HODLing with diamond hands

We've previously discussed how many of the Davids in the GameStop saga were crushed as badly as the Goliath was because they seemingly did not grasp the fundamental strategy of a short squeeze. If you know someone is legally obligated to purchase a stock or commodity and you can corner the market, you can sell at wildly inflated prices before the bottom falls out.   

It is a classic get-in, get-out play, but many of the investors who drove the squeeze are shocked and angered at those who sold at the peak. They often seem to be operating under the assumption that the idea was to lift the company's valuation to a new plateau and it was only the panic selling of the fainthearted that ruined the plan. 

Perhaps, though, there's more here than just misunderstanding. The very culture of what we might call, without too much exaggeration, this cult with its emphasis on fearless risk-taking and diamond hands (holding onto investments despite devastating losses) goes against the nature of rational investing. For an interesting parallel with the similar and often overlapping population of crypto traders, consider HODLing. 

Izabella Kaminska writing for FT Alphaville.

Since its biggest existential threat is anything that confirms the view its value may be anything but moon-landing exponential — such as market price corrections or whale-scale liquidations — that ritualised response became the “HODL”.

HODL harks back to the dark days of 2013, when the price of bitcoin had a tendency to go down as (Read more...)