Stepping down at the zenith of his career, Buffett delivers his ultimate verdict on the capital markets.

Confronted with the intricacies of the capital markets, Buffett has devoted his entire life to refining and substantiating the merits of the 'value investing' philosophy.

Since assuming control of Berkshire Hathaway in 1965, Buffett has, over a span exceeding six decades, propelled this once-bankrupt textile firm to unprecedented heights, showcasing the might of the markets to the world. Today, the company has metamorphosed into a multifaceted financial conglomerate with a market capitalization surpassing USD 1 trillion.

Media reports indicate that upon his retirement, Buffett's net worth soared to USD 151 billion, securing him the tenth spot on the Bloomberg Billionaires Index.

According to Buffett's 'farewell letter,' commencing this year, he will cease to pen Berkshire Hathaway's annual report. This signifies the end of opportunities to glean his short-term or long-term market insights from the annual report.

Throughout Buffett's illustrious investment career, embracing firms with robust cash flows and delving into consumer, energy, and comprehensive finance sectors have been pivotal themes. Bolstered by 'value investing,' Buffett has reaped the dividends of these industries' growth and achieved transformation amidst the era's progression.

Over the past decade, one of Buffett's notable investments was his 2018 foray into Apple. This move sustained Berkshire's investment legacy and served as a cornerstone for Buffett's continued dominance in the capital markets. In recent years, Buffett has commenced significantly paring down his stake in Apple, paving the way for his successor, Greg Abel, to maneuver freely.

When scrutinizing Buffett's transactions with hindsight, the significance of a core framework becomes apparent. This entails that during the trading process, the aim is not to evade errors entirely but to avoid fatal blunders and possess the acumen to rectify course promptly. Moreover, it is imperative not to heavily invest in industries beyond one's comprehension and to uphold a robust cash flow.

As 2025 nears its conclusion, the lessons market participants can glean from Buffett are finite, yet his market acumen and perception warrant our enduring study.

Avoiding 'Major Blunders'

From Buffett's investment odyssey, it is evident that he does not eschew mistakes entirely but swiftly rectifies them post-occurrence.

Take Kraft Heinz as a case in point. As early as September this year, Kraft Heinz unveiled a spin-off plan, much to Buffett's chagrin. He expressed dismay that the Kraft Heinz board had announced the spin-off sans consulting shareholders.

Financial reports reveal that Berkshire is Kraft Heinz's largest stakeholder, holding approximately 27.5% of the shares.

It is widely acknowledged that Kraft Heinz has consistently been a significant holding for Berkshire. So, why did Buffett 'err' in the Kraft Heinz transaction? What insights can this investment impart?

Data indicates that this transaction commenced in 2013 when Berkshire collaborated with Brazilian private equity firm 3G Capital to acquire Heinz for USD 28 billion (inclusive of debt).

In 2015, to economize, Berkshire spearheaded the merger of Heinz and Kraft Foods Group. Post-merger, Kraft Heinz's market capitalization once neared USD 100 billion.

Notably, this advantage proved fleeting. With the advent of new retail, the traditional consumer goods company's moat was 'breached,' and Kraft Heinz gradually began to relinquish its edge.

In 2017, Buffett reflected that colossal retailers like Walmart, Amazon, and Costco were gaining ascendancy. Their private-label products, offering high quality at competitive prices, severely constricted the living space and bargaining power of traditional brand manufacturers like Kraft Heinz. Consumer allegiance to traditional brands was waning, with a greater propensity to experiment with novel, cost-effective products. This shift in retail channel dominance eroded Kraft Heinz's once-formidable market.

Although Buffett acknowledged this transformation, he did not diminish his stake in Kraft Heinz. In the first half of this year, Berkshire downgraded the book value of its Kraft Heinz holding to USD 8.4 billion, recording an impairment of roughly USD 3.8 billion. Regarding this transaction, Buffett expressed regret, stating that he had 'overpaid' for a high-caliber company.

Buffett also remarked, 'If an offer to purchase our shares materializes, we will not accept a block purchase offer unless it extends to all other Kraft Heinz shareholders at the same price.' In essence, unless someone intends to acquire the entire company, Berkshire will not contemplate selling its shares separately.

In May this year, Kraft Heinz announced that Berkshire would no longer occupy a seat on its board of directors. This also signals Berkshire's intent to withdraw. From Kraft Heinz's current predicament, its total market capitalization has plummeted to USD 28.5 billion. Whether successor Greg Abel will liquidate Berkshire's stake in Kraft Heinz in the future remains to be seen over time.

Another instance is the investment in Occidental Petroleum. Data reveals that since 2022, Buffett has been acquiring substantial quantities of Occidental Petroleum. According to media analysis, Buffett's average cost of purchasing Occidental Petroleum exceeded USD 50 per share, while the current stock price languishes below USD 40 per share. This implies that his current holdings still incur a substantial unrealized paper loss. Whether this transaction will ultimately yield significant value remains to be validated by the market in the future.

Analyzing these two cases, it becomes evident that Buffett's investments are not infallible. Instead, ensuring that core investments do not falter enables him to navigate through cycles repeatedly.

The Future 'Trajectory'

With the AI revolution in full swing, Buffett's investment returns have exhibited noticeable 'passivation' (dulling or stagnation) in the past two years.

Owing to his investment preferences, Buffett missed out on the entire tech era's dividends in the US stock market. Nevertheless, he adhered to his investment philosophy and practically demonstrated the value of value investing.

Of course, Buffett's decision to eschew tech stocks does not imply a rejection of market changes. Instead, it reflects his clear demarcation of his investment boundaries.

From an investment standpoint, a company's moat is subject to flux. Especially in traditional industries, as time elapses, a company's value undergoes significant transformations. Adapting to these changes in corporate value constitutes the core of investment.

Take Kraft Heinz, for instance. Buffett's integration did not yield the anticipated transformations. However, with the evolution of new retail, Kraft Heinz's moat underwent substantial alterations, leading to significant changes in its valuation.

In reality, Buffett had already developed a profound comprehension of this. Hence, while selecting his successor, Buffett also afforded him ample latitude for choice. By the end of the third quarter of this year, prior to Buffett's retirement, Berkshire's cash reserves soared to USD 381.67 billion, setting a new historical record. Moreover, the company had not repurchased any stocks for nine consecutive months.

This implies that Abel possesses as many options as possible to ascertain Berkshire's trajectory in the post-Buffett era. From the current outcomes, he has already made his selection. In the third quarter, Berkshire acquired approximately 17.85 million shares of Google stock, with a market value of around USD 4.34 billion, accounting for 1.62% of its overall holdings and ranking tenth.

Previously, we believed that the AI revolution had led to significant surges in the valuations of companies like Nvidia, Microsoft, and Google, suggesting that Abel's choices were constrained.

However, from the perspective of capital expenditures by leading AI companies, we surmise that with the progression of AI, the current AI market bubble has not yet inflated, and the industry still harbors significant growth potential. Hence, we have revised our stance and believe that in 2026, Abel will persist in augmenting investments in leading AI companies.

In essence, a company's moat is in a constant state of evolution. Nevertheless, for the future, the philosophy of value investing remains pertinent. Especially in today's rapidly evolving era, acquiring exceptional companies and growing alongside them becomes even more paramount. For instance, time will attest to the value of AI behemoths like Google.