On TSMC: A Multibagger Identified Years Ago, Yet Never Bought

One of the most uncomfortable truths in investing is that mistakes rarely announce themselves when they occur.

When investors buy a poor business, overpay for a stock, or fall victim to speculation, the pain is usually visible. The losses appear on brokerage statements. The consequences become obvious.

Yet some of the largest investing mistakes never appear anywhere.

They are invisible.

They are the businesses we correctly identified, understood, admired, and then never bought.

In the years since 2022, few examples illustrate this phenomenon better than Taiwan Semiconductor Manufacturing Company (NYSE: TSM).

Today, it is easy to discuss TSMC as one of the most important companies in the world. That statement is no longer controversial. Back in 2022, however, the picture was very different. Semiconductor stocks were under pressure. Global recession fears were rising. Interest rates were increasing. Technology valuations were compressing. Most importantly, geopolitical concerns surrounding Taiwan dominated investor discussions.

The investment community was divided between those who focused on the business and those who focused on the geopolitical risks.

In hindsight, TSMC became an extraordinary example of a business that could be correctly identified as exceptional while simultaneously being excluded from a portfolio. Not because the business was misunderstood. But because investors became overly influenced by the actions of elite investors.

The Business Was Never the Problem

Perhaps the most important lesson from the TSMC story is that even Warren Buffett never criticised the business itself. Quite the opposite. After Berkshire Hathaway sold its position, Buffett continued to describe TSMC in remarkably favourable terms.

Those are extraordinary statements from arguably the greatest investor of the modern era. Buffett was not expressing mild admiration. He was effectively declaring TSMC the dominant franchise within one of the most strategically important industries on Earth. Even more striking was that he simultaneously sold the stock.

His answer was simple. The concern was geopolitical risk — specifically, the possibility that tensions between the United States and China could eventually place Taiwan at the centre of a major conflict. Buffett repeatedly indicated that geopolitical considerations played a role in Berkshire’s decision to exit most of its position.

Notice something important:

• The investment thesis was not broken.
• The competitive advantage was not weakening.
• The management team was not deteriorating.
• The economics of the business remained exceptional.
• The concern existed outside the business itself.

That distinction matters enormously.

The Danger of Outsourcing Judgment

Investors often say they follow great investors. There is nothing wrong with this. Studying successful investors is one of the most effective methods of learning. The problem emerges when studying becomes outsourcing.

Many investors unconsciously replace independent thinking with authority-based thinking.

Most importantly, Buffett’s portfolio is not your portfolio. A low-probability geopolitical event that could potentially destroy a multi-billion-dollar position may deserve enormous attention from Berkshire Hathaway. The same event may deserve different weighting within a diversified family portfolio. This distinction is frequently overlooked.

The Tyranny of Reputation

One of the most powerful behavioural biases in investing is authority bias. Humans evolved to learn from successful individuals. In most areas of life, this is beneficial. In investing, however, authority bias can become dangerous. The greater the reputation of the investor, the greater the temptation to stop thinking independently.

Buffett’s investing record is so extraordinary that many investors implicitly assume that if he sells something, there must be a hidden problem. Yet Buffett himself repeatedly explained that the problem was not TSMC. The problem was geopolitical uncertainty.

This creates an interesting paradox. Investors who avoided TSMC solely because Buffett sold may have ignored Buffett’s simultaneous endorsement of the company’s quality.

They copied the action while ignoring the reasoning.

That is a dangerous habit. Successful investing requires understanding why great investors make decisions, not merely observing what decisions they make.

Errors of Commission Versus Errors of Omission

Because no transaction occurs with an error of omission, no immediate pain is felt. As a result, investors frequently underestimate their importance.

Charlie Munger repeatedly argued that the biggest mistakes in Berkshire Hathaway’s history were not the investments that lost money. They were the great businesses Berkshire never purchased.

A portfolio containing a few extraordinary compounders can transform long-term outcomes. Missing one such opportunity may create a larger impact than several mediocre investment mistakes combined. The mathematics of compounding are unforgiving. A business that compounds intrinsic value at high rates for decades eventually dominates portfolio outcomes. When investors fail to own such businesses, they sacrifice decades of future compounding.

The cost is enormous but largely invisible.

TSMC and the Nature of Asymmetric Outcomes

TSMC represented an unusual combination of characteristics that were visible years ago.

The market was not debating whether TSMC was a great business. The debate centred on whether geopolitical risks justified avoiding ownership. Reasonable investors could disagree. That remains true today. However, the critical lesson is that investors must distinguish between three fundamentally different types of problems:

Many investors effectively treated a geopolitical risk-management issue as though it were a business-quality issue. The two became conflated. When that happens, opportunities are often missed.

The Irony of Great Investors

There is a deeper irony here. Many elite investors have achieved success precisely because they were willing to disagree with other elite investors.

• Buffett frequently disagreed with Wall Street.
• Munger frequently disagreed with conventional wisdom.
• Terry Smith often ignores fashionable narratives.
• François Rochon has repeatedly emphasised independent thinking.

The lesson is not that investors should blindly oppose experts. The lesson is that independent judgment remains essential.

Ironically, the greatest investors are often studied in a way that violates the very principles that made them successful.

• Their methods are copied.
• Their conclusions are copied.
• But their independence is not copied.

Final Reflections

TSMC may ultimately be remembered as more than a semiconductor company. It may become a case study in investor psychology.

• The business was visible.
• The quality was visible.
• The competitive advantages were visible.

Even Warren Buffett publicly acknowledged that there was nobody in the semiconductor industry operating in TSMC’s league. Yet many investors remained on the sidelines. Not because they misunderstood the company. Not because they disagreed with its economics. But because they became excessively influenced by the decisions of investors whose objectives, constraints, and risk tolerances differed from their own.

That is the hidden danger of relying too heavily on elite investors during the stock selection process.

• Their insights are invaluable.
• Their reasoning should be studied carefully.
• Their frameworks deserve respect.
• But their decisions should never replace independent judgment.

For long-term investors, the most expensive mistakes are often not the stocks that were bought and declined. They are the exceptional businesses that were correctly identified, fully understood, admired from a distance, and then never owned.

TSMC serves as a reminder that investing is not merely about avoiding losses. It is also about avoiding the silent opportunity costs that compound for years.

And in many cases, those invisible errors of omission become far costlier than the visible errors of commission.