I’m old-fashioned. I was born that way. As a child, I was an Eagle Scout, sang in the church choir, and helped the old ladies of the neighborhood. In the world of Goofus & Gallant, I tried to be the latter. So I’m always interested when civic virtues are bandied 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 one or two of you are unfamiliar with this, the notion of Diamond Hands (which I shall refer to as simply DH for the rest of this piece) 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 exogeneous forces, like the big, bad hedgies.
This is, of course, lunacy. Some market participants may recognize the DH 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 DH 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 DH worked out great in the end. Take Amazon, 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’ grinning face 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. Nice going, you dope.
What if you were the DH 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.
But the reddit crowd isn’t demanding DH about the likes of Amazon. Instead, it has asked for the mob in /wsb to hang on through this round-trip insanity:
Having DH isn’t a virtue. Having DH isn’t a sign of strength or the ability to not get sucked in by the crowd. Quite the opposite: having DH requires you to be part of the crowd and stop thinking for yourself. Decisions need to be based on logic and reason instead of edicts from de facto group leaders. Brian said it best.
