The first law of capital allocation is that
what is smart at one price is dumb at another.
Warren Buffett
Dear investors and friends,
As a standard practice, you’ll get to read this annual letter in which I try to condense what the year has been and more. In particular, if you’re not new, you’ll know that it’s an opportunity to remark on the more abstract trait of the investing practice. Those, in my opinion, are the foundations upon which to build all the rest.
................2020.........2021.........2022.........2023...…..2024...…..2025……CAGR
S&P500.…16.26%.....26.89%.....-19.44%....23.70%….23.20%…16.39%…13.23%
peterlavi...26.92%.....26.12%.....-26.70%....27.26%....26.49%…16.64%...14.07%
As a routine, the annual performance of your capital and mine is presented here. The final column is in bold, as it represents a key metric, known as CAGR.
By CAGR, we mean Compound Annual Growth Rate of Return. It is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment's life span.
The performance remains positive for the year and the period. I know that you already know it, but it is still worth recalling that even a slight difference in compounding rate can translate into a substantial gain over a long investment horizon. The following example helps: take an initial capital of $10k invested over 20 years. On the one hand, compounded at 10.0% per year; on the other hand, at 10.5%. At the end of the two decades even the small 0.5% premium resulted in a significant difference in the final amount ($6,387.35 more - $73,662 vs. $67,275).
Reportedly, missing the best days or months in a long string of returns can significantly impact your returns. If you missed the market's 10 best days over the past 30 years, your returns would have been cut in half. And missing the best 30 days would have reduced your returns by an astonishing 83% in the recent 20-year period (1994-2023). This is a yearly reminder that staying invested and hence the total time of our capital being deployed, beat the art of trying to time the market on when and how to enter.
Thanks to all the copiers and friends who entrusted me with a part of their capital.
You can be assured that it will be invested with the exact same caution and prudence as I invest mine. Your capital is totally aligned with mine.
As a foundation rule, next's year performance would not matter for us. Next year could be either good or bad. It will not matter much for us. Indeed, we choose valuable and profitable businesses that will reward us greatly in the span of 5 to 7 years.
You will end up wealthier. We will end up wealthier.
Wrapping up the Year 2025
It was a year marked by policy shock. April was the month of US tariffs on all countries, and then followed the negotiations. This, along with the ineluctable geopolitical interconnection, leads to higher-for-longer uncertainty.
Despite all that, markets voted confidence in the US and its allies to have the best companies in the world. The US remains the reference standard both for financial markets and reserve currency in the coming years, maybe also due to a lack of valuable (and trustworthy) alternatives.
Nonetheless, we keep on seriously monitoring alternatives. In particular, European and Japanese stocks could offer value coupled with reliable legal and political structures defending the investors and the entrepreneurs' freedom of speech and action, alongside with the safety of workers.
Our holdings
Deciding to sell Apple Inc. (AAPL) was not an easy decision, but it was grounded. The company experienced a decline in revenue growth, and we value the capital to be better deployed elsewhere, while retaining an indirect exposure to the company via BRKB - that is one of the biggest shareholders in Apple Inc.
After the April tariff-led sell-off, we decided to add to our long-time Alphabet Inc. (GOOG) position. The market was mispricing its true earnings power and market dominance. The main reason was short-sighted. At the end of the summer of 2025, the company was scheduled to face a tough antitrust matter regarding its monopoly on ads and search. We read the documents, estimated the fair value of the company, and come up with a two-to-three year investment target. History proved us right, faster than expected. We were ready to carry a (paper) loss for several months before having the market materialize the true value of the company. We ended up the year with GOOG as our top holding. More is coming in the following year as the market will take notice of the great capital allocation capabilities of the management team (investments in autonomous driving tech Waymo, space exploration company SpaceX, Artificial Intelligence lab led by Nobel prize-winning DeepMind, and so on).
Legal hurdles will keep on being a persistent theme across virtually all our holdings, given the nature of our stock selection. High-quality business, with proven moat and pricing power, will attract legal scrutiny as part of the normal democratic capitalist process.
At the ritual annual shareholder meeting of BRKB, the legendary CEO Warren Buffett announced he would step down from the day-to-day operations in favor of the already deeply involved and long-time director Greg Abel. We view this company as a safe place in the current volatile landscape, with a collection of US-based quality businesses (hence better insulated from the geopolitical noise), alongside the powerful and cash-generating insurance businesses. On top of that, they are holding a vast sum of cash ready to be deployed at convenience, and also have the best capital allocator possible in place to make the right calls. We did not added to the position as the price was not yet good enough, an estimate shared by the BRKB management team, as evident from the lack of buybacks.
The word CapEx has been a buzz word for the year. It refers to capital expenditures, meaning the expenses done by the company in order to acquire, upgrade, and maintain assets to grow or improve operations. The big rise in CapEx from the biggest companies in the world led to a lot of doubts regarding the sustainability of the business models. The main driver of CapEx was AI (in the form of compute power and storage), determining a shift from typical asset-light software companies to capital-intensive organizations. There will be losers. We feel confident that our selection criteria are able to detect them and that our holdings will be among the winners, given the ample cash-flow available and the resiliency of their proven business models, as in the case for MSFT and META. Regarding AMZN, we are awaiting for them to profit on robotics. They have deployed over 1 million robots across its operations with positive effects on efficiency and safety of warehouses. When the market is ready, it will knock on its door.
One essential component of our existence is the capital market. We live, learn, work, retire, teach, and rest. Along the first arc of time, we'll be looking at accumulating capital to enjoy it and also to save for retirement. Saved capital will be deployed in capital markets, either directly by individuals or by institutions (like pension funds). A perk in our portfolio is ensuring just that vital part of our life. IBKR is an international broker, based in the US, which gives hedge funds and individuals access to capital markets. Regardless of market conditions, they'll have volume of trades either on the upside or on the downside. This is not the goose that laid the golden eggs, it still has several competition and execution factors to face. We believe this company is well placed to keep on thriving, given the solid structure of management and tech deployed across the board.
During the final part of the year, we recognized the important part of metals in the lives of people. It's been years since we flirted with the idea of having exposure to gold in our portfolio, as well as we already have in our daily life (think bracelets, necklaces, and on a higher level, gold bars stored in the central banks' vaults). We opted for a Peruvian company called Compania de Minas Buenaventura SAA (BVN). The allocation is small, and via a cash-generating organization, yet it marks a significant shift for our view as pure value-oriented investors, recognizing the importance of human psychology around the shining metal.
In January 2025, the FDA (Food and Drug Administration of the US) approved a new analgesic. The compound, suzetrigine, marked history. Indeed, it is a non-opioid analgesic, hence shielded from the scary and dangerous opiod addiction side effects. It is also a firs-in-class drug, because it reduces pain by targeting pain-signaling pathways that involve sodium channels (NaV) in the peripheral nervous system, before pain signals reach the brain. It is approved for moderate to severe acute pain, and more than 550,000 prescriptions have aready being filled by year-end in 2025. We hold the company behind this great innovation, Vertex Pharmaceuticals Inc. (VRTX). The rationale for our holding, bought long before the FDA approval, is that they are the leader in the cystic fibrosis treatment with continuous innovation and patent extension in that area, giving them the ability to easily invest in R&D for new products.
Thank you once more, to all the copiers and friends who entrusted me with a part of their capital.
Stay well, with an active mind, and body.
Until next year,
peterlavi - Pietro Lavisci
Disclaimer: The information provided on this website is for informational purposes only and is not intended to be a substitute for professional financial advice. The author is not a financial advisor and does not hold any relevant licenses or registrations. The author's opinions are based on their own research and experience, and should not be considered investment advice. Investors should always conduct their own research before making any investment decisions. Past performance is not a guarantee of future results. Investing in securities involves risk, and investors may lose money. The author is not liable for any losses or damages that may occur as a result of the information or opinions provided on this website.
