Q2 2025 Review: Honeybee

On May 3rd Warren Buffett announced he was stepping down as CEO of Berkshire Hathaway.

It wasn’t the first time Buffett stepped away. In 1969, he closed his partnership, writing: “Quite frankly, I would continue to operate… …However, I just don’t see anything available that gives any reasonable hope…and I have no desire to grope around hoping to “get lucky” with other people’s money.”

Buffett will be 95 this summer, so it’s tempting to chalk it up to age, but there is something symbolic in him hanging it up, again, during one of the greatest stock market runs in history.

Of course, it’s not quite accurate to say Buffett stopped investing in 1969. Through his little holding company, Berkshire Hathaway, he kept quietly buying businesses. This structure let him sidestep the “Nifty Fifty” mania, while still making some of his most legendary acquisitions – See’s Candies, Washington Post, and National Indemnity.

While it’s hard to compare the leading nifty fifty companies like IBM, AT&T, Polaroid, and Xerox to today’s supernovas like Nvidia and Tesla, the broader market parallels are difficult to ignore.

Q2 In Review

At the start of the quarter, it looked like the AI rally was losing steam. Markets worried about over investment in AI infrastructure but largely dismissed Trump’s tariff threats as political theater. The economy, many believed, would continue marching along behind a “pro-business” tailwind.

That changed quickly on Liberation Day, when Trump announced sweeping tariffs. Stocks dropped 12% in a week. We wrote at the time that “the pillars supporting markets for decades – global trade, technological advancement, and American exceptionalism – will regain their footing, whether through elections, economic pressure, or both.”

Sure enough, albeit quicker than anticipated, Trump backed off his harshest threats. Markets staged a sharp recovery, finishing the quarter up 10%, bringing the year-to-date gain to 6%. 

Trump also got his “Big Beautiful Bill” through Congress, which on its face is a reckless expansion of federal deficits. Alongside tariffs, the combination should drive inflation and interest rates higher. So far, investors are giving Trump the benefit of the doubt betting that AI, low taxes, and deregulation will unleash a productivity boom big enough to grow the country out of its fiscal hole.

The Honeybee Market

Despite the news cycle, the economy remains resilient. Unemployment is low, and wealthy consumers are still spending. Regional conflicts, though heartbreaking, remain contained. Inflation is running above the Fed’s target but has yet to accelerate from tariffs. At the same time, higher prices continue to squeeze lower-income households, and the housing market is softening, but mostly in areas overbuilt during the Covid boom.

Even amid this mixed backdrop, the best analogy we’ve heard is that we are in a honeybee market. Investors are swarming to anything that looks sweet. Say the word AI or quantum and the bees come buzzing.

The data backs this up. Retail investors poured a record $155bn into US stocks this year, according to VandaTrack – much of it going into market cap weighted indices and AI stocks. Meanwhile the FT reports that 50% of US wealth is now invested in stocks, breaking the record set during the dotcom bubble.

But step outside the large-cap tech hive, and the landscape is murkier. Small and mid-cap stocks are negative on the year. Traditional safe havens like consumer staples and healthcare are massively underperforming, and cyclicals like retail and homebuilding are having difficulty navigating tariff headwinds and softer demand.

What to do?

With so much focus back on AI, it’s easy to get caught up in the flavor of the day, but when the hive is swarming, discipline matters most.

This isn’t about avoiding AI altogether, it’s about avoiding blind enthusiasm. Instead, we’re focused on understanding how AI reshapes the competitive landscape for the companies we own or want to own. If AI really is the next major platform shift, even today’s most powerful companies could be disrupted.

The beauty of a diversified portfolio is that not every investment needs to solve AI. Take Starbucks, a new addition to the portfolio. CEO Brian Niccol is getting back to basics: simplifying operations, hiring baristas, and refocusing on the in-store experience rather than chasing store count expansion. It’s an iconic brand, largely immune to AI disruption, and we believe the shift in strategy will improve results.

We’re also adding Rocket Companies, owner of Rocket Mortgage to the portfolio. Although housing faces near-term headwinds, Rocket’s long-term platform advantages, potential to leverage AI tools and dominant market share create a compelling setup at today’s valuation.

On the sell side, we’ve been rotating out of long-term holdings where we see rising risks from AI, particularly in software and creative industries, or where valuations no longer reflect reality. It’s the best way to protect and grow our clients’ assets in a rapidly changing world.

What we’re not doing is trying to guess when the honey will dry up. We know that patience and process – not prediction – is what wins over time. Buffett made some of his best investments during a period much like today, not by chasing the crowd, but by focusing on value while others sought momentum.

We haven’t been around as long as Buffett, but through nearly thirty years of managing our clients’ savings our mission has never wavered: stay disciplined, sidestep the speculative swarm, and invest in durable businesses built for the long run. We intend to keep doing exactly that. 

_{Compass Wealth Management LLC is a SEC registered investment advisor, clearing transactions primarily through Pershing Advisor Solutions and Pershing LLC subsidiaries of Bank of New York Mellon Corp. This letter is written by Compass for the benefit of its clients and does not necessarily represent the opinions of its affiliated organizations. It is based on information believed to be reliable, but which is not guaranteed to be correct. Nothing herein shall be construed to be a solicitation to buy or sell securities, indicate that past performance is predictive of future returns, or recommend individual investments.}