Warren Buffett's "buy and hold" rule doesn't seem to apply to tech stocks

Berkshire Hathaway has made a near-total exit from Taiwan Semiconductor Manufacturing Co. (TSMC) just three months after pumping $4.1 billion into the chip manufacturer.

Warren Buffett’s company cut its holding of TSMC’s American depositary receipts by 86% to 8.3 million shares last quarter, sending the chipmaker stock down 4% on Wednesday (Feb. 15).

Typically averse to tech investments, the TSMC buy was an unexpected move from the “oracle of Omaha,” but it made sense given that the company is a key supplier for Berkshire’s “family jewel” Apple. Now, Buffett’s out-of-character quick disposal—he’s famous for his “buy and hold” philosophy, once telling shareholders: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”—is chilling investor sentiment toward the world’s largest foundry.

Berkshire Hathaway shies away from tech stocks…

Berkshire dabbles in tech, but only barely. And it’s been bending the rules of holding on.

Buffett called himself an “idiot” for not investing in Amazon before 2019, but still kept its exposure small with the e-commerce giant accounting for just 0.5% of the company’s portfolio. The stake Berkshire bought in HP last year comprises less than 1% of its portfolio.

It held stakes in IBM and Intel, but sold out. In the first quarter of 2022, Berkshire sold nearly all of its $8.3 billion stake in Verizon from late 2020.

Most recently, signs of reluctance have been pronounced in the swift growing-and-shrinking stake in the maker of the Call of Duty video games. While Berkshire grew its stake in Activision Blizzard to 9.5% in anticipation of the acquisition by Microsoft last May, it trimmed it to 6.7% by the end of the year as Microsoft battled regulatory headwinds in seeing the deal to the finish line.

…unless it’s Apple

The one tech stock the oracle of Omaha can’t get enough of is Apple. A relatively modest $1 billion investment in 2016 has become Berkshire Hathaway’s largest holding—so much so that Buffett thinks of Apple as his “third company” rather than a stock he owns.

The consumer tech company isn’t the typical tech player. While its iPhones and iPads are popular, the hardware part of the business is vulnerable to supply chain disruptions. But amid the fluctuations, its bright spot is its burgeoning services revenue. Subscriptions and services give the powerful brand competitive edges beyond tech, making Buffett’s position more aligned with his core investment philosophy after all.

Berkshire Hathaway portfolio companies, by the digits

49: Total number of companies in Berkshire Hathaway’s portfolio

The impact of shedding TSMC shares

$4.1 billion: How much Berkshire spent on buying TSMC stock, according to its disclosure in November 2022

$3.7 billion: How much the sale would have fetched assuming it sold them at the average price over the period

$68.5 and $74.5: How much Berkshire likely bought and sold the TSMC stock for respectively, according to calculations by Cathy Seifert, a CFRA Research analyst. “Berkshire made a small profit on TSMC. It was not a huge, huge win for Berkshire,” Seifert said

10%: Cut to TSMC’s annual budget in October 2022 after the Biden administration imposed new restrictions on China’s access to critical technologies. The chip industry is still grappling with covid-related issues and pitfalls of the US-China trade war, which span from suppressed business to increased costs of setting up domestic bases around the world

Other big sell-offs were in finance

91%: How much of its US Bancorp stake Berkshire dumped in the quarter ended Dec. 31, 2022, bringing it down to less fewer than 7 million shares worth under $300 million

60%: How much of its BNY Mellon stake Berkshire sliced, bringing it down to less fewer than 7 million shares worth $1.1 billion

The big buy: Apple

$3.2 billion: How much Berkshire spent on expanding its Apple holding during the quarter ended Dec. 31, 2022, buying another 20.8 million shares

$138 billion: Berkshire Hathaway’s stake in Apple

40%: Apple’s percentage of Berkshire’s portfolio, its biggest holding

5.8%: Share of Apple public stock owned by Buffett’s conglomerate

Charted: Berkshire Hathaway’s biggest portfolio companies

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Warren Buffett’s “buy and hold” rule doesn’t seem to apply to tech stocks