The Diamond Hands Principle

I’ve followed Reddit investing drama and memes for a while now, and I think it’s time I articulate my understanding. This has the potential to change the course of the economy, and will continue to influence the rise and fall of stocks going forwards if more are adopting it. I will state the “not financial advice” legal disclaimer, but I’m not going to name you specific securities anyway. Let’s talk about what it means to have diamond hands.

Does Diamond beat Paper?

I’ve been through all kinds of investing educational materials, but every time it’s the same things. Set stop orders to lock in profits. Look for analysts you trust. Diversify using ETFs (stocks someone else picked). Invest on margin to get better returns. What if I think debt and loans are a bad idea? What if I think my money choices should be my conscious decision? What if I (someone paid to automate things) think we should be suspicious of automation as a substitute for moral action? What if I think the best choices in life are the ones that require personal sacrifice and only my own skin in the game?

The New Old-Fashioned Way

In the bedrock under the “diamond hands” meme are some pretty old views. What’s funny is the principles most “new” phenomena are based upon aren’t new ideas, they’re just the new way of expressing them. Value Investing is the idea that you should invest in what you deem is empirically worth investing in. In practice it’s the anti-establishment approach to the economy. Good value investors generally follow neither the conventional wisdom nor each other. In the words of early 2021 Redditors, they like the stock. They do their own “due diligence” (or DD) and report and debate each other’s findings. They are skeptical of analysts, who are other humans with their own biases.

Warren Buffet is the name everyone knows when it comes to value investing. But of course, the next thought people have is to grab everything he has said and try to emulate him. That’s the wrong approach. See, here’s the catch: when it comes to value investing – to do it properly philosophically, you can’t just rely on someone else. By the time you know what Buffet invested in you’ve missed the window. You need to think like he did 50 years ago. You have to do your own research, and put money on what you think merits it. You need to own the decision. It’s not a less risky gamble to expect other people to make money for you. It only eliminates effort on your part, oddly in an area of your life you value highly.

Paper Hands

When you trace economic decisions influencing markets, a large share of them are made on the basis of other people’s analysis. This extends to such a large degree that the market will go down merely because society thinks it will, and it will go up because society thinks it will go up. The opposite ordering should be true. People should be able to predict it well based on how companies are performing, not based on public perception of people who don’t even invest. Politicians and activists and other wealthy public figures appear to accrue wealth in conjunction with this influence. To the extent it’s true, it’s punishment of the masses for lack of faith in themselves and for giving their personal power away to people all-too-willing to take charge of it.

Similarly, the modern way of investing money on a day-trading or frequent basis is to sell stocks when they drop a certain percentage from all time highs, or to buy ones when they cross a certain percentage over certain lows. To sell going low, buy going high. It is not an insensible strategy to lock in profits and minimize loss. But it functions as if you are relying on letting the market to decide how you will buy and sell. You are being reactive on your investments, instead of proactive. I, along with some others, think there’s a better way.

The 💎👐 Principle

I equate the principle of diamond hands to what a well-versed religious person calls faith, what a philosopher may call integrity, or trust.

This is the Diamond Hands Principle:

If you like the stock, buy the stock. If the stock skyrockets, do not sell the stock. If the stock drops, do not sell the stock; consider buying more instead.

You have to decide why it is you want to make an investment. You have to decide if the future of a company is bright, if it is innovating, if it is making the right decisions internally. But if you decide it is undervalued and you like the stock, act like it. Have some faith and trust in yourself.

Is it risky or foolish? Those looking mainly to lock in profits the old ways will say yes. I’m not looking to lock in profits immediately. I like the stock. The things I invest in are things I think should succeed.

Buy low, sell high. Hold. HOLD. HODL. Maybe sell a little when it’s high to cut your losses. If you do this wisely, you can eventually remove the amount of money you have invested, and having broken even, hold a good amount with diamond hands until the end of time. But the general rule is to hold, and buy or sell only in rare circumstances. So much so that the typo “HODL” has become an in-joke; some go by the affectionate term “hodlers”.

How to Have Diamond Hands

You can’t simply adopt the principle out of mere wanting to. There’s a reason the Reddit and 4chan frequenters refer to themselves as autistic or as crazed animals. It’s about defying the odds. It’s about staring in the face of losing a lot of money and not blinking. It takes a large amount of courage and some would say a measure of stupidity.

I’ll always laugh at this tragedy from Isaac Newton’s finances. You should read The Intelligent Investor yourself. Buffet did. It’s ancient, you can find a PDF.

Back in the spring of 1720, Sir Isaac Newton owned shares in
the South Sea Company, the hottest stock in England. Sensing that
the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.

Jason Zweig, commentary on the introduction to Benjamin Graham’s The Intelligent Investor

If you want to have 💎👐 and not 🧻👐, it will help to decide what it is you are willing to lose. Don’t invest money that you can’t throw away. I also refuse to trade on margin, which essentially means using your investment as backing to take out a loan to invest more. I believe debt is an evil seldom necessary, and loans to increase gains seems like a deal with the devil for greed’s sake. Personally, I also agree with Elon Musk that shorting (the process of borrowing stock you hate to sell, to own a “negative” amount), should be illegal. It offers infinite risk for rewards.

Those who hold out on an investment seemingly beyond its prime are referred to as the “bag holders”, a term as old as Thomas Jefferson’s usage in 1793. You don’t want to be the person left with the dregs of your collective effort while others run off with the valuables. So what do you do when someone challenges or mocks you? Return to the principle itself. Do you like the stock? Revisit or do more analysis. Go take another look at a company’s big three documents: Income Statements, Balance Sheets, and Cash Flow. If you’re confident in your decision, stick to it. Time will tell. The only true bag holder is the person who sells at a loss. I’ve seen many who sold a stock that collapsed and then rose again, to become bag holders of a stock that was doing well, holding a bag of their own making, snatching defeat from the jaws of victory.

Don’t let other people tell you what you’ve seen and decided. Don’t let other people tell you what to buy or sell until you’ve gone and verified what they say yourself. Trust your own judgement work on improving your own judgement.

Concluding Personal Disclaimer

I recently turned more than a 1000% profit off of one investment in 3 months. That’s mainly what urged me to write this. I knew I would, few else who had the money did, and I couldn’t afford to put forward much at the time. Had I seized another earlier opportunity it would have been a 10,000% or even 100,000% profit. But hindsight is too late, so I look forward to the next good thing.

I am down a little from decline of one heavy speculative investment. The fact of the matter is, I don’t feel I’ve lost that one because I still think that investment is seriously undervalued. I’ve made substantial gains everywhere else so far, and the one “loss” I expect a massive return on soon. It’s not a loss until you sell. I’m willing to live and die by that sword.

My investments are new, and still modest in the 4 digits, but I’ve found they outperform the market whenever it turns down, and keep up when it does well. I am concerned about the value of the U.S. dollar like many other Americans, I suspect an economic downturn soon, and then possibly an upturn after that. Everything comes and goes, but one needn’t be blown about by the short term winds.

There’s nothing constant in life but change, and I plan to have diamond hands in the face of it.

Faith of a Scientist

I guess I always believed in God. There were times when I questioned as any healthy teenager should. But God is there for me, I made sure. Part of me thinks more people would believe in God if more believers acted the part. I feel like nowadays people who profess or push belief are so hollow in acting it out, it’s no wonder that so many reject or criticize it. There’s so much evil in the world to make one doubt, if nobody has good answers or shows the pathway forward.

I want to talk about why good religion and science work together.
I might have a unique relationship with God, and religion as a whole. I’m a STEM guy through and through. I live and breathe the logical, the rational, the empirical. I’m sure atheistic peers might view such a claim with their usual cynical skepticism. I don’t blame them, though they do so erroneously. I’m in a profession where I have a degree with Science in the name twice. But I deviate from the typical religious person too even among my own, having no time for superstitious nonsense.

I don’t want to talk about me or religion here, I want to talk about why I think my foundation of faith may help anyone with life who tried it as a frame, but I need to contextualize it, so if you’re really turned off by organized religion, skip the next paragraph.

I will be deliberately evasive lest you think I’m here to preach, but suffice it to say I belong to a heavily maligned Christian sect. We profess to be the modern iteration of New Testament believers, authorized by God and those original apostles. Our beliefs predate the councils of Nicaea, when Nero was blaming fires on us in Rome. People… don’t like us for that claim. I’ve been accused by other professed Christians of being a devil worshipper. I’ve been accused of being in a sexual fertility cult, throwing virgins off of rooftops, and thinking god is an alien on another planet. Of course we get called a cult, then racist, sexist, and every other word. You only need know we’re different, and believe our doctrine is finite and coherent, and that’s where I’m pulling from.

Ok? Cool.
Faith is the first principle.
Faith is a principle of action and of power.

That’s my claim. If it’s true, you can’t fully unpack it since everything else springs from it, but I’ll give the necessary bits my best shot.

What’s cool is all the definitions of the word faith as it is colloquially used in the English language are correct enough and uncorrupted enough by time to be tremendously useful in a secular discussion of it. Having faith in yourself, having faith in others, acting in good faith (even legally!), and having faith in karma, the future, and so on are fundamentally useful and pragmatically fundamental.

Without falling into rabbit-holes of human consciousness and free will, let’s say we are beings or entities that take actions and our actions are driven by our motivations. Well then, biologically we divide the nervous system into two halves, the sympathetic and parasympathetic. The former handles “fight-or-flight”, we’ll call that fear, and the latter handles anti-fear, which ranges from faith to apathy to lusts. (catchphrase being “rest-and-digest” or “feed-and-breed”). Those two systems drive all of our motivations from the most primal bowel movement to the most high-level like “success”.

Faith is the key motivation. It’s the bottom motivation from a religious end, and it’s the peak motivation from the scientific end. It’s responsible for a lot of self-fulfilling prophecy, in that people who think they can accomplish things often overcome incredible odds to succeed. And those who doubt and fear, arguably the opposite of faith, tend to fail or quit. This is why some prosperity gospel con artists are successful – because believing in something or yourself does move you forward. It’s also why some of the most brilliant minds fail. Faith only works if it’s in something that is true, and half the time, half-truths might suffice. But perfect faith can move mountains and produce miraculous consequences, natural and explainable though they may be.

I’m a big fan of the Yin-Yang ideas of eastern philosophy. In order for us to be successful organisms we need to voluntarily rotate between the halves of the nervous system, or even just creative and rational halves of the brain, in a way that’s sustainable across time from days to generations. Too much of one or the other makes you ill and dysfunctional. In order for our parasympathetic systems to keep us happy, we have to know where the predators and dangers are from the sympathetic. In order for us to remain sane, we have to slow down the sympathetic and not let little things get us outraged and angry all the time.

Pragmatically, this means the more you face your fears and the more you get out of your comfort zone, the more you’ll move forward in life. You just need to have a little more faith in others and yourself. Otherwise, you end up in a downward spiral instead of an upward one, in which you become driven by your fears and lusts, instead of being master of them. It’s up to us to choose faith and live out our heroic journey through life slaying our dragons, even if they appear as homework or bills or job hunts. Otherwise we can become tragic failures, captive in a basement or cheap apartment with roommates we hate and seemingly endless debt. You voluntarily go out into the chaos and accomplish something to bring back home to the order, or you remain where you are until you involuntarily get sucked into backward circles of alternating stressful chaos and personal tyranny.

Science and religion are completely compatible in my view. I find that any conflict between them indicates a flaw in one’s understanding of the other. As long as you humbly bake in that you’ll never know everything in either case there’s no issue. They are two parts that make a whole together. David Hume’s “Is-Ought Problem” rubs on both. You can’t derive an “ought” from an “is”, and attempts to do so lead rapidly to eugenics and/or genocide in a Machiavellian fashion. And those who try to derive what “is” from what “ought” to be are the same fundamentalists who demanded the sun orbited the earth: they’ll remain in the dark ages, devoid of the “wizards” they burnt. You need a knowledge system that lets you establish what is true and how to find out more. And you need a belief system that tells you what you should be doing with the information the former produces. We seem to be losing both.

I believe the scientific method is a perfectly reasonable place to start for determining the existence of God. If you want an answer, learn how to pray about it. Don’t recite something, talk to God as if He exists and ask for a way to determine. If you’re dead serious and honest about it, you will eventually experience the evidence. I’ve had friends who had miracles happen when they took my counsel to pray in spite of disbelief. It’s non-transferable, un-recordable empiricism each person has to test themselves, but I assure you the same data others experience can and does come.

I also believe faith is valuable in accomplishing useful scientific endeavors. It takes a lot of courage and risk to pioneer science, be it intangible travel to distant places, or fighting the battles many do in seeking funding for research. Without a little self confidence from somebody science doesn’t get done. Somebody had to take risks to test people for COVID-19.

Takeaway

I believe in a God who listens and answers but plays by the rules. I don’t believe in a fast and loose interpretation of the word omnipotent, God employs no magic and can’t violate causality or do things that can’t be done. There’s always a natural explanation and most of His doing is letting nature take its course for our education and work out details afterward. He will open our eyes to possibilities and expand our free will if we have the faith to ask and let Him.

I believe in the Big Bang, evolution and natural selection, and in the scientific method as it is used appropriately. I believe in the power of people who act in faith to pioneer, discover, and sustain our world and explore our universe. I believe you can too, if you have more faith in yourself. I also believe it takes a massive amount of faith to try and raise the next generation of scientists and engineers. I’m doing my best to succeed.

I have faith.