The $16 Billion Question: How Warren Buffett's TSMC Exit Defied His Own Investment Doctrine

The legacy of Warren Buffett as Berkshire Hathaway’s leader rests on an enviable track record: transforming an initial investment into nearly 6,100,000% in cumulative returns for Class A shareholders over more than five decades. His methodology wasn’t born from market timing or trend-chasing. Rather, it stemmed from a disciplined adherence to time-honored investing principles that he developed and refined across multiple economic cycles. Yet in a rare departure from this proven philosophy, Buffett made a decision regarding Taiwan Semiconductor Manufacturing that would eventually cost his conglomerate close to $16 billion in unrealized gains—a cautionary tale about the dangers of abandoning core tenets when uncertainty clouds judgment.

The Foundation: Warren Buffett’s Time-Tested Investment Framework

Before examining the outlier decision that diverged from Warren Buffett’s playbook, understanding the principles that built his empire is essential. The legendary investor’s approach rested on several interconnected pillars that, when combined, created a formidable wealth-generation machine.

His most fundamental principle centered on patient, long-term capital deployment. Rather than viewing stock ownership as a speculative game, Buffett approached equity stakes as partial business ownership positions meant to be held through market cycles spanning years or decades. He recognized that while economic expansions and contractions were inevitable and unpredictable, the periods of growth substantially outweighed downturns. Quality enterprises, therefore, positioned themselves to flourish across extended timeframes.

Buffett also maintained an unwavering commitment to valuation discipline. He resisted the temptation to chase expensive securities, regardless of their perceived quality. Instead, he remained selective—waiting patiently for genuine value dislocations where exceptional businesses traded at reasonable prices. This selectivity meant extended periods of inactivity, sitting on substantial cash reserves until the market created genuine opportunities.

Competitive advantage formed another cornerstone. Buffett targeted market-leading companies whose structural advantages appeared defensible against competitors. Whether through brand loyalty, switching costs, or technological barriers, these enterprises possessed sustainable moats protecting profitability. Additionally, he gravitated toward companies that cultivated deep customer trust—an asset that, while fragile and easily destroyed, created formidable long-term value when preserved.

Finally, capital-return programs—through dividends and share repurchases—aligned management incentives with long-term shareholder interests. Buffett favored businesses that committed to returning excess capital systematically rather than pursuing empire-building acquisitions with questionable returns.

The Departure: A Brief Encounter with Taiwan’s Chip Giant

During the third quarter of 2022, as markets experienced a significant downturn and genuine price dislocations emerged, Berkshire initiated what appeared to be a textbook Buffett move. The company purchased approximately 60 million shares of Taiwan Semiconductor Manufacturing (TSMC) for roughly $4.12 billion. On the surface, the investment aligned perfectly with established principles: TSMC traded at depressed valuations during a bear market, occupied a dominant position as the world’s preeminent chip foundry, and played an increasingly central role in the emerging artificial intelligence revolution.

TSMC’s technological capabilities—particularly its chip-on-wafer-on-substrate (CoWoS) architecture that stacked advanced graphics processing units with high-bandwidth memory for AI data centers—positioned the company at the precise intersection of semiconductor innovation and AI infrastructure development. Its customer roster read like a who’s who of technology: Apple relied on TSMC for cutting-edge processors; Nvidia, Broadcom, Intel, and Advanced Micro Devices all depended on TSMC’s manufacturing prowess.

Yet this investment departed dramatically from the stated long-term philosophy. By the fourth quarter of 2022, merely months after accumulating the stake, Berkshire had already liquidated 86% of the position. By the first quarter of 2023, the position had been completely eliminated. A five-to-nine-month tenure hardly resembled the multi-decade holding periods characteristic of Buffett’s most successful investments.

When queried by Wall Street analysts in May 2023 regarding the swift exit, the investor acknowledged geopolitical concerns: “I don’t like its location, and I’ve reevaluated that.” His comments appeared to reference the CHIPS and Science Act passed in late 2022, which sought to strengthen domestic semiconductor manufacturing. Following this legislation, the Biden administration implemented export restrictions on advanced AI chips destined for China. The concern likely centered on potential future export limitations that could constrain TSMC’s growth trajectory given Taiwan’s geopolitical proximity to China.

The Consequence: Calculating the True Cost of Early Exit

The timing of Berkshire’s exit proved remarkably unfortunate. The decision to sell coincided precisely with a pivotal moment in semiconductor history. Demand for Nvidia’s graphics processors—driven by AI model development and deployment—created unprecedented backlogs. TSMC responded by aggressively expanding capacity for its CoWoS production lines, effectively positioning itself to capture enormous value from the AI infrastructure buildout.

TSMC’s stock appreciated substantially. In July 2025, the company reached the trillion-dollar market capitalization milestone—joining an exclusive cohort of only 12 public companies to achieve this distinction. Had Berkshire retained its original 60 million share position without selling a single share, the stake would have appreciated to approximately $20 billion as of late January 2026. Instead, by exiting the position entirely months earlier, Berkshire forgoes nearly $16 billion in potential gains.

This isn’t merely a hypothetical exercise in second-guessing. The magnitude of opportunity cost illustrates how significantly this particular decision diverged from Buffett’s demonstrated investment philosophy. The geopolitical risks that prompted the exit—while not unreasonable concerns at the time—proved secondary to the structural demand fundamentals that ultimately drove TSMC’s extraordinary value creation.

The Pattern: Why This Moment Matters

Exceptions prove valuable precisely because they illuminate underlying principles through their absence. This TSMC episode demonstrates that even the most disciplined investors occasionally succumb to short-term uncertainties that cause them to abandon proven frameworks. The geopolitical complexity surrounding Taiwan’s status created genuine ambiguity—yet it was precisely the type of macro uncertainty that Buffett’s long-term philosophy was designed to transcend.

His successor, Greg Abel, faces an implicit mandate: maintaining the discipline that created Berkshire’s extraordinary wealth-generation capacity over decades. Whether confronting geopolitical risks, market volatility, or technological disruption, the fundamental principle remains constant. Sustained wealth accumulation in equity markets flows primarily to patient capital that can distinguish between temporary macro noise and permanent structural advantages.

TSMC represented the latter—a durable competitive advantage serving an accelerating wave of digital transformation. Warren Buffett understood this intellectually when making the initial purchase. His subsequent exit reflected a temporary lapse in applying that understanding when uncertainty intensified. The $16 billion cost serves as an expensive reminder that consistency in philosophy, particularly during moments of doubt, remains among the most valuable disciplines in long-term investing.