2 July 2025 – Half-Year Letter 2025

The first half of 2025 has been marked by significant global events, from military conflicts, tariffs and regulatory shifts to fluctuating inflation expectations and evolving political dynamics. While these macro developments have captured widespread attention, they are not the primary focus of our business. At Lema Capital, we prioritize micro-analysis, seeking companies that deliver consistent performance regardless of macroeconomic conditions. For example, businesses like Coca-Cola thrive in any environment, and we aim to identify and invest in companies with similar resilience.

In line with this philosophy, we maintained confidence in our advised portfolios throughout the first half of 2025, capitalizing on select opportunities that arose in April. Notably, we advised to add shares of KKR and Blackstone to the portfolios, two firms with decades of consistent growth, strong management, and exceptional returns on invested capital. In April 2025, these stocks traded at prices we believed were below their intrinsic value, allowing us to strategically position our portfolios to benefit from this undervaluation. This is not the case anymore at the moment of the writing of this letter as such stocks recovered their prices substantially. In any case, this letter is not to be considered as an offer of financial instruments.

Macro events often create volatility in the stock market, leading to significant price declines that we view as opportunities. By staying disciplined, we can capitalize on these discrepancies to enhance portfolio performance.

Beyond our investment decisions, we’ve also been reflecting on broader financial strategies.

In this sense, I also want to address a topic that has surfaced in recent discussions with clients and colleagues. As we are based in Switzerland, where interest rates remain low, many investors are drawn to Lombard loans—often at 1% annual interest—to purchase fixed-income bonds yielding 5%. Secured by their existing portfolios, these loans generate a 4% spread, which appears to be "free money." However, I’d like to share a cautionary perspective shaped by a historical example.

In the 1970s, an investor that was part of a trio with Warren Buffett and Charlie Munger, used leverage to amplify his gains. During a market downturn, history says that he was forced to sell his positions to honor the loans, including selling his Berkshire Hathaway shares to Buffett at a steep discount, resulting in significant losses. This story underscores a critical lesson: leverage can accelerate wealth creation in a bull market but can devastate wealth during volatility or crises.

While leverage has its proponents, our clients typically take risks in their core businesses and seek to preserve and grow their savings with us conservatively through investments in fixed income, real estate and high-quality stocks. Adding leverage to this strategy introduces substantial risk to the wealth they set-aside for financial investments, particularly during inevitable market downturns.

At Lema Capital, we adhere to the principle of protecting the downside while allowing the upside to take care of itself. Leverage amplifies the risk of loss during periods of market volatility, which history shows occur regularly. Apparently, as Warren Buffett once remarked when asked about the aforementioned story, he was never in a hurry to get rich. By compounding returns steadily over the long term, wealth can be built without the heightened risks associated with leverage.

We encourage our clients to remain mindful of these risks and focus on sustainable wealth creation. Thank you for your continued trust in Lema Capital. We wish you a productive week and remain committed to helping you grow smarter each day.

Sincerely,

Leonardo Mader Furtado

Lema Capital