The Best Ideas I Found in Q3 2025 Investor Letters (Part I)

From Tom Russo's letter. Richemont, Heineken, Nestlé, Alphabet, Philip Morris and BRK.

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Comments on

• Compagnie Financiere Richemont (SWX: CFR)

• Heineken Holding NV (AMS: HEIO)

• Nestlé (SWX: NESN)

• Alphabet ( GOOGL 0.00%↑ )

• Philip Morris ( PM 0.00%↑ )

• Berkshire Hathaway ( $BRK )

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Richemont

Tom’s admiration for Richemont comes through strongly. He considers it one of the most robust luxury franchises in the world, anchored by Cartier, Van Cleef & Arpels, and other maisons whose brand equity has only deepened with time. Management’s shift toward a DtC retail model has been transformative. By owning more of its sales channels, Richemont now controls its inventory, customer experience, and pricing more effectively — driving both margin expansion and resilience through cycles.

Russo credits Richemont’s leadership for refusing to chase volume at the expense of exclusivity. While competitors in the luxury space have relied on serial price hikes and short-term marketing, Richemont has focused on craftsmanship, timeless design, and quality control. This discipline has created one of the most admired and trusted brands in global jewelry. This long-term orientation, though sometimes less dramatic in the short term, leads to superior durability and pricing power across decades.

The letter also highlights how Richemont’s digital and logistics capabilities — strengthened after years of investment and the gradual resolution of its YNAP e-commerce divestiture — will further enhance capital efficiency. As jewelry margins continue to outpace watches, Cartier and Van Cleef are likely to remain Richemont’s twin engines of profitability. The company’s balance sheet is strong, its culture conservative, and its operational execution precise.

In the broader context of global luxury, Tom views Richemont as a “compounder hiding in plain sight.” The firm believes the market still undervalues its resilience, brand depth, and adaptability, and sees patient ownership rewarded as the company compounds cash flow through both organic growth and steady repurchases.

Brand loyalty that characterizes their loyal consumers’ view of themselves provides an extremely powerful tailwind for businesses that provide services, products, etc., that the consumer does not believe there to be any adequate substitute

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Beverage Alcohol Industry

Much like the luxury goods business, the beverage alcohol industry is suffering through a period of investment industry adverse consensus regarding the spirits industry’s weak state, when some believe it is the beverage alcohol business’ fight at present for its very survival.

The sector as mature but fundamentally appealing: global consumption growth is slow, yet the industry’s leading players benefit from pricing power, enduring brands, and emotional consumer connection that few other staples can replicate. The core economics — high returns on capital and strong FCF — are exceptionally stable, even in inflationary or volatile macro periods.

Russo underscores that premiumization remains the defining trend. Consumers worldwide are “drinking better, not more,” shifting from mass-market brands to premium and craft offerings. In spirits, this has meant robust growth for high-end tequila, whiskey, and gin; in beer, it has translated into share gains for international and local premium brands. The pandemic and ensuing recovery accelerated this behavioral shift, as consumers increasingly associate alcohol purchases with identity and experience.

However, Tom also cautions that the global picture is uneven. In developed markets, consumption is flat or modestly declining, while emerging markets — notably in Africa, Asia, and Latin America — remain key drivers of volume and profit growth. This divergence favors producers with global reach and flexible supply chains. Those who can manage both mature and frontier markets simultaneously are likely to compound earnings at above-average rates.

As bad as industry conditions are at present, it is our belief that the industry will continue to work its way back towards one that treasures robust brands into which consumers invest a significant amount of their sense of social purpose.

For Russo, the sector offers both defensive ballast and attractive reinvestment opportunities. The firm prefers beverage companies with strong family or foundation ownership, operational discipline, and pricing power rather than those pursuing aggressive M&A. It sees the best returns accruing to those who can quietly reinvest in brands, expand distribution, and maintain scarcity value in their labels.

Heineken Holding

Within the alcohol category, Heineken Holding stands out as one of Russo’s core long-term positions. Tom prefers the holding company structure, which offers indirect control over Heineken N.V. at a persistent valuation discount, effectively giving investors access to a world-class brewer at a bargain. This structure reflects the fund’s affinity for owner-controlled, conservatively managed businesses that prioritize multi-decade value creation over quarterly results.

Few consumer brands, indeed, few trademarks in all the consumer universe, would be hard to find one larger in standing and in messaging than Heineken.

Russo applauds Heineken’s continued execution in premiumization and emerging-market expansion, particularly in Asia and Africa. Despite cost inflation and foreign-exchange pressures, the company’s profitability remains solid thanks to its broad global footprint and scale. Heineken’s brands — led by the flagship Heineken label, alongside Amstel, Tiger, and Birra Moretti — have achieved enviable brand recognition and consistency. These attributes allow the company to maintain pricing power even when consumption volumes stagnate in developed markets.

Tom expects margins to gradually expand as efficiency programs take hold and as input costs normalize. Management’s disciplined capital allocation, combined with an ongoing focus on sustainability and local relevance, enhances brand equity and operational stability. Russo notes that in a world of shrinking real returns, Heineken offers one of the most reliable paths to mid-teens total returns through earnings growth, dividends, and modest re-rating potential.

Heineken combines the economics of a consumer staple with the growth optionality of an emerging-market play. The holding discount adds a layer of safety, and the family’s influence ensures continuity of culture and governance. It’s a long-duration compounding story that fits perfectly with the fund’s philosophy.

Heineken has the most global posture of any mid-priced premium to super-premium beer globally. It is a company which celebrates and worships their brand, invests considerably in support of brand messaging, and has been a constant presence during the changes underway over decades in beverage alcohol.

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Nestlé

Tom Russo calls Nestlé “the steady ship in rough seas,” underscoring its reputation as one of the world’s most stable and reliable consumer companies. He credits Nestlé’s management for maintaining consistent organic growth, strong margins, and excellent cash conversion even during periods of cost inflation and currency headwinds. The company’s resilience comes from its diversified portfolio and its unrelenting focus on nutrition, health, and pet care — categories with strong secular tailwinds.

Nestlé’s transformation under CEO Mark Schneider continues to impress. The company has divested lower-quality businesses — such as confectionery and bottled water — while reinvesting in high-growth, high-margin areas like Purina PetCare, Health Science, and Coffee (Nespresso, Nescafé). This portfolio reshaping has improved both return on capital and earnings stability, while also freeing up cash for share repurchases and dividends.

Pricing discipline remains one of Nestlé’s core advantages. Its ability to pass through cost inflation without sacrificing volume demonstrates the power of its brand ecosystem — a rare moat in global staples. The letter notes that Nestlé’s scale in distribution and procurement, coupled with its local manufacturing networks, gives it flexibility that few peers can match.

For Tom, Nestlé epitomizes the type of business the fund wants to own indefinitely: global, diversified, cash generative, and culturally consistent. Its compounding comes from predictability and capital discipline rather than surprises. He views the stock’s mid-single-digit organic growth, paired with steady margin expansion and buybacks, as a formula for enduring wealth creation.

Alphabet

Tom Russo continues to hold Alphabet as one of its largest and highest-conviction positions. The letter pushes back against the prevailing narrative that AI will erode Google’s dominance in search and advertising. Instead, the fund argues that AI integration strengthens the moat, improving user engagement and ad targeting efficiency while reinforcing Google’s lead in infrastructure and data.

Our holdings in Alphabet reflect a company for which the consensus for its prospects were meaningfully unrewarding in light of the extraordinary investments which had been made over the past decade to position Google in a world which would eventually be revealed as driven by AI.

Tom highlights that Alphabet’s AI Overviews and Gemini integration are already proving accretive to monetization, contradicting fears of margin compression. Meanwhile, Google Cloud and YouTube continue to scale rapidly, providing multiple engines of growth. Alphabet’s vertical integration — from Tensor Processing Units (TPUs) to its vast global data centers — gives it an unmatched cost advantage in AI compute, a key differentiator versus other players dependent on Nvidia GPUs.

Our holdings in Alphabet are a perfect example of how the burden of overly pessimistic consensus has been lifted over the course of two years as a result of aspects which had received unwarranted criticism from investors given Alphabet’s unique capacity and desire to invest for long-term future returns, but also that they have benefited our investors as we believed in the long-term likely success of moonshot investments by Google management.

The letter also underscores Alphabet’s disciplined capital allocation. After years of perceived bloat, management has refocused on efficiency, returning cash through buybacks and dividends while maintaining robust investment in moonshots like Waymo and DeepMind. The company’s financial strength and innovation culture give it optionality that few large caps possess.

Russo concludes that Alphabet’s combination of scale, data, and infrastructure will make it one of the defining beneficiaries of AI adoption rather than a victim. The stock’s valuation, still modest relative to its long-term growth potential, offers what the fund calls “durable compounding at a discount.”

Philip Morris International

Once emblematic of a declining industry, Philip Morris has methodically pivoted toward smoke-free products and nicotine innovation, reshaping its growth and risk profile. The cornerstone is IQOS, the company’s heat-not-burn device, which now accounts for more than a third of total revenue and continues to expand rapidly in both developed and emerging markets.

Tom notes that the acquisition of Swedish Match in 2022 marked a strategic masterstroke, securing global leadership in oral nicotine with the Zyn brand. This deal accelerated Philip Morris’s diversification away from combustibles, expanding its addressable market and reinforcing its pricing power. With regulatory scrutiny still present but manageable, the company is executing a clear, capital-disciplined strategy focused on profitable growth and cash returns.

Financially, Philip Morris remains a powerhouse: high margins, strong FCF, and an attractive dividend yield near 5%. Russo argues that the market continues to underestimate the company’s transformation trajectory and the stability of its new revenue base. The company’s ability to compound in the low double digits, despite regulatory headwinds, makes it a rare blend of defensive income and structural growth.

Tom sees Philip Morris as one of the best examples of transition done right — a business moving up the quality curve without abandoning its core strengths. The company’s disciplined leadership and shareholder focus make it a durable compounder even in a heavily scrutinized sector.

Berkshire Hathaway

BRK remains both an anchor and a benchmark — a model for rational capital allocation, decentralized management, and enduring compounding. Tom praises Berkshire’s diverse profit engines across insurance, railroads, energy, and manufacturing, emphasizing that its structural conservatism and liquidity discipline have made it uniquely resilient through multiple economic cycles.

Berkshire’s record US$250+ billion cash pile is seen as a weapon, not a symptom of inactivity. Tom believes this “dry powder” positions Berkshire to capitalize on major market dislocations, whether through acquisitions or opportunistic equity purchases. The company’s measured pace of buybacks continues to provide a tax-efficient way of compounding intrinsic value when external opportunities are scarce.

Russo sees Berkshire as “institutionalized value investing at scale.” It embodies the fund’s core philosophy: patient compounding through prudent risk management and operational excellence. The culture — shaped by Buffett and perpetuated through Greg Abel and Ajit Jain — remains deeply aligned with shareholders and continues to attract top-tier operators to its subsidiaries.

Today, however, investors are increasingly all too focused on the negative effect the cash hoard is having on Berkshire Hathaway’s near-term growth because of the ballast that the cash represents.

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