The annual letter to shareholders from Berkshire Hathaway has been released. In the letter, Greg Abel reviewed the value investment principles long upheld by Warren Buffett, summarized the company's strategic considerations for 2025, and reaffirmed the commitment to maintaining Berkshire's steady and rational investment approach.
From a long-term performance perspective, Berkshire Hathaway has achieved an average annual compounded return of approximately 19.7% over the past 61 years, significantly outperforming the S&P 500's average return of about 10.5%. Observing the overall compound interest effect, the company's net asset value has grown approximately 60,000-fold over 61 years, compared to a roughly 460-fold increase in the S&P 500 index during the same period, fully demonstrating the long-term power of compounding. This indicates that while value investing may not always stand out in any single year, the cumulative returns over the long run can be substantial.
According to the financial report from the end of last year, Berkshire Hathaway's holdings of cash and U.S. Treasury securities exceeded $370 billion, reaching a record high and, for the first time, surpassing the market value of its stock portfolio. Over the past two years, the company has continuously reduced its equity exposure by selling some stock assets to guard against potential market risks. This reflects management's cautious stance amid the ongoing rise in U.S. stock markets.
Regarding capital allocation, Abel emphasized directing shareholder capital towards businesses that are well-understood, possess durable competitive advantages, and have long-term economic prospects, thereby aligning risk with return. This approach highlights a strong focus on long-term value creation capability.
Looking at investment themes, technology and resources remain key focuses for 2026.
First, artificial intelligence is entering a phase where it is translating into actual performance. The global economy is currently in the midst of the fourth technological revolution, characterized by the widespread application of AI. Leading companies, exemplified by Nvidia, are gradually transitioning from a phase of "exceeding expectations" to one where "revenue and profits are materializing." Applications of AI agents are progressively being implemented, potentially approaching a critical inflection point that could drive a new round of industrial upgrading.
Last year, technology stocks performed prominently in the A-share market. While they may not be the sole focus this year, they remain an important sector. However, the difficulty of investing in this area has increased noticeably, with significant gains in some individual stocks creating potential profit-taking pressure. Investors should be wary of substantial volatility following speculative rallies and should instead return to fundamental analysis, focusing on order books and performance validation.
As 2026 marks the beginning of the "16th Five-Year Plan" period, technological innovation directions are expected to continue receiving policy support. This includes areas such as embodied AI, chips and semiconductors, computing power and algorithms, biomedicine, quantum technology, commercial aerospace, and controlled nuclear fusion. Breakthroughs in key technologies could enable related companies to demonstrate stronger and more sustained performance.
Second, against the backdrop of the AI era, the importance of resource commodities such as non-ferrous metals, chemicals, and crude oil has increased further. Recent changes in the international situation have driven up crude oil prices, while increased U.S. government stockpiling and reserves of non-ferrous metals have also contributed to price increases—a trend likely to continue. In the context of "de-dollarization," prices of precious metals like gold and silver continue to strengthen. As barometers of the macroeconomy, industrial metals like copper and aluminum benefit from economic recovery and rising inflation expectations. Holding precious metal assets with safe-haven attributes helps hedge against currency depreciation and geopolitical risks. The market is currently entering the second phase of a bull market, characterized by significant structural opportunities, making it particularly important to adhere to value investment principles and allocate to quality assets from a medium- to long-term perspective.
Third, the chemical sector is currently showing substantial valuation recovery potential. After a four-year downturn, industry sentiment is at a turning point, with various indicators suggesting a gradual bottoming out. 2026 is expected to welcome a cyclical inflection point. Previously, industry prices were at historically low levels, and stabilization and recovery on the profitability front are expected to drive earnings growth.
Concurrently, accelerated contraction of chemical production capacity in Europe presents an opportunity for Chinese companies, leveraging their scale and cost advantages, to increase their global market share. However, against the backdrop of an overall slowdown in economic growth, the recovery in demand remains uncertain, and there may be periodic fluctuations.
From an investment standpoint, focus can be placed on sub-sectors with strong end-demand and signs of product price increases. Monitoring downstream work resumption rates and inventory replenishment efforts will be key to determining whether the current market upturn can transition from a rebound to a sustained reversal.