The first time I saw the term HODL, I thought it was a typo.
I even wrote to the website where I saw it (just trying to be helpful). I was politely informed of my ignorance. I guess it shows how little attention I’ve been paying to investments outside my primary field until now; I didn’t know that in the crypto space, HODL stands for Hold On for Dear Life.
My first reaction was to laugh.
My second reaction was to scoff.
My third reaction was to reconsider.
Humor aside, holding on for dear life sounds like a recipe for massive losses. I’ve learned a lot of painful lessons as an investor and speculator. The importance of cutting one’s losses and moving on is one of the most important. People who refuse to admit defeat, ensure total losses. They’re holding on to the bitter, hopeless bottom of absolute zero, from which there is no recovery.
On the other hand, panicked selling on market fluctuations also results in huge—and unnecessary—losses. I often write about the difference between price and value. In speculative markets, the former can vary by huge amounts while the latter remains unchanged. Mistaking price for value is a major error.
I sell when there’s a reason to. For example:
- Exploration fails to deliver a discovery.
- A discovery turns out to have no value.
- Management turns out to be incompetent or corrupt.
- The underlying trend changes.
- New technology or law destroys the value proposition.
The possibilities are infinite. But the point is singular: I do not sell just because a price is down.
Does that make me a HODLer?
No.
I can imagine myself tossed into a frigid sea after a violent shipwreck. I find a floating barrel and cling to it. The crashing waves are pushing the barrel toward jagged cliffs, but I don’t let go. The barrel is even sinking, but I don’t let go. The cold has sapped my ability to swim. The barrel is my only option. Each lightning strike brings the cliffs closer. Better to just close my eyes. There’s nothing else to do, but… HODL.
That’s not what I do as a speculator.
The above metaphor doesn’t go far in reverse, but in real investing life there’s always the option to let go of the barrel. There are almost always other barrels going in different directions. And there’s always the choice of treading water with no barrel at all (going to cash).
- I’m always open to the possibility that I may have made a bad call.
- I never close my eyes to the evidence of impending disaster.
- I’m always looking for alternatives.
- I never hold because I refuse to admit I’m wrong.
- I hold (or average down) because the basis for speculation remains intact.
It’s smart to resist being spooked by random market volatility.
It’s foolish to HODL with one’s eyes closed, no matter what.
Shifting from theory to practice, this matters because putting the word “crypto” in a speculation doesn’t guarantee success. HODL is a terrible “strategy” when it comes to something that can go to zero.
- Could Bitcoin2 send the current Bitcoin to zero? People with more knowledge than I have think so.
- Could a better Ethereum do the same for today’s? Why not?
- Could some new distributed ledger technology work better than all of today’s block-chain-based ones? The experts say that’s almost certainly the case.
- And what if quantum computing or some other development makes cryptos vulnerable to hacking?
- Or what if (when?) the governments of the world outlaw all digital currencies but their own?
I’m not bashing all cryptos. I do believe this revolutionary innovation will change the world. It already is.
I’m just saying that adhering to the belief that one’s favorite crypto must eventually become a winner, no matter what happens along the way… Well, that’s blind faith, not rational speculation.
In short, HODL isn’t a typo—but it should be.
