The recent decline in software stocks like IBM and Salesforce reflects investor fears that AI will disrupt rather than benefit these companies. Fund manager Simon Edelsten draws parallels to his biggest investment error with Yell plc, whose directory business collapsed after failing to anticipate internet disruption.

Three critical lessons emerged from the Yellow Pages failure: being ultracritical when investments decline, valuing companies on tomorrow's earnings rather than yesterday's, and maintaining proper diversification. These principles remain relevant as AI threatens to lower barriers to entry for software companies, similar to how the internet disrupted traditional directories.

The current software sector faces correlated risks despite appearing diversified by conventional standards. Investors might consider "old-fashioned" businesses less threatened by AI, many of which now look attractively valued. Edelsten's approach suggests balancing tech investments with traditional sectors maintaining competitive advantages against digital disruption.