I use the HODL meme from Bitcoin to show how it’s actually more widely applicable to your investments with real money.
Things aren’t looking too good for the economy right now. Inflation is up, and gas prices are so high that they are almost starting to approach what they should have been in the first place.
Also, the market is down, the S&P 500 index down about 20% from its all-time high last year.
It’s typically around this point in the market cycle that I start to hear people start to discuss alternative investments. After all, the stock market is losing money, so why not put your money somewhere that’s earning a better return?
Emotionally, it’s understandable. No one wants to “catch a falling knife” as the saying goes.
And let’s be honest, in this era of late-stage capitalism, many have the sense that there is no way to get to financial security through the traditional ways. Wages are too low, costs are too high, and student loans will be there forever. They feel like their only chance to be secure is to try to hit it big. Bet it all on Black 20.
But before you head to the casino and start taking big risks with your money, I have just one suggestion:
Table of Contents
Have you heard of the phrase “HODL”?
Well, even if you have, you may not actually know where it came from.
To start with, HODL has come to mean the practice of not being deterred by market conditions and not selling when things look bad. It’s used in the crypto space primarily, because that’s where it came from.
And so rarely can we trace a meme to the exact location where it started, but here we can.
Here’s where HODL came from: this thread.
Basically, some guy was drunk typing on the Bitcoin Talk forum back in 2013 about how he feels like he’s terrible at day trading Bitcoin, and because of that he’s just decided to forgo the whole trading phenomenon and just hold his coins.
Why HODL? Because he was drunk. Or as he put it:
“I type d that tyitle twice because I knew it was wrong the first time. Still wrong. w/e.”
And within three minutes, someone had typed “HODL!” in response, and it had already begun. Four minutes after that, some prescient soul said “I could see a meme coming from this post”.
And 11 minutes after the original post, the first of an infinite amount of memes was born. Here it is:
HODL does not, as has been often reported, stand for “Hold On for Dear Life”. That was just a backronym, like how SOS doesn’t actually stand for “Save Our Ship” or how King County (Seattle) wasn’t actually named for Martin Luther King Jr. at all.
Our drunk friend was HODLing for the following reason, to use his colorful language:
“It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro […] but you know what? I’m not part of that group. […] You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.”
[sic sic sic sic sic]
There is actually a fair amount of wisdom in this statement, if you can read past all the pit pat piffy wing wong.
What he is saying (and as an aside, I’m sure it’s a “he”; there’s just something about his casual mentioning that his girlfriend is “out at a lesbian bar” that smacks of a hetero male’s humblebrag) is that there are some people who can time the market and profit handsomely for it, but that he isn’t one of those people.
And he’s right. Most people can’t time the market, and no one can time the market consistently. That’s why index funds always beat actively managed funds over the long term, and how Warren Buffett won a million dollar bet saying they could beat a hedge fund.
Who else sells in a bear market? According to our OG HODLer, it’s the “illusioned noob”. That’s the person who doesn’t know what they’re doing but thinks they do. And that could also easily apply to us.
Remember the financial crisis of 2007-2009? Well, I once heard a great statistic that said that if you took your money out of the market and missed something like three particular good days in that time frame, you would have missed out on something like 50% of your gains when the market rebounded.
Well, I can’t find the quote. So instead, here’s an article from 2017, ten years after the crash began, stating that even if you bought just as the crisis was starting, 10 years later, you would have posted 10% annual returns.
10% sounds pretty right now, doesn’t it?
You take my point, I hope. The people who made out okay from the financial crisis, you know what they did? They HODLed.
Buy the dip
Actually, the people who really win in a bear market ignore the fact that it’s a bear market altogether. They continue to do “dollar-cost averaging”, a fancy way of saying that they invest regularly, and at the same amount, regardless of the markets.
If you do this, you’ll buy more when the market is down (because it’s cheaper), and so when the market goes back up, you’ll be in a better position. It just works.
Whatever happened to the HODLer?
I haven’t been able to find any info on whatever happened to this infamous and shadowy character in Bitcoin history. He inadvertently created a kind of philosophy that has percolated into the mainstream, and then just vanished.
I’d like to imagine that he got wealthy off of his HODLing. After all, if he was still HODLing all of his bitcoins from 2013, he would have made a 2000-3000% return on his investment, even at today’s “crypto winter” prices.
But more likely, at some point he sold. Most people do.
It’s too bad, but w/e.