Some time ago I wrote about the term diamond hands. It seemed to interest people, so I decided to take look at an opposite term – paper hands.
Although both terms are mostly used for entertainment purposes, they do raise some interesting points about investing.
As with the diamond hands article, I’d like to remind you not to take this one too seriously either. There are a lot of popular investment terms that most investors only use for fun.
Origins
The term ‘paper hands’ is a slang term that, like the term diamond hands, also originates from Reddit’s r/WallStreetBets community.
In emoji form, it’s pictured with a toilet paper roll and a hands emoji:
Quite logical, isn’t it?
In the same way as the term diamond hands, it’s mostly used by investors that invest in high-risk instruments like cryptocurrencies, meme stocks, and the like.
Now, a roll of toilet paper and hands might not say much at first, but there is a certain logic behind the term.
What Does Having ‘Paper Hands’ Mean?
Whereas an investor with diamond hands has a high risk tolerance and holds his investments through periods of extreme volatility, the same can’t be said about the paper-handed investor.
According to the internet (the most reliable source), the term paper hands refers to an investor who doesn’t have the nerve to hold his risky investments and usually resorts to panic selling.
It’s described as paper because, like toilet paper, some investors fold easily.
Having diamond hands is usually meant as a compliment, whereas paper hands has more negative connotations to it.
While risk-takers with their diamond hands are often applauded for having nerves of steel, paper-handed speculators are teased for being skittish.
It’s important to point out that the term is mostly used in good spirits and is not to be seen as an insult.
So, if someone informs you that your hands are made of paper, don’t take it too seriously!
What Can We Learn From Paper Hands?
The funny thing is that having paper hands is not necessarily a bad thing. Wildly volatile and risky investments are often the ones that might end up costing you the most.
Therefore, having paper hands will actually cut your losses early and therefore prevent you from losing money.
Of course, there’s a chance that the speculation will pay off eventually, and all the spoils go to the investors with diamond hands.
If you find yourself having paper hands with a lot of your investments, you’ve probably defined your risk profile poorly. High volatility isn’t necessarily a bad thing if you’re a long-term investor with a portfolio full of great companies.
Usually, when we have trouble holding our investments, there’s an issue with the investment decision itself. Sometimes people bet too much on a risky investment and get burned.
This is usually why it’s preferable to put aside a small portion of cash for playing with speculative investments. It’s always painful to lose money, but if it’s only 5 or 10 percent of your portfolio, you’re still doing fine overall.
So, while people may admire investors with high risk tolerance, sometimes it might be beneficial to have a bit of ‘paper hands’ when you invest in something extremely risky.
It’s also worth pointing out that as a long-term investor I do believe that you shouldn’t panic sell your holdings just because there’s some turbulence in the stock market.
