To The Moon

It's quite surprising for the market that $Berkshire Hathaway(BRK.A)$ almost liquidated $Taiwan Semiconductor Manufacturing(TSM)$ that it bought a quarter ago.

In the third quarter of last year, Berkshire bought TSMC significantly, which suddenly became a top 10 position. Now, the stock price has just rebounded and Warren Buffett is surprisingly close to liquidating his position.

This kind of short term trade last occurred in early 2020. At the time, Buffett claimed to be bullish on airline stocks and liquidated his position not long after. In hindsight, Buffett sold at a loss, which proves that Buffett can't be right all the time.

What was the reason for Warren Buffett to liquidate his position in TSMC?

After the 90% cut of TSMC, the market was speculating on the reasons. The primary factor is believed to be the intensifying conflict between the U.S. and China in the semiconductor industry, such as the US banning US executives from working at Chinese chip companies. In addition, US also cooperates with the Netherlands and Japan to impose tougher export restrictions on Chinese semiconductors.

The market has been concerned about TSMC's political risk due to its headquarters in Taiwan and the revelation of the Russia-Ukraine war.

The factor, while worrisome, actually existed before Berkshire bought it. Why did the political risk was not considered at the time of buying?

This is really not Warren Buffett's investment style.

In addition, Warren Buffett has had a bias against technology stocks. Therefore, when buying TSMC in Q3, the market questioned whether it was a decision made by Warren Buffett. Now, the position was liquidated after only 1 quarter, which basically proves that this is not a decision made by Buffett, but by the successor.

What is the future of TSMC?

TSMC shares plunged 5% after the news of the reduction.

Personally, I don't think this reduction will reverse the trend of TSMC's share price. The main reason is that the semiconductor industry will bottom out in the first half of this year, with results picking up in the second half of the year. Semiconductor industry will return to high growth in 2024.

1) Semiconductor - a cyclical and growth industry

Semiconductor industry is a cyclical industry, subject to macroeconomic impact. However, as mankind enters the age of intelligence, the demand for semiconductor products will increase. Therefore, semiconductors have both cyclical attributes and are excellent growth industries.

TSMC has now achieved an oligopoly with Samsung by virtue of its leading fabrication process. Other rivals, such as SMIC, can hardly challenge the advanced process. Therefore, TSMC's fundamentals will not change as a result of Berkshire's holdings reduction.

2) Consensus of semiconductor companies - stock prices will bottom in the first half of this year

According to the quarterly reports of TSMC, $ASML Holding NV(ASML)$ , $Micron Technology(MU)$, $Advanced Micro Devices(AMD)$ and other semiconductor companies, the consensus of management is that the industry will bottom out in the first half of this year and resume year-over-year growth in the second half.

3) US stock market bottoms

From a technical perspective, the bottoming pattern of US stocks is obvious. Especially after CPI data exceeded market expectations, the $NASDAQ(.IXIC)$ achieved a low open and closed up 0.57%.

Looking at this chart, the Nasdaq has come out of its downtrend and may achieve a reversal.