In a session that provided a compelling counter-narrative to the prevailing market caution, Christopher Tsai, President of Tsai Capital, outlined his framework for identifying the next generation of multi-bagger stocks. Dubbed “Value Investing 3.0,” his approach moves beyond traditional valuation metrics to focus on visionary, founder-led companies that are building the dominant ecosystems of the future.
From Cigar Butts to Visionary Compounders
Christopher framed his approach as the next stage in the evolution of value investing:
Value 1.0: Ben Graham’s “cigar butt” investing — buying statistically cheap assets for less than their liquidation value.
Value 2.0: Charlie Munger’s insight: it’s better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Value 3.0: An approach for the modern, software-driven economy. This involves investing in companies with massive addressable markets that are intentionally depressing current GAAP earnings to make heavy, high-return investments in technology and market share. These investments create enormous future intrinsic value that is invisible to static valuation multiples like the P/E ratio.
The archetypal example is Amazon (Nasdaq: AMZN) in 2015. The stock traded at a seemingly insane 500x earnings, yet in retrospect, it was a generational buying opportunity. The market’s “water,” as Christopher puts it—the ingrained heuristic of the P/E ratio—prevented most investors from seeing the immense value being created by the company’s investments in AWS and logistics. A key tenet of this philosophy is that durable economic moats are not something you find; they are something that is built over years of visionary leadership, a unique culture, and disciplined reinvestment.
Backing Visionary Leaders
Christopher’s process is centered on identifying and backing exceptional founder-owner-operators. He highlighted two current examples.
Brad Jacobs and QXO: Christopher is a significant backer of serial entrepreneur Brad Jacobs’ latest venture, QXO. Jacobs’ playbook is to acquire a platform company in a large, fragmented industry and use it as a vehicle for consolidation. With QXO, he has acquired Beacon Roofing Supply (Nasdaq: BECN) as the platform to roll up the $800 billion building products distribution industry. Jacobs’ strategy is to professionalize operations, drive margin expansion, and use QXO’s public stock as a highly-valued currency to acquire smaller, cheaper private competitors. Christopher believes Jacobs can deploy capital at 30-40% IRRs and will consolidate the industry much faster than Wall Street expects, potentially raising another $5 to $7 billion in equity within the next six to nine months to accelerate the pace of acquisitions.
Elon Musk and Tesla: Christopher presented a bullish long-term thesis for Tesla (Nasdaq: TSLA), a stock his firm has owned since 2020. He argues the market is making a categorical error by valuing Tesla as a car company. The true thesis—”Tesla 2.0”—is that the company is a software and AI powerhouse. The existing fleet of 8.5 million vehicles constitutes a massive installed base, analogous to the iPhone ecosystem. Tesla’s next phase of exponential value creation will come from selling high-margin software, primarily its Full Self-Driving (FSD) subscription, onto this network. He believes Tesla has a commanding lead, owning roughly 80% of the autonomous vehicle market. Like Amazon in 2015, Tesla’s heavy R&D spending penalizes current earnings but is building a durable, quasi-monopolistic position for the future. On a risk-adjusted basis, Christopher views Tesla as the most undervalued company in his portfolio.
This session crystallized one of the central debates in modern investing. While a top-down analysis of aggregate AI capital spending may suggest a bubble, a bottom-up analysis of a specific, dominant player may reveal a generational opportunity. An investor’s returns in the coming decade may well depend on which of these perspectives proves correct.
Let’s go deeper.
