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Origins
For the past year or so, I’ve noticed this term being thrown around the web and in casual conversation.
It’s been used by especially the younger investors who invest in cryptocurrencies, meme stocks, and such.
The slang term ‘diamond hands’ originated from meme stocks and cryptocurrency communities. It’s described with an emoji that has hands and a diamond in it. No surprise there.
Emojis and investing haven’t traditionally mixed. Then again, emojis didn’t exist during the tulip mania or the south sea bubble.
So, what’s exactly going on?
For the record, this term is certainly not one you can find in finance textbooks, so let’s not take this one too seriously.
What Does Having ‘Diamond Hands’ Actually mean?
To have diamond hands is to hold your highly volatile and risky investment through ups and downs, no matter the market downturns.
So, whatever happens, you hold on for dear life (or HODL, which is another trendy term for holding your investments).
As mentioned before, the term is mostly used by younger investors who have a love for extreme risk-taking. Having diamond hands is associated with having an extremely high risk tolerance.
In other words, to have diamond hands you also have to have risky investments like cryptocurrencies.
You won’t get any appreciation from your fellow risketeers by holding a steady and slowly growing insurance company.
Having diamond hands means you’re not selling, but it doesn’t mean you’re not buying. If anything, it encourages you to buy more despite market fluctuations.
Surely you gain the most respect by buying more when the price has declined. The higher the decline, the better.
So, what if you don’t have nerves of steel and your hands are less diamond-y?
Well, luckily, there’s a slang term for that too.
The Opposite of a Diamond is…Paper
We live in a time of opposites. You’re either something or something completely opposite. There’s no middle ground anymore. The same applies here, you’re either an extreme taker or a wimp.
The opposite of diamond hands is paper hands. This expression is described by an emoji with a roll of toilet paper and hands.
The term mostly seems to be used for teasing fellow investors who are risk averse.
Where the risk-loving investor firmly holds with his diamond hands despite how the investment decreases, the paper-handed investor sells his holdings at the first sign of decline.
As you might guess, having paper hands is mainly seen as a negative thing. People usually adore and tell tales about the steel-nerved investors who made millions with extreme risk-taking.
There are fewer stories about the cautious investor who takes small wins and small losses.
What Can You Learn From Diamond Hands?
It’s safe to say that the whole expression is mostly humorous, but it does raise some interesting points about investing overall.
To achieve compounding and gain long-term returns, it’s vital to have a long holding period. Having diamond hands when investing in stocks inevitably leads to longer holding periods and compounding growth.
Assuming that the investment decision was successful.
When you invest in stocks, it’s not wise to stubbornly hold on to a stock when the industry or the company’s fundamentals have changed. The same does not quite apply to cryptocurrencies because there are not that many fundamentals to analyze.
No matter what you put your money in, it’s not always the best choice to just hold on regardless of what happens. There’s not a lot of respect to gain by losing all your money in a bad investment.
The core of your long-term investment portfolio shouldn’t consist of assets that are highly risky. It should have companies and securities that are fundamentally sound.
As I understand it, the whole diamond hands movement seems to encourage a mentality where you take huge risks and either go big or go home. Usually, in the stock market, taking huge risks constantly is not profitable in the long haul.
Obviously, the best investment advice doesn’t usually come in emoji form. So, whether you have diamond hands or paper hands, please don’t take it too seriously.
