Apperceptive Mass
Stock market indices continued their upward climb last week, with the Dow closing above 40,000 for the first time after a weekly gain of 1.2%. The S&P 500 rose 1.5% during the week, and the Nasdaq was up 2.1%.
Apperceptive mass is defined in the dictionary as “the whole of a person's previous experience that is used in understanding a new percept or idea.”
At the Berkshire Hathaway Annual Meeting this year, Warren Buffett discussed the concept of apperceptive mass in regard to his investment in the stock of Apple, which Berkshire first purchased in 2016, and has turned into one of his all-time great investments:
I think the psychologists call this apperceptive mass. But there is something that comes along that takes a whole bunch of observations that you’ve made, and knowledge you have, and then crystallizes your thinking into action—big action in the case of Apple.
Through his experience with brands during a long lifetime, observations about how difficult it was to keep Apple products in stock at Nebraska Furniture Mart, and some other observations where he didn’t share details, Mr. Buffett reached the tipping point needed to make a big bet on Apple.
So much about successful investing is sticking to what you know and then taking a big swing when those rare opportunities for large profits and little risk present themselves. There were plenty of people buying Apple at cheaper prices a few years earlier—many of which sold too early and didn’t reap the eventual rewards of continuing to hold their shares longer—but very few made as significant of a bet as Buffett did.
And it’s not just a story of success and apperceptive mass. It’s a story of persistence and continuous learning. If Buffett wasn’t the kind of person who kept learning and getting better as the years went by, there may not have been enough observations to reach the comfort level to make the big investment, and Berkshire shareholders would have been worse off by many tens of billions of dollars.
“We’re always looking for something where we think we have an insight which gives us a big statistical advantage. And sometimes it comes from psychology, but often it comes from something else. And we only find a few, maybe one or two a year.” —Charlie Munger
CEO of JP Morgan Letter to Shareholders
"In previous letters, I have described the diminishing role of public companies in the American financial system. From their peak in 1996 at 7,300, U.S. public companies now total 4,300 — the total should have grown dramatically, not shrunk. Meanwhile, the number of private U.S. companies backed by private equity firms — which does not include the rising number of companies owned by sovereign wealth funds and family offices — has grown from 1,900 to 11,200 over the last two decades. This trend is serious and may very well increase with more regulation and litigation coming. Along with a frank assessment of the regulation landscape, we really need to consider: Is this the outcome we want?"
Read Jamie Dimon's full letter to Shareholders here!
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