These Amps Go Up to Eleven
These Amps Go Up to Eleven by Jeff Thomas – International Man
There’s a marvelous scene in the 1984 movie, This Is Spinal Tap, in which guitarist Nigel Tufnel points out to an interviewer that he chooses Marshall amplifiers because, unlike most amplifiers (with volume knobs that go from one to ten), “These go to eleven… It’s one louder, innit?”
The interviewer tries to explain that they’re only numbers, stamped into plastic knobs and don’t represent actual decibels of sound in any way.
Nigel tries to take this information in for several seconds, but fails to understand the obvious logic. When his mind draws a blank, he reverts back to his previous statement and says, again, “These go to eleven.”
Poor Nigel. He’s made up his mind to believe a false premise, because the thought is so appealing.
We can all laugh at Nigel’s inability to understand that his amplifiers are actually no louder than other amplifiers, yet, when we see the same lack of logic in investment circles, we often regard it as not only normal, but correct.
Of course, investment philosophy can be made highly complex, or it can be disarmingly simple: what goes up, must come down. If we accept the validity of this comment, we might also reason that the higher the market goes, the harder it will fall when the bubble bursts, and, of course, the greater the damage it will do to investors when it does.
In the run-up to the 2008 market crash, I frequently suggested to friends and associates who were heavily invested in the market that a crash was on the horizon. In most cases, the reaction I received was, “All my investments are in high-return stocks. If I got out of them, I couldn’t live as well as I do.” “Yes,” I would reply, “but if you don’t get out in time, you’ll lose far more. Your loss will be equal to the depth of the retrenchment. Then, you’d have to live on far less than if you simply got out now.”
I’m sorry to say that the great majority of those with whom I spoke remained in the market… and lost a major portion of their wealth as a result. Worse, when they recovered (with much-diminished lifestyles) they went right back to high-return (and therefore high-risk) stocks. Ipso facto, they’re once again primed for another major loss with the next crash.