Why did Warren Buffett sell this global tech giant after only a few months?

What caused Buffett to break one of his own golden rules?

| More on:
An elderly man finds out he's made a mistake.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Legendary investor Warren Buffett has just hosted the annual Berkshire Hathaway shareholder meeting
  • At the 'Woodstock for capitalists', Buffett and Charlie Munger answered dozens of questions about Berkshire's portfolio
  • One investor asked why Buffett had sold TSMC stock after only holding it for a few months, which seems to contradict Buffett's age-old advice to 'buy-and-hold'

One of the biggest events on the investing calendar has just occurred. The annual shareholders meeting of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) was held over the weekend in the US state of Nebraska. Berkshire Hathaway is, of course, the American behemoth helmed by legendary investor Warren Buffett.

Known as the 'Woodstock for capitalists', this meeting is typically one of the most talked about events of the year. And it's not just American investors, but financially interested people from all over the planet (hence why we are talking about it here at the Motley Fool Australia).

Warren Buffett commands the world stage yet again

Buffett, as well as his right-hand man Charlie Munger, usually spend hours answering all manner of questions from an enraptured audience. That's despite both men being in their 90s. Here at the Fool, we've already discussed some of the major takeaways from this meeting. But today, let's talk about why Buffett has just sold a major investment after only holding it for a few months.

Warren Buffett is well known for his long-horizon, buy-and-hold investing methods. He once famously said that his favourite period to own a share was "forever". He has demonstrated a tangible commitment to this principle in real life. Berkshire has held companies like Coca-Cola Company (NYSE: KO) and American Express Company (NYSE: AXP) for many decades.

So it sticks in the craw somewhat that Buffett purchased more than US$4 billion worth of Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) stock last year, only to offload most of the stake within a few months. Berkshire still appears to hold a small portion of the original investment. But it is only a fraction of the original purchase.

Taiwan Semiconductor Manufacturing Co (TSMC) is often described as one of the most important companies in the world. It designs and manufactures the vast majority of the world's supply of semiconductor chips. These chips are used in almost every complex electronic device, including computers, home appliances, cars, and smartphones.

In Berkshire's annual general meeting, Buffett was asked why he had sold most of Berkshire's TSMC holding after only a few months.

TSMC: An usually short investment for Berkshire Hathaway

Buffett stated that he believes "Taiwan Semiconductor is one of the best-managed companies and important companies in the world, and you'll be able to say the same thing five, ten or 20 years from now".

However, he also said this:

I don't like its location, and I reevaluated that…. I feel better about the capital that we've got deployed in Japan than in Taiwan. I wish it weren't so, but that's the reality, and I reevaluated that in light of certain things that were going on.

Buffett is probably alluding here to the fact Taiwan is one of the focal points in the geopolitical rivalry between the United States and China. Taiwan has been an independent and self-governed territory since the end of the Chinese Civil War in 1949.

However, the Chinese Communist Party still claims Taiwan and its territory as a province of the People's Republic of China. That's despite never actually controlling it.

The military assistance the US provides to the Taiwanese government is one of the central points of tension between the two countries. China has threatened to go to war to reclaim the island territory if peaceful unification fails.

Most of TSMC's advanced foundries are located on the island of Taiwan itself. So this is probably what is spooking Buffett.

So it just goes to show that global geopolitics matters in investing. Buffett clearly loves TSMC as a company. But even so, its location alone has prompted him to distance Berkshire from investing in it.

American Express is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in American Express, Berkshire Hathaway, and Coca-Cola. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway and Taiwan Semiconductor Manufacturing. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

If you invested $10,000 in Nvidia stock the day ChatGPT came out, this is how much you'd have today

Buying Nvidia when the disruptive AI chatbot launched would have been a smart move.

Read more »

A Tesla car driving along a road at sunset
International Stock News

Why Tesla stock was climbing today

Investors were encouraged by news of a price hike on the Model Y.

Read more »

Plate with coloured wedges being parcelled out like a slice of pie representing a share split
International Stock News

Stock-split watch: Is Nvidia next?

Nvidia last split its stock when it traded for a pre-split $744 in 2021.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

1 Wall Street analyst thinks Tesla stock is going to $125. Is it a sell?

Tesla is no longer a magnificent stock, according to a Wells Fargo analyst.

Read more »

A young man goes over his finances and investment portfolio at home.
International Stock News

Is Nvidia stock a buy?

The company's stock could rise 40% over the next two years and outperform the S&P 500.

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Is Nvidia headed for a stock split?

Nvidia stock has split five previous times in the company's history.

Read more »

Digital rocket on a laptop.
International Stock News

Nvidia shares surged (again) today. Is it too late to buy the red-hot artificial intelligence (AI) growth stock?

Nvidia stock has gained nearly 300% over the past year. Can investors still profit from this AI stock?

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Can you buy Nvidia shares on the ASX?

This stock has rocketed higher. How do we get access to it?

Read more »