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

An elderly man finds out he's made a mistake.

An elderly man finds out he's made a mistake.

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.

The post Why did Warren Buffett sell this global tech giant after only a few months? appeared first on The Motley Fool Australia.

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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.

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