 Warren Buffett slashed his holding of TSMC by 86% just months after he declared a $4 billion stake. After the massive selling, TSMC now only occupied 0.21% of Berkshire's portfolio. If you are a TSMC shareholder, should you be selling your stocks right now? Let's find out in this video. Hi, I'm Nina Soudly, this is Chloe, and welcome back to my channel, the only one place for you to learn about stocks, investing, as or as options. If it's the first time of you coming to my channel, remember to hit the subscribe button as well as the notification bell so that you will not miss out any of my future investment updates. An early thumbs up is also appreciated because it will tell YouTube algorithm that you find this video helpful, and it will help to push out to more people to inspire them to start investing safely. In return, I will tell you whether it's time to sell TSMC. Previously in my telegram channel, I shared about TSMC during last year's December when I went to Taiwan to visit the Innovation Museum of TSMC. At that time, I also shared that Warren Buffett bought a $4 billion stake of TSMC at the average price of $82. And during the time of sharing, TSMC was only at $72, which was way cheaper than Warren Buffett's purchase price. So if you have been following me and taken action back then, you will have made a handsome 17% profit in just about 2 months' time. But with the recent drop in share price, should you be selling off your TSMC stocks like Warren Buffett right now, or should you be holding on to the stock even longer? To come to the conclusion, we need to go into the business model of TSMC first. Let's go! As one of the world's largest contract chip makers, TSMC makes integrated circuits for its customers based on their proprietary IC design. They have a reputation of producing high quality chips that are used in a wide range of devices, from smartphones to cars to medical equipment. TSMC is also known for its manufacturing technology, which allows them to produce chips that are faster, smaller and more energy efficient as compared to its competitors. With the leading technology, TSMC has constantly held a leadership position in grabbing market share. According to Trendforce, TSMC held a 56% in foundry market in 2012, which is more than the market shares of the top 4 combatant cars combined. So why did Warren Buffett decide to sell away such a powerful company? In my opinion, one of the possible reasons could be the increasing risk involved. In the first place, semiconductor industry is extremely cyclical. As you can see, the company derived about 39% of its revenue from smartphone and 41% from high-performance computer HPC. This industry generally alternates between shortage and oversupply. However, they cannot keep on raising prices during shortage and yet have to deal with high fixed costs during downturn. Apart from that, the company also faces increasing competition, including its closest rival Samsung. Last year, Samsung started to have mass production of its 3nm chips, becoming the first to achieve this milestone. If this chip is indeed proved to be very useful, it will definitely narrow the gap between Samsung and TSMC. RISK NUMBER 2 – TECHNOLOGICAL COMPLEXITY Semi-conductor manufacturing is complex and ever-changing. And not to stay in the forefront, TSMC has to constantly innovate. But as technology gets more and more advanced, it gets harder and more expensive to have breakthrough. So with the R&D getting more expensive, it will also start to squeeze TSMC's margin as well. Another RISK that TSMC is facing is geopolitical risk, due to the fact that TSMC is headquartered in Taiwan with the rise of the US and China tension. Many governments from US, Japan are all pushing TSMC to build up its local production capability. However, production costs in all those countries are definitely more expensive as compared to production in Taiwan, and thus impacting TSMC's margin. All these RISK added together could be the reason that prompted Warren Buffett to reconsider his massive stake in the company. So with Warren Buffett's massive selling, does it mean that TSMC is a no-go? Well, I don't think so. Firstly, even though Warren Buffett sold away the majority of his stake, TSMC still occupies about 0.21% of the Berkshire holding. So this shows that Buffett still believes in the long-term future of the company. Secondly, TSMC has built a strong economic mode around its business. 1. High Barrier to Entry Semi-conductor manufacturing is extremely capital intensive. And because of the technical hurdle, not advancement has become increasingly costly, prompting some small players to eventually give up advancing and competing with TSMC. For example, there were 6 companies with cutting-edge nods when the industry introduced 16 and 14 nanometer fabs back in 2015. However, there's currently only 2 left, which is TSMC and Samsung, selling 5 nanometer chips. As small players like Global Foundries and UNC decided not to pursue anything that is that advanced. 2. Scale and Scope Advantages As the world's largest dedicated semiconductor foundry, TSMC can spread its cause over a large volume of outputs, and thereby reducing its per-unit cost. In the meantime, its superior technology allows it to charge more, and that's why it's able to enjoy a 70% gross margin and an operating margin of 35%. This is at least twice as compared to its competitors. All these factors work together to give TSMC a formidable economic mode, which has given it to earn above-average return as compared to its competitors. Also, the organic growth of artificial intelligence, internet of things, and high-performing computing applications will all require high-performing chips, so TSMC was set to benefit more as the world advances. With that in mind, let's take a look at TSMC's valuation right now. At the current share price of $87, TSMC's PE ratio is about 13 times, which is below its 5-year average of 23 times. Not to forget, TSMC is also a dividend-paying cash cow, TSMC has consistently been paying out dividend for the past 20 years, and its dividend growth rate has been impressive for the past 10 years, at an average annual growth rate of 13%. And with the current share price, it's giving about 2% return every single year in terms of dividend yield. So as a growth stock, TSMC is still giving about 2% dividend, it's pretty attractive, isn't it? And if you know how to do BOSS option strategy, you can even promise to buy MSI lower than the current stock price, and in return, you get to collect about 1% per month by making this promise. And if you are already an existing shareholder of TSMC, but because you believe in the long-term growth of the company, you do not want to sell away your shares right now, you can even consider using strategy Y to buy a protection for your portfolio. So if TSMC does come down further from here, instead of making huge losses, your portfolio will be protected. There are different option strategies that can suit your investing objective. If you are new to option, do join us in our next level option masterclass to get started learning step by step. All you have to do is to click on the link below to secure for your free spot. So in conclusion, instead of falling blinding of what Warren Buffett is doing, most importantly, just like one of my investing mentors, Mary Buffett said, invest within your circle of competence, never buy something that you don't truly understand. In fact, recently, we had a very in-depth discussion on TSMC together with Mary Buffett and if you want to find out about her thoughts on this company, do check out the video right here. In the meantime, if you want to get more investment updates, do join my telegram channel because I constantly put a lot of investing insights over there as well. Happy investing and I will see you soon again.