominates the market that connect Netflix to our TVs. It’s transformed itself into a “twenty-first-century toll bridge.”

In the second part of the chapter, Adam discusses the digital divide between generations. Older investors are familiar with the markets, but not tech. Younger investors know tech, but are scared by three recent market crashes. “As a result, older and younger investors each have gaps in their knowledge that impair their ability to see the full investment picture. […] Until both groups mend these gaps, neither will be equipped to profit from today’s economic dynamism.” He goes on to provide some advise for both generations. To young investors, Adam says:

• Look at the data and be rational. Given the market meltdowns this generation lived through, it’s understandable one is mistrustful of “the system.” It would be foolish, however, to let such experiences carry one into the irrational land of meme stocks and Dogecoin. The U.S. stock market has appreciated 11% per annum since 1988 despite all the ups-and-downs, and it continues to be the place for long-term wealth creation.

• You know tech; now master technique. “Your intimacy with tech gives you an edge, but this edge is actionable only if you know how to exploit it. It’s not enough to be generally familiar with tech; you must understand what moats to look for and the traits that characterise a good management team. You also need to be familiar with basic valuation tools so that you can identify not only great businesses but attractively priced ones, too.”

To the more seasoned investors, Adam advises:

• Get to know tech. You should learn to adapt to the new era in which Value 3.0 businesses have replaced the previous “great businesses” of Value 2.0 that was praised by Peter Lynch and Warren Buffett: “The Shiva-like nature of digital enterprise, creating new industries while destroying old ones, has rendered many of his [Peter Lynch] best examples of winners obsolete.”

• Suffer the little children. “To familiarize ourselves with tech, we’re going to need some help from the younger generation. […] We don’t understand technology in the native way that our children do, and this makes us feel inferior. […] These feelings compound until many of us dismiss technology as an asset class that we can invest in. To avoid such a trap, we must open ourselves to lessons from the younger generation.”

Chapter 12 – Thoughts on Process and Priorities

Throughout the book, you’ve been taught where to begin (use your own experience) and how to finish (run the ideas through the BMP checklist). But what about the long, indeterminate middle? Discipline is key, and Adam provides seven pieces of advise on the process:

• 1. Be quick – but don’t hurry. “When you get that first bright idea, don’t be in a hurry to invest all your money in it. Instead, apply the same rigorous, patient process that value investors have used since Ben Graham. Put the idea through the various filters of the BMP checklist, then take care not to let your exuberance influence your judgment.”

• 2. Extend your circle of competence – and don’t be shy about it. “Profiting from the digital economy begins by tapping into your own experience, but it shouldn’t end there. You should tap into others’ experience as well. Test out your insights with others. Friends, relatives, coworkers—all of them can help you with both idea generation and investment conclusions. […] Ask people there what trends they’re seeing; pick brains and compare notes. These investigations will help you gain conviction, either positive or negative, about your idea.”

• 3. Read – a lot. “A deep knowledge of the investment landscape depends upon regular engagement with newspapers, periodicals, online blogs, company reports, trade magazines, and books about business and investing.”

• 4. Use Mr. Market to your advantage. “I wouldn’t advise waiting for a crisis to invest in a good idea. If the business is right, the management is right, and the price is right, then the time is right as well.”

• 5. Regarding constructing a portfolio, the best advice is: Don’t. “A diversified portfolio of one hundred mediocre stocks will produce nothing more than a diversified, mediocre result. Rather than diversify, I recommend that you use your edge to find businesses with edges. Identify a few companies that pass the BMP test; buy them; and then stick with them.”

• 6. Find your tolerance for concentration and calibrate accordingly. “[Many people] don’t have the confidence to put their entire life savings into a few high-conviction stocks, and that’s fine. Knowing where on the “eggs in the basket” spectrum you fall is part of understanding your temperament as an investor, and that’s very important information to have. So figure out your tolerance and invest accordingly.”

• 7. Invest for the long run and invest incremental dollars regularly over time.

Adam concludes the chapter with a note on priorities: “As long-term investors, our priorities should be clear: we need to make steady, disciplined endeavours to identify, buy, and hold superior businesses. Such businesses will not be lottery tickets of speculations; if we want to buy a lottery ticket, we should go to our local 7-Eleven. To risk a material part of our wealth on a game of chance when we understand how to invest intelligently is like having an affair when we’re in a happy marriage.”

Chapter 13 – Regulation, Innovation, and the Second Half of the Chessboard

In the book’s final chapter, Adam adresses some of the political ‘noise’ surrounding big tech and why investors shouldn’t fear headlines such as “It’s time to break up Amazon, Google and Facebook.” Instead, investors should take advantage of the buying opportunities such headlines bring about. Adam lists three specific reasons why big tech has little to fear from government regulation:

• When you get past the rhetoric, the antitrust and other breakup arguments are shoddy at best and simply wrong at worst.

• To alter big tech’s business model in any material way, government must break the daily habit-forming bond that exists between consumers and the world’s most popular tech applications. Forged for nearly a generation now, this bond is nearly impossible for any political body to undo.

• Even if the government succeeds in breaking some of these giants up, the component parts will likely thrive and prosper. The parts may in fact be greater than the whole.

The book’s final paragraph is a call-to-action for investors to realize that one day, Amazon and Alphabet will be distant memories similar to the Value 2.0 giants like Toys R’ Us: “The world has changed, but it will change again. When it does, Value 3.0 will become obsolete, and we’ll need new frameworks to capture the new dynamics. While Value 3.0 is where the money is today, one day it will be elsewhere. Then it will be time for Value 4.0.”