Book SummaryWhere the Money Is, by Adam Seessel

1-Page Summary1-Page Book Summary of Where the Money Is

The progression of value investing calls for the emergence of a novel stage, known as "Value 3.0."

Adam Seessel argues in his book that the rise of an economy powered by digital technology has altered the investment landscape so profoundly that traditional methods of identifying value are inadequate for uncovering the most lucrative investment prospects. Seessel champions a distinctive approach he terms "Value Three-Point-Oh." The innovative approach should merge the enduring principles of value investing with considerations tailored to the distinctive characteristics of technology-focused companies.

Investment approaches based on conventional valuation often find it challenging to adapt to the contemporary digital landscape.

Seessel examines the difficulties that value-oriented investors encounter when they try to integrate investments in technology with their conventional strategies. He examines the progression of value investing, identifying it as having developed through two separate phases, and elucidates the challenges each stage encounters within the current economic climate.

The importance of the investment approach pioneered by Ben Graham, which prioritized asset value, has diminished in a modern economy that is more dependent on intangible assets.

Seessel documents the development of value investing principles by Ben Graham during the economic instability of the Great Depression. Focused primarily on analyzing a company's balance sheet and determining its liquidation value (what its assets could be sold for), Graham wanted to buy stocks that were trading at a discount to their net asset value, ensuring what he called a "margin of safety." Seessel characterizes the approach that provided Graham and his adherents with substantial benefits over an extended period as the foundational stage of investing based on intrinsic worth.

Adam Seessel points out that the initial approach to value investing was rigid, with an undue focus on tangible assets like factory facilities and inventory of goods. After the Second World War ended, with the United States' economy shifting towards consumer-oriented activities, the valuation approach created by Graham struggled to determine the worth of businesses whose value was derived from intangible assets like brand reputation or their steady increase in earnings. As the system attracted more participants, the previously achievable additional income began to diminish due to increased competition. Seessel argues that the present market offers scant prospects referred to as "net nets," and that it is not the most effective approach to construct a compelling investment portfolio by chasing these opportunities.

Context

• The Great Depression was a severe worldwide economic downturn that lasted from 1929 to the late 1930s. It led to massive unemployment, bank failures, and a significant drop in consumer spending and investment.
• Graham's strategy was conservative, aiming to minimize risk by investing in undervalued companies with solid asset backing, rather than speculating on future growth or market trends.
• The "margin of safety" is a principle that provides a buffer for investors, protecting them from errors in judgment or unforeseen market downturns. By purchasing stocks at a price lower than their calculated intrinsic value, investors reduce the risk of losing money.
• Benjamin Graham, known as the "father of value investing," developed his investment philosophy during a period when financial markets were less efficient, and information was not as readily available. His focus on tangible assets was partly due to the reliability and verifiability of these assets in financial statements.
• Intangible assets include things like intellectual property, brand value, and customer loyalty. These became more prominent as companies like Coca-Cola and IBM grew, where much of their value was not in physical assets but in brand strength and innovation.
• The rarity of "net nets" today is partly due to the global nature of markets and the rapid dissemination of financial information, which quickly corrects mispricings.
• The global economy has shifted from manufacturing-based to service and technology-oriented, where value is often created through innovation and digital platforms rather than physical production.

The strategy of concentrating on companies with robust franchises and significant brand equity, often associated with the investment philosophy of a notable Omaha-based billionaire, does not capture the full potential for wealth creation offered by technology companies.

Seessel delves into the initial phase of the investment journey of Warren Buffett, underscoring his realization of the constraints as a skilled adherent to Graham's doctrines. He expanded the concept of value investing to encompass firms whose primary value came from their ability to produce and grow earnings, rather than their physical holdings. Warren Buffett concentrates on identifying businesses that possess distinct competitive edges, often referred to as "moats," which allow them to sustain profitability significantly higher than the typical company, influenced by the economic concepts introduced by John Burr Williams. He saw how companies with strong brands like Disney, American Express, and Coca-Cola could build customer loyalty that enabled them to earn high margins and reinvest for future growth. Seessel characterizes the approach as "Value 2.0," which mirrors the extraordinary achievements of the original value investment strategy.

Seessel argues that the foundational concepts of Value 2.0 are progressively showing their limitations. Buffett's wealth has primarily grown through investments in well-known consumer brands and other mature companies that have mostly reached their growth zenith. The once robust advertising framework that sustained these businesses is now declining, shifting towards a developing digital marketplace....

Where the Money Is Summary Assessing the quality of leadership in a world that is being transformed by the progress of digital technology.

Seessel formulates a pioneering approach for value investing tailored to the digital economy's opportunities and challenges, which he refers to as a new iteration of value investing. The methodology, often referred to as Value 3.0, consistently strengthens its core through a dedicated adherence to thorough and detailed analysis. The approach that focuses on pinpointing businesses with a competitive advantage and prospects for swift growth is known as Value 3.0. Seessel underscores the necessity of identifying distinctive traits within companies and champions a thorough assessment of the management team's quality.

Identifying companies that possess a small portion of swiftly growing, important markets and sustain lasting advantages over their competitors.

Adam Seessel's approach to identifying standout firms involves seeking out businesses that capture a small slice of a swiftly growing market while maintaining a unique edge over their rivals.

Determining the initial pair of factors presents little challenge. Seessel advises placing capital in companies with less than a 10% market share, indicating significant potential for growth in the future. Fortunately, such data is...

Where the Money Is Summary Methods for assessing the worth of both modern, tech-centric firms and established, conventional enterprises.

Seessel makes a strong argument for updating conventional strategies of value investing, especially when evaluating the correlation between the cost incurred and the actual value received in today's digital age.

Traditional valuation metrics such as P/E ratios often do not reflect the actual growth prospects of swiftly growing companies with minimal physical assets in the technology industry.

Seessel argues that the conventional benchmarks for evaluating value investing, such as the price-to-earnings ratio, do not adequately capture the value created by technology companies. In this period of transformation and innovation, we must adapt our methods of utilizing the price-to-earnings ratio to ensure it remains an effective tool.

Discrepancies in the financial disclosures that obscure the true earnings of tech companies.

Seessel argues that the focus should be on a company's capacity to generate future profits rather than just its reported earnings when assessing the price-to-earnings ratio of a company in the modern economy. Because today’s companies reinvest so much in areas like research and development, and because GAAP requires most of these expenditures to be...