What Does It Mean to Have Diamond Hands?

What Does It Mean to Have Diamond Hands?

The term "Diamond Hands" (often expressed with emojis “??”) describes an individual's steadfastness in holding onto their investments, regardless of market conditions. It symbolizes a mentality of enduring through volatility, with the belief that patience and a long-term perspective will ultimately lead to significant gains.

The diamond hands concept stands in stark contrast to "Paper Hands," which refers to investors who quickly sell off assets at the first sign of trouble or decline in value.

In this article, we are going to examine different aspects of what it means to have diamond hands and provide some prominent examples of diamond hand investing.

Key highlights:

"Diamond Hands" represents an investor's firmness in holding investments, even in volatile markets, in hopes of future gains.

The term gained prominence with cryptocurrencies and meme stocks, notably during the GameStop saga of early 2021.

Diamond hands investors focus on long-term growth, undeterred by short-term market fluctuations or downturns.

While this approach can yield significant gains, misjudging an investment's potential can lead to considerable losses.

The origins of diamond hands in investing

The concept of diamond hands investing itself has probably been around since investing first started. However, diamond hands as a term gained significant prominence in recent history, particularly with the rise of cryptocurrencies like Bitcoin and meme stocks such as GameStop and AMC. The term is believed to have been coined on Reddit in the r/WallStreetBets subreddit, although there’s no conclusive evidence that’s actually the case.

Search interest for “diamond hands” since 2014. Source: Google Trends

Data from Google Trends shows that the “diamond hands” keyword first saw an increase in interest in March 2020, and then exploded to its all-time peak at the end of 2020 and the start of 2021. This time period directly coincided with the famous GameStop saga, during which regular investors pulled off a short squeeze of the GME stock, which ultimately inflicted significant financial losses on GME short sellers, including a number of prominent hedge funds.

With a large number of regular investors refusing to sell their GME despite huge gains, hence the diamond hands, and being prepared to buy any small dip, the price of GME skyrocketed from roughly $1 per share to an all-time high (ATH) of over $116.

While the GME stock did eventually retrace, the event received massive amounts of media attention, and the term diamond hands was forever engraved in the Zeitgeist. Following the success of the GME short squeeze movement, retail investors targeted several other stocks in a similar fashion, including AMC and Bath Bed & Beyond.

Characteristics of diamond hands investors

Investors with diamond hands are known for their long-term perspective. They are not swayed by short-term market trends or temporary downturns. Instead, they focus on the bigger picture, understanding that the markets are cyclical and that patience often pays off.

Adopting a diamond hands mentality can be beneficial, particularly for those investing in assets with high growth potential over the long term. This approach can lead to significant gains, as investors are not swayed by short-term market movements and can capitalize on the full growth trajectory of their investments.

However, it is not without risks. Misjudging the potential of an investment or failing to recognize a genuine long-term downturn can result in substantial losses. Historical examples and case studies of both successful and unsuccessful diamond hands investors provide valuable lessons and insights.

The bottom line

Diamond hand investing symbolizes a conviction in a particular financial instrument and an individual's resolve to hold onto their investment despite significant market volatility. While the approach can pay off in some cases, it can also lead to stubbornness and prevent investors from cutting their losses short when it’s clear there’s no potential upside.

To learn more about popular financial terms, check out our article on the meaning of SAFU.

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