In recent years, the phrase ‘diamond hands’ has become popular among certain communities of investors, referring to the practice of holding investments regardless of short-term price fluctuations. With high volatility becoming common across assets like stocks, cryptocurrencies, and real estate, diamond hands investing has emerged as a long-term strategy that emphasizes conviction and patience. In this article, we will explore the philosophy behind diamond hands, its applications and benefits in different market environments, as well as potential risks that investors should be aware of when adhering to this approach.
The theory and psychology behind diamond hands
The diamond hands philosophy is centered on the belief that short-term price movements often fail to reflect the true long-term value of an asset. By tuning out fear or greed in the midst of market turbulence, and sticking to a thesis based on fundamentals, diamond hands proponents aim to maximize upside while minimizing whipsaws. This requires a high degree of confidence and emotional discipline. Diamond hands also leverage the power of time in the markets, compounding gains over multi-year periods.
Implementing diamond hands across assets
While originally discussed mainly regarding stocks, diamond hands can be applied across many asset classes. In crypto, HODLing coins through bear markets is a form of diamond hands investing. For real estate, it may refer to holding rental properties through temporary vacancies without panic selling. Diamond hands can also describe maintaining exposure to bonds, commodities, or alternative assets through ups and downs. The key is focusing on long time horizons of 5-10+ years.
Diamond hands investing promotes patience and conviction during volatility, but also requires thorough research and risk management. Its success depends greatly on investing in quality assets based on fundamentals.