Polaris Capital Management - 2025 Annual Blog

Welcome to the fourth (2025) annual blog for Polaris Capital Management (PCM). As is customary, I write these annual blogs for reflecting on the past year, focusing on what I felt was relevant. I will not talk about our portfolio holdings (or other individual securities) unless I use an investment as an example to make a point. Please read the disclosure at the end of the blog, nothing here should be treated as financial advice.

I keep the format of my annual blogs consistent to the extent possible, to provide some continuation in the commentary. Our approach with these blogs (as with our advice and investments) - consistent but flexible. If you are interested in the blogs from previous years, here is the link.

Business Status:

The new business update for this past year is the launch of our private investment partnership - Atchala Investment Fund (AIF), with yours truly, serving as the General Partner. AIF is a pooled capital vehicle that invests in public equities. AIF's investment philosophy and structure is inspired by the Buffett partnership model.

Apart from that, PCM’s assets under management (AUM) continued to grow in 2025 (this is a combination of new assets and growth in the invested assets). While PCM's assets under management are public info, please be aware that PCM provides a lot more in the way of financial advice than can be captured by the AUM number alone.

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2025 was a rollercoaster for the markets, but, the S&P 500 still ended up ~17%. From tariffs to DeepSeek to "AI will take all our jobs," it was an interesting year, to say the least. Let's get into some details on how I will remember 2025

A Bumpy Ride, but Market Resilience Prevailed

In our 2024 letter, I shared data on how calm the markets had been and hinted that 2025 might be different—not because I have a crystal ball, but simply based on the heuristic that nothing lasts forever. Here is what stuck with me -

• DeepSeek: Everything was hunky dory in AI land until DeepSeek (the R1 version) was released on January 27th 2025. Many called for the end of "Mag 7" dominance and labeled it the “Sputnik moment” of AI. Nvidia lost ~$600B in market cap in a single day! Soon enough, the market regained its senses and the Mag 7 bounced back. It was a great lesson in seeking objectivity versus reacting to headlines.

• Liberation Day: Just as markets were recovering from the DeepSeek event, the Trump administration announced its first round of tariff numbers. The shock left many scared, some others scratching their heads and caused a sharp sell-off. However, between "Liberation Day" and early June of 2025, the markets recovered all losses as tariff levels stabilized lower than initially feared. (The acronym TACO was also born). If an investor had bought at the April lows, they would have been up 39% by year-end! Talk about "buying the dip."

Picture 1 - The 2025 Market Whipsaw. Source - RBC [1]

The "K" Shape Everywhere

The letter "K" got ingrained as a favorite in the financial media and for valid reasons. In 2025, the bifurcation of the market became undeniable—the "Mag 7" versus the other 493 stocks in terms of profit margins (chart below), CapEx, earnings, and index concentration. Beyond the markets, consumer wage growth and consumer spending also take the K-shape. While index concentration doesn't bother me personally (I can diversify), the societal and economic bifurcation makes me a bit uncomfortable.

Picture 2 - Example - K shaped nature of Profit Margin Estimate Source: Apollo, Torsten Slok

Gold’s Greatest Year Since 1979 (And Silver Stole the Show)

• Gold was up approximately 65%—rising from ~$2,600/oz to over $4,500/oz. It set 53 new all-time highs, driven by tariff uncertainty, a weaker dollar, and concerns over U.S. fiscal policy. Central banks bought a record 863 tonnes.

• Silver soared 144%, peaking at ~$84/oz. It benefited from a "perfect storm" of safe-haven demand and industrial needs for solar panels, EV batteries, and semiconductors.

• On a related note - Wall street finally fell back in love with companies that deal with energy, minerals, mining and doing all the good physical stuff. Building data centers, semiconductor plants (fabs), robots etc. have all been a wake up call to focus on the realities of the physical world.

Bitcoin—The Trade That Fizzled

 After hitting an all-time high of $126,073 in October, Bitcoin dropped to ~$80K by November 20th. I know volatility is a "feature" of Bitcoin, but even with a favorable regulatory environment and multiple ETFs, the spread between its high and low was 69%. So much for "growing up." (I believe in blockchain technology, but Bitcoin as an asset still puzzles me).

Global Markets Command Attention

International (developed country) stocks soared 35.2% in 2025, their largest return in at least 19 years. Emerging markets stocks also did well in 2025 with a 24.7% gain. Much of this outperformance is attributed to the weakening dollar, tariffs and “sell America” trade. Although, the data doesn’t entirely support the "sell America" trade. There was a net increase in flows (from foreigners) into U.S assets in 2025, when compared to 2024 ( see picture 4 below). I hypothesize that the outperformance of international and emerging markets was partly also due to cheaper valuations in international & emerging markets. Like they say, valuations don’t matter, until they do. Lastly, the U.S markets are ~65-70% of the world MSCI index, that is a big number! At some point investors will think of diversifying.

Picture 3 - Matrix showing performance of various stocks & bond "classes", (partial data, goes till 2016). Source: Vanguard and JP Morgan.

Picture 4 - Net foreign Purchase of U.S assets. Source: Apollo, Torsten Slok.

The Dollar Weakens

The U.S. Dollar Index (DXY) fell approximately 9.6%—its worst year since 2017—ending a structural bull cycle that began in 2010. Fed rate cuts (bringing rates to 3.50-3.75%) and fiscal credibility concerns were the primary drivers.

Big Tech’s Spending went Kaboom Along with Circular Financing

The hyperscalers (+Oracle) went Kaboom (again) with their investing in 2025. The race to AGI (artificial general intelligence) and the FOMO (existential threat?) among the Mag7s seems monumental. Apparently, Big Tech spending (CapEx) as a share of GDP nearly matched the combined scale of the largest capital projects of the entire 20th century — the Apollo Moon Landing, the Interstate Highway system, the Manhattan Project, and the nationwide electricity buildout. (Yes, yes, I understand this may not be inflation adjusted, but there is no denying it's a lot of money!)

Picture 5 -Big Tech CapEx goes Hypersonic. Data: 10K filings. Chart: Polaris Capital Management.

"Circular" financing came to the forefront in the AI space. Engineering is great, but financial engineering is not. We saw the financial engineering movies in 2007-2008 with MBS (Mortgage-Backed Securities) and to some extent in early 2000s - Enron, some tech companies, WorldCom etc. Those movies did not end well and I don't feel good about this new one. There was a plethora of articles describing this circular financing, each with its own creative diagram, below is one from Bloomberg.

Picture 6 - Circular Nature of AI Investing. Source: Bloomberg.

2025: A Space Odyssey

There has been a quiet rally in some of the "space-related" stocks. While AI gets all the attention, companies like AST SpaceMobile, Rocket Lab, Intuitive Machines Inc. and Planet Labs have made good strides in their respective businesses. The engineer in me gets deep satisfaction from the progress in the space industry. The private valuations of SpaceX have gone up astronomically (bad pun?); the stocks of these other companies I mentioned, have reflected a similar sentiment. To me, their scientific progress makes more sense but not their current stock valuations. I will be watching this industry with a keen eye.

The New Betting Frontier: Kalshi and Polymarket

In just a few years, Kalshi and Polymarket seem to have embedded deeply into the financial speculation and cultural landscape. Polymarket had been banned from operating in the US since 2022, but in 2025 the CFTC gave Polymarket approval, and the company announced its comeback in the US market.  Kalshi's annual trading volume soared to around $23.8 billion in 2025, from roughly $1.9 billion in 2024 — a year-over-year increase of over 1,100%. Both these companies are at private valuations of ~$20B, as of this writing.

Picture 7 - Kalshi Notional Volume in USD. Source[2] - Weex/Dune.

Personal Growth and My Thanks

• Masterclass with William Green: In September, I concluded my journey on the masterclass led by William Green, author of Richer, Wiser, Happier (Amazon Link). The perspectives and friendships I gained were profoundly rewarding. I am grateful to William for this journey. To my friends from this journey, I know you are reading this and I eagerly await our future rendezvous!

• Community: 

  • The ValueX and Manual Of Ideas (MOI) are exceptional communities for investors across the globe. I have learned much about investing as well as fund operations from participating in the ValueX and MOI events. I want to extend my gratitude to everyone who I have met through these events. The people here have been so welcoming, I am excited for the years ahead.

  • The XYPN network has been a valuable asset to my RIA practice, providing essential support across operations, education, and compliance. Beyond the high-quality learning at the annual conference, the network has allowed me to build lasting professional relationships within the RIA community.

The Retirement

After 60 years at the helm of Berkshire Hathaway, Warren Buffett retired, handing the reins to Greg Abel. I was at the annual meeting when he announced it. The transition from initial shock to a resounding standing ovation was a surreal, humbling experience to witness in person. LINK.

After receiving minutes of applause following his announcement, Buffett quipped: "The enthusiasm from that response can be interpreted in two ways" — that's a quintessential Buffett humor for you. Most folks know this next fact, but it's worth repeating - since he started using Berkshire as his primary investment vehicle in 1964, the company's share price rose more than 5,500,000%, compared to a 39,000% return for the S&P 500 over the same period. While Buffett may no longer be on stage he will be in the audience and we will get to hear more from Greg Abel in May of 2026.

A Century to Celebrate

2025 was the year my paternal grandmother (who lives in India) turned 100! I was lucky enough to visit her twice—once for her actual birthday and again in December. She is my inspiration for resilience and patience. (As a side note - my maternal grandmother isn't far behind at 94; I’m rooting for her to hit the century mark as well! Lastly, I am glad that I have some of their genes in me.)

(For this year's blog I am skipping the section that talks about "looking ahead", largely because the material would be similar to the 2024 blog. I don't think the tailwinds and risks have changed that dramatically for the U.S and global markets.)

Thanks a lot for reading and wish you all a great year of financial fitness and investing!

Data Sources :

[1] https://www.rbcwealthmanagement.com/en-us/insights/us-equity-returns-in-2025-record-breaking-resilience

[2]https://www.weex.com/news/detail/20-billion-valuation-is-kalshi-engaging-in-an-arms-race-with-polymarket-362001

Disclosure/Disclaimer:

This blog was written by Adarsh Shyamsundar, Owner & Financial Advisor, Polaris Capital Management, LLC, a Financial Advisory firm based out of El Dorado Hills, California.

No part of this blog should be treated as financial advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Adarsh Shyamsundar and/or Polaris Capital Management have positions in the securities mentioned in this article. 

This blog is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This publication should not be relied upon as the sole factor in investment or personal finance decisions.

We get no compensation or any other remunerations on behalf of people or agencies mentioned in this blog. Neither are these endorsement of any products, books or agencies. They are merely mentioned for educational purposes or to share information.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this blog. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed here.