An old investment story tells you everything you need to know about the evolution of making money in the stock market. It starts with a man named Benjamin Graham at a shareholder meeting for Northern Pipe Line. He put forward a motion to return excess cash to stockholders—and was met with complete silence. The motion failed, and the meeting ended.

The next year, Graham returned, but this time he brought four lawyers and a coalition of other shareholders. He still didn’t have the backing of the Rockefeller Foundation, which owned a huge chunk of the company, but he had enough votes to secure two seats on the six-person board. A few weeks later, he was summoned to the company’s New York office.

One of the executives told him, “You know, Mr. Graham, we were never really opposed to your ideas… We merely felt that the time was not appropriate.” Suddenly, the time was right.

Northern Pipe Line paid out $70 per share in cash and securities, nearly doubling Graham’s initial $65 investment. This victory cemented his reputation and his bank account. His asset-based approach was a clear winner. He felt so confident that he started borrowing money against his stocks to buy even more—a classic aggressive investment strategy—right before the Crash of 1929.

When the market collapsed, Graham’s borrowings magnified his losses. By 1932, his fund was down 70%. It took five long years to recover. This painful experience forced a shift in his approach to personal financial management. He moved his family into a smaller apartment and let go of his mother’s chauffeur, but he never abandoned his core discipline. As others panicked, Graham kept buying, refining his system for a world gripped by the Great Depression.

The Birth of Value Investing 1.0

Graham started focusing on companies trading for less than they could be liquidated for. He got even stricter, applying discounts to a company’s most saleable assets, like inventory and cash. This method became known as "net current asset value," and his followers still hunt for these "net-nets" today.

The market was so beaten down that hundreds of companies fit his criteria. He analyzed White Motor Company in 1931 and calculated its liquidation value at $31 per share. The stock was trading at $8. He famously asked in a Forbes article, "Is American Business Worth More Dead Than Alive?"

This was the birth of value investing. It was rigorous, disciplined, and based on hard numbers—a system we can call Value 1.0. It worked incredibly well for him, delivering an estimated 20% annual return, about double the market average until his retirement in 1956.

Graham wasn’t just a great investor; he was a generous teacher. He taught at Columbia Business School for over two decades and wrote foundational books like Security Analysis and The Intelligent Investor. He gave us powerful concepts like the "margin of safety"—buying a stock so cheap that even if things go wrong, you don't lose much—and "Mr. Market," the moody business partner who one day offers to buy your shares at a euphoric high and the next day offers to sell you his at a depressive low. The key, he taught, was to take advantage of Mr. Market's mood swings, not be ruled by them.

But Graham’s system had its flaws. As more people copied it, the easy money disappeared. His strategy was often called "cigar butt investing"—finding cheap stocks that were good for one last puff before being discarded. It was time-intensive and often resulted in short-term gains taxed at higher rates. More importantly, its rigid focus on assets meant it missed the biggest winners. Walter Schloss, one of Graham’s disciples, once pitched him on a promising technology company called Haloid, which would later become Xerox. Graham’s response? “Walter, I’m not interested. It’s not cheap enough.”

Years later, Graham indirectly admitted the limits of his own system. In the final edition of The Intelligent Investor, he told a story about a single investment he made in 1948 that was cheap but also had impressive "possibilities." The stock took off, eventually making him and his partners 200 times their money. That one investment made more profit than all his other cigar butt trades over 20 years combined. The company was GEICO.

Warren Buffett and the Rise of Value 2.0

One of Graham’s students at Columbia was a young man from Omaha named Warren Buffett. He was the only student Graham ever gave an A+. Buffett started his career imitating his mentor's cigar butt style, but he soon realized the world had changed. Post-war America was prospering, and its economy was more stable. Buffett saw that a company's ability to generate growing profits over time was far more important than its liquidation value.

He was heavily influenced by economist John Burr Williams, who argued that a business's true value is the sum of all its future profits. In simple terms, Graham focused on the balance sheet (a snapshot in time), while Williams and Buffett focused on the income statement (a moving picture). This shift from a purely quantitative approach to one that required qualitative judgment was the core of the warren buffett investment strategy.

Buffett began looking for businesses with a "moat"—a durable competitive advantage that protects them from competitors. He analyzed GEICO not for its assets, but for its brilliant low-cost business model that allowed it to offer cheaper insurance and earn higher profit margins. He saw that companies with strong brands, like American Express, Disney, and See's Candies, had a special hold on customers that allowed them to consistently raise prices and grow earnings.

He brilliantly identified the brand-TV ecosystem that dominated the latter half of the 20th century. Companies with huge advertising budgets could build impenetrable moats, and Buffett bought them—along with the TV stations and newspapers that acted as "toll bridges" for those brands. This approach, which we can call Value 2.0, prioritizes business quality over a cheap price. As Buffett famously said, it's "far better to buy a wonderful company at a fair price than a fair company at a wonderful price." For decades, this proved to be the best investment strategy ever executed, turning a $10,000 investment in his company, Berkshire Hathaway, in 1965 into a staggering $335 million today.

Why Value 2.0 Is Failing Us Now

But times change. The moats that protected Buffett's classic businesses are weakening. The internet shattered the media toll bridges, and digital advertising has allowed niche brands to challenge giants like Coca-Cola and Johnson & Johnson. Legacy financial companies, long protected by customer inertia, are now facing threats from nimble fintech startups offering better, cheaper products.

Many of these old-guard companies look cheap based on their current earnings, but they're cheap for a reason: their futures are dim. Meanwhile, tech companies often look expensive, yet they continue to generate enormous wealth. The warren buffett investment strategy, with its focus on mature companies with stable earnings, has largely missed the value created in the Digital Age.

Buffett's framework was perfect for a static business landscape. Today's economy is anything but static. This new reality demands an updated approach—a Value 3.0.

A New Framework: Looking for Value 3.0

My own "aha!" moment came from studying an old-economy company called HEICO, which makes generic spare parts for airplanes. Like GEICO in 1951, HEICO has a tiny share of a massive market and a sustainable low-cost advantage. It can sell parts for 30-40% less than the original manufacturers and still earn healthy profits. Over 30 years, a $10,000 investment in HEICO would have grown to $5 million.

Companies like HEICO showed me that it's now possible to find businesses that possess what was once a rare combination: a strong moat and exponential growth potential. This insight forms the foundation of Value 3.0, a growth investment strategy built on finding companies with:

1. A low market share…
2. …of a large and growing market…
3. …with a clear competitive advantage.

This moves us beyond just thinking about a business and its price; we also have to consider the quality of the people running it. This leads to a simple checklist focused on three things: Business, Management, and Price (BMP).

• Business Quality: Does it have a moat and exponential growth potential?
• Management Quality: Do the managers think and act like owners? Do they understand what truly drives long-term value?
• Price: Is the price reasonable?

Price is the final, and most critical, hurdle. But how do we determine a reasonable price for a modern tech company that's reinvesting every dollar back into growth?

Rethinking Price in the Digital Age

Comparing a mature company like Campbell's Soup to a digital one like Intuit using a standard price-to-earnings (P/E) multiple is misleading. Campbell's spends about 12% of its revenue on sales, marketing, and R&D. Intuit spends 45%.

Intuit isn't less profitable; it's just in growth mode. That spending isn't an expense in the traditional sense; it's an investment in future profits. Accounting rules force them to expense it immediately, which artificially depresses their reported earnings and makes their P/E ratio look high.

If you were to adjust Intuit's spending to match Campbell's—putting it in "harvest mode"—its earnings would explode, and its seemingly high P/E multiple would fall to a level comparable to Campbell's. This adjusted figure is a company's true "earnings power." When evaluating tech companies, using earnings power instead of reported earnings gives you a much clearer picture of the value you're getting for the price you're paying. A focus on this kind of analysis is central to any sound personal finance journey in today's market.

The Moats of the 21st Century

To find these superior businesses, you need to understand the competitive advantages that matter today.

• Low-Cost Producer: Still powerful, especially in an age of price transparency. Think Walmart or HEICO.
• Brands: While still valuable, brands are more vulnerable than ever. The strongest brands today are often tech companies like Google and Apple, built on reliability and user experience, not just marketing.
• Platforms & Switching Costs: Once a company like Microsoft or Intuit becomes integral to your workflow, the cost and hassle of switching are enormous.
• Network Effects: This is perhaps the most powerful moat of all. A service like Venmo, Facebook, or Airbnb becomes more valuable to every user as more people join. This creates a "flywheel effect" that's incredibly difficult for competitors to stop, leading to winner-take-all markets.

Ultimately, a company's success also hinges on its leadership. Just look at Amazon's relentless, data-driven execution under Jeff Bezos compared to Alphabet's more scattered "moonshot" approach. Finding managers who think like owners and are disciplined about creating long-term value is just as important as finding a business with a great moat. Combining these insights is the key to building an investment framework that works not just for the world that was, but for the world that is.