Like many investors, I started as a loyal student of the Warren Buffett school of thought. The approach was sound: find mature, dominant businesses with protective moats. But as I dove deeper into the business models of modern tech giants, a question started nagging me: Did I have to settle for the slow-and-steady franchises that defined the Warren Buffett investment strategy?

Before the software revolution, companies that had both a competitive moat and massive growth potential were incredibly rare. Today, thanks to the digital economy, they’re far more common. This realization led me to a new framework for my own personal financial planning, one focused on hunting for companies that shared three specific qualities:

1. A small slice of a very large and growing market.
2. A clearly identifiable competitive advantage, or "moat," that allows for sustained growth.
3. A management team that thinks and acts like they own the place.

This approach felt like an evolution. For much of his career, Buffett was often forced to choose between mature, protected companies and young, vulnerable ones. I realized I could look for both durability and exponential growth in the same business. This became the foundation of what I call Value 3.0, a growth investment strategy for the modern era.

A Framework for Finding Winners

My research process is straightforward. I read about companies, study their financial filings, listen to investor calls, and talk to people in the industry. But I filter everything through a simple checklist focused on what I call BMP: Business, Management, and Price.

If a company doesn’t have both a competitive edge and a massive runway for growth, I move on. If it does, I dig deeper, starting with the two most important, non-price factors: the business itself and the people running it.

Business Quality: Moats and Momentum

The most important part of any long-term investment is the quality of the business. As Buffett himself said, when a brilliant manager meets a business with terrible economics, it’s the business’s reputation that remains intact.

So, what makes a business superior? It's not just about rapid growth—a mistake many investors make. Companies like Vonage and GoPro had hot products and fast growth, but they lacked a durable moat to protect them from competition. Their stocks imploded once rivals entered the market. The real key is a sustainable competitive advantage.

Here are the moats that matter today:

• Low-Cost Producer: Still as powerful as ever. In a world of price transparency, being able to deliver a product or service cheaper than anyone else is a massive edge. Think Walmart, but also the fundamental economics of many software businesses.
• Brands: A powerful, but sometimes fickle, moat. A brand like Coca-Cola has created a bond with customers that allows it to charge a premium for sugar water. But brands can fade, especially in today's fast-moving digital landscape. A tech company’s brand, however, is often built on utility and reliability—like Google or Amazon—making it much stickier.
• Platforms & Switching Costs: When a company becomes the go-to standard, like Microsoft with its Office suite, the cost and hassle of switching become a powerful moat. Customers are locked in, not by force, but by convenience and habit.
• Network Effects: This is perhaps the most powerful moat in the digital age. The value of a service like Venmo, Airbnb, or YouTube grows as more people use it. Each new user makes the network more valuable for everyone else, creating a virtuous cycle that is incredibly difficult for competitors to break.

Management Quality: Owners vs. Hired Hands

A great business can be squandered by poor management. I look for two things in an executive team:

1. Do they think and act like owners? Many corporate executives are more interested in their own salaries and perks than in long-term shareholder value. I look for leaders who are frugal with company money but aggressive in investing for the future, like HEICO’s Mendelson family or Capital Cities’ Tom Murphy. They treat the business as their own.
2. Do they understand what drives value? Great managers are obsessed with metrics like return on invested capital. They know their principal job is to generate cash flow, regardless of the industry they’re in. Jeff Bezos at Amazon is a master of this, combining an old-school financial discipline with a deep understanding of the digital economy.

This kind of thinking is rare, but it’s a clear marker of a team that will work to make its owners wealthy over the long haul. It's a cornerstone of any sound approach to personal financial management.

The Problem with Price and the Power of a New Metric

After analyzing the business and its management, I finally look at the price. I use price as a veto—if it's too high, I won't invest, no matter how great the company is. My general rule is not to pay more than 20 times earnings, which translates to a 5% earnings yield.

But here’s the problem: for modern tech companies, "current earnings" are a deeply flawed metric.

Traditional accounting rules were designed for the Industrial Age. They treat a factory as a long-term investment that can be depreciated over many years. But they require companies to immediately expense almost all spending on research & development (R&D) and marketing—the very engines of growth for a digital business.

This distorts reality. A company like Intuit spends aggressively on R&D and marketing to capture a massive future market. This spending crushes its reported profits today, making it look expensive. Meanwhile, a mature company like Campbell's spends very little on growth and maximizes current profit, making it look cheap.

To compare them fairly, we need to adjust for this. This leads to the concept of "earnings power"—a measure of a digital company's latent ability to generate profits if it were run like a mature business in "harvest mode."

To find a company's earnings power, I normalize its spending on R&D and marketing to the levels of a mature company in its industry. When you do this, the results can be stunning. Intuit, which looked optically expensive, suddenly had an earnings yield identical to Campbell's. This is how you find the best investment strategy for a market dominated by technology.

A Real-World Example: Unlocking Amazon’s True Value

In early 2020, Amazon was trading at nearly 90 times its reported earnings. On the surface, it looked outrageously expensive. But I decided to apply the earnings power framework.

First, I projected its revenue growth out by three years for its major divisions, using conservative estimates. E-commerce was still a small fraction of total retail, and cloud computing was booming. It seemed irrational not to project strong growth.

Second, I adjusted the operating margins for each of its business segments to reflect what they could be at maturity:

• Online Retail: I assigned a 10% margin, which is conservative compared to other e-commerce platforms and slightly above Walmart’s (which has massive physical store costs Amazon avoids).
• Third-Party Seller Services: This is a high-margin business where Amazon acts as a toll bridge. I assigned a 25% margin, similar to eBay.
• Advertising: This is an even more profitable toll bridge. I used a 50% margin, though the true figure is likely much higher.
• Cloud Computing (AWS): This segment was already reporting healthy margins, so no major adjustment was needed.

After running the numbers, Amazon’s reported e-commerce profit of $5.3 billion transformed into an earnings power of $35 billion—nearly seven times higher.

When combined with the three-year revenue projection, the valuation picture completely flipped. The company that appeared to be trading at 90 times earnings was actually trading for around 15 times its future earnings power. What looked expensive was, in fact, cheaper than the average stock. This is the kind of analysis that underpins my entire growth investment strategy.

Putting It All Together: The Alphabet Case

This framework isn't just theoretical; it's how I analyze real companies for my portfolio. Let's look at Alphabet (Google).

The Business: Alphabet is a fortress. When I first did a deep dive, it already had seven platforms with over a billion users each, including Search, Android, and YouTube. These businesses are protected by some of the widest moats in history, primarily network effects. Google Search is the gateway to the internet. YouTube is the undisputed king of online video. Android is the world's dominant mobile operating system. All of them still had a relatively small share of their total addressable markets, like global advertising spend, leaving a massive runway for growth. The business quality was, without question, A+.

The Management: For years, Alphabet’s management was its biggest liability. Founders Larry Page and Sergey Brin were brilliant engineers but undisciplined business operators, funding speculative "moonshot" projects that burned billions. The company’s profit margins were consistently lower than peers like Facebook, despite having stronger businesses. This made no sense.

But this weakness also presented an opportunity. The founders eventually stepped back, promoting the more business-focused Sundar Pichai and hiring the financially disciplined Ruth Porat as CFO. This change in leadership signaled that a new era of "adult supervision" was beginning. With a more focused team at the helm, it was clear that Alphabet could dramatically increase its profitability just by running its existing businesses more efficiently. The managers were finally starting to align with the core principles required for excellent personal finance.