The Folly Of Diamond Hands

I’m old-fashioned, so I’m always interested when civic virtues are talked about in public discourse. There is one purported virtue, however, that I must take exception with, and it is neatly represented in a single image:

In case you are unfamiliar with this, the notion of "Diamond Hands" maintains that once a popularly-touted security has been acquired, it must be held at all costs. If it drops 30%, 50%, 90%, or more, it doesn’t matter. You owe it to the group – and yourself – to steadfastly maintain the position, irrespective of market machinations. To do otherwise is to bow to unseen exogenous forces, like the big, bad hedges.

This is, of course, lunacy. Some market participants may recognize the Diamond Hands crowd by another moniker, which is bag-holders (as in “got left holding the bag”). Upon even brief consideration, it’s quite clear that the purpose of the crowd touting the virtue of the Diamond Hands attitude is to keep prices propped up as high, and for as long, as possible, in order for a few lucky ducks to get out at a nice profit.

To be clear, there is absolutely nothing wrong with a well-reasoned buy-and-hold philosophy. Indeed, there have been plenty of times in market history when being a Diamond Hand worked out great in the end. Take Amazon (AMZN), for example,

Let’s say it is late 1999, and you’ve heard about this new company Amazon for months on end. Finally, when you see Jeff Bezos on the cover of Time as the Man of the Year, you just can’t take it anymore – you buy $100,000 of AMZN. And then you watch helplessly as your “investment” plunges to $9,000.

What if you were the Diamond Hands type, though? What if you just hung on, no matter what? Well, over $3 million later, you would have been pleased at your unflappable disposition.

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