Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful’

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This has been quite a year for Berkshire Hathaway and CEO Warren Buffett. The conglomerate just disclosed its investments in other companies as of the end of the third quarter, and one name — and one industry — stands out.

In its 13F filing with the the Securities and Exchange Commission on Nov. 14, Berkshire disclosed investments in 50 stocks as of Sept. 30 with a combined market value of $296.1 billion.

Berkshire opened three new stock positions during the third quarter:

Company Ticker Value of Berkshire’s holdings – Sept. 30 ($mil) Berkshire ownership stake Total return – 2022 through Nov. 15
Taiwan Semiconductor Manufacturing Co. Ltd. ADR $4,118 1.16% -39%
Louisiana-Pacific Corp. $297 7.85% -24%
Jefferies Financial Group Inc. $13 0.19% -2%
Sources: Berkshire Hathaway 13F filings, FactSet

Click on the tickers for more about each company. Read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

The 13F filing doesn’t say exactly when the shares were purchased, but Berkshire built up its $4.1 billion position in Taiwan Semiconductor — including purchases by Buffett himself — after the semiconductor industry had fallen hard. Semiconductor manufacturing has traditionally been a cyclical business and TSM is the highest-volume producer of computer chips in the world.

“Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” — Berkshire Hathaway CEO Warren Buffett in his 1986 annual letter to shareholders.

Semiconductor stocks tumbled as investors perceived the group had entered a down cycle. The iShares Semiconductor ETF hit its 2022 closing low on Oct. 14 when it was down 44% for the year, before rising 25% through Nov. 14.

When SOXX hit bottom, Taiwan Semiconductor had been hit even harder, with a 46% decline, possibly reflecting tensions between China and the U.S. over China’s claim to Taiwan. (All returns in this article include reinvested dividends.)

Taiwan Semiconductor fell to its 2022 low on Nov. 3 when it was down 49% for the year. Berkshire built its position in TSM some time between June 30, when the stock was down 35% for 2022, and Sept. 30, when it was down 41% for the year.

It appears Buffett’s timing was excellent, following a part of the long-term strategy he discussed in his annual letter to shareholders that was included with Berkshire’s 1986 annual report. Buffett explained that market disruptions were unpredictable.

“Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” he wrote.

You can see the full list of Buffett’s letters to shareholders here.

And now, with President Biden saying he doesn’t expect a quick attempt by China to invade Taiwan after his meeting with Chinese President Xi Jinping, followed by Berkshire’s disclosure (both on Nov. 14), shares of TSM were soaring on Nov. 15.

Read: Quality and high dividends set these five semiconductor stocks apart from poorer-performing competitors

Other stocks Berkshire added to, sold or trimmed

During the third quarter, Berkshire added to its holdings of the following stocks. They are sorted by the market value of the holdings as of Sept. 30:

Company Ticker Value of Berkshire’s holdings – Sept. 30 ($mil) Value of Berkshire’s holdings – June 30 ($mil) Share of ownership – Sept. 30 Total return – 2022 through Nov. 15
Chevron Corp. $23,757 $23,373 8.55% 63%
Occidental Petroleum Corp. $11,943 $9,335 21.38% 154%
Paramount Global Class B $1,737 $1,935 14.99% -37%
Celanese Corp. $877 $1,077 8.96% -36%
RH $581 $461 9.95% -47%
Sources: Berkshire Hathaway 13F filings, FactSet

While Berkshire added to its holdings of Paramount Global and Celanese Corp. during the third quarter, the Sept. 30 position values were down from June 30 because the stocks had fallen 22% and 23%, respectively.

Berkshire sold all of its shares of Store Capital Corp. during the third quarter. This position had been valued at $385 million as of June 30.

Here are other stock positions Berkshire sold partially during the third quarter:

Company Ticker Value of Berkshire’s holdings – Sept. 30 ($mil) Value of Berkshire’s holdings – June 30 ($mil) Share of ownership – Sept. 30 Total return – 2022 through Nov. 15
General Motors Co. $1,605 $1,971 3.43% -32%
Kroger Co. $2,199 $2,744 7.02% 5%
Bank of New York Mellon Corp. $2,396 $3,018 7.70% -23%
U.S. Bancorp $3,136 $5,818 5.24% -20%
Activision Blizzard Inc. $4,471 $5,326 7.69% 12%
Sources: Berkshire Hathaway 13F filings, FactSet

Berkshire’s performance: How to rest easier

Here’s a five-year chart showing the return of Berkshire’s Class B shares against the benchmark S&P 500 through Nov. 14:

Berkshire’s five-year total return has been slightly higher than that of the S&P 500. Maybe your first reaction is that this performance is nothing to get excited about.

If you had taken the same five-year look at Berkshire’s performance against the index a year ago, you would have seen Berkshire’s 81% return trailing a 136% return for the S&P 500 and might have bought into the idea that Buffett’s value-investing philosophy was out of date.

But over the past year, the S&P 500 has fallen 14%, while Berkshire’s Class B shares have returned 8.5%.

For many investors, the ability to sleep better at night might make Buffett’s value approach more worthwhile.

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