Warren Buffett’s Berkshire Hathaway (BRK.A -0.55%) (BRK.B -0.56%) just released the latest 13F filing. This filing reveals the company’s holdings as of the end of the fourth quarter of 2022.
The document has received particular scrutiny for bringing something surprising to the public’s attention. The third-quarter 13F revealed a significant stake in Taiwan Semiconductor (TSM -1.16%), and now the latest filing reveals that Berkshire sold 86% of that position.
Understandably, investors may not know how to interpret those recent moves, and so this apparent reversal justifies a closer look.
Berkshire and TSMC
In many respects, TSMC (as the company is often called) looks like a stock that would interest Buffett. In producing semiconductor chips, it manufactures an essential product. Moreover, according to TrendForce, it holds a 56% market share among third-party foundries, making it the dominant third-party producer. Further, with its P/E ratio of 14 and recent history of producing massive revenue growth, it would seem like the kind of bargain that would interest Buffett.
Knowing these preferences, the purchase of approximately 60 million shares of the semiconductor stock in Q3 seemed to make sense. What may confuse many investors is seeing that position pared down to less than 8.3 million shares just three months later.
Making sense of the reversal
TSMC bulls may cling to the notion that Buffett’s team held to some of those shares. Nonetheless, the most common reaction is likely a sense of confusion. Buffett has often described his favorite holding period as “forever.” Knowing this and TSMC’s importance to the chip industry, why would Berkshire take a considerable stake only to sell most of it a short time later?
First, investors must remember that Berkshire Hathaway is no longer just Buffett. With his advanced age, he has handed much of the decision-making responsibilities for investments to Ted Weschler and Todd Combs. Given the pre-initial-public-offering (IPO) positions in money-losing stocks such as Snowflake and StoneCo, Buffett’s disdain for IPO stocks and his other tenets appear to no longer apply to Berkshire’s trading decisions.
Secondly, investors should remain mindful of the limitations of 13F filings. The filings show that Berkshire bought more than 60 million shares sometime between July 1 and Sept. 30 last year. They also show the company unloaded approximately 52 million shares between Oct. 1 and Dec. 31.
However, that leaves numerous unanswered questions. Readers have few details on each individual trade, for example. They also have no knowledge of trades made so far in 2023. The team could have added shares or closed out the TSMC position since the latest 13F filing.
Moreover, it’s not clear why Berkshire made its decisions. Did Weschler and Combs take advantage of the bump in the stock to sell shares after the release of the Q3 13F? Did they become spooked by the sudden slump in the chip industry or the escalating geopolitical tensions involving TSMC’s home island of Taiwan? And since it didn’t buy a single stock to end 2022, did Berkshire just turn bearish in general?
Buffett or his team may later elaborate in an interview or at the upcoming Berkshire Hathaway annual meeting in May. But assuming a company spokesperson does not comment further, the average investor can only speculate as to why Berkshire sold most of its TSMC stake.
How investors should react
Given Berkshire’s history with TSMC, investors need to take it as a lesson to do their own homework and not just buy TSMC or any other stock simply because it is a Berkshire Hathaway holding. Buffett’s rationale for buying or holding certain positions is usually known only to him and his team. Additionally, 13F filings publish data that is often months old and lacks many specifics.
In the end, owning TSMC is up to the preference of individual shareholders. But regardless of one’s decision, investors should avoid buying or selling merely because of what Buffett’s team might think.
Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Snowflake, StoneCo, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.