“HODL” Finds Its Inevitable Flaw

“HODL,” an original misspelling taken on as a badge of courage by cryptocurrency investors, spread to “Meme stocks” during the runup in 2020 and 2021.

The term “HODL” originated from user GameKyubbi, who posted a drunk, semi-coherent, typo-laden rant about his poor trading skills.

“‘I AM HODLING.’ I type d that tyitle twice because I knew it was wrong the first time. Still wrong. WHY AM I HOLDING? I’LL TELL YOU WHY. 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.

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.”BitcoinTalk fourm

Within an hour of that post, “HODL” had become a meme. Initially, the memes referenced the movies “300″ and “Braveheart,” but there are now countless HODL memes floating around the internet.

Hodl, “HODL” Finds Its Inevitable Flaw

Of course, there seemed to be no risk to a “HODL” strategy at the time, as the Federal Reserve and Government pushed trillions of dollars in liquidity into the financial markets and economy. With the economy shut down due to the pandemic, sports gamblers turned their attention to the stock market to get their “fix.” As asset prices surged and with the assistance of the Robinhood app, investing became so easy you could draw letters out of a Scrabble bag.

Unfortunately, when it comes to buying and “HODLing,” the outcome from periods of excess speculation is always the same.

The “HODL” Fallacy

I recently wrote about the problems with “armchair” investment strategies.To wit:

“As shown in the chart below, the advice given is not entirely wrong. Since 1900, the markets have averaged roughly 10% annually (including dividends). However, that figure falls to 8.08% when adjusting for inflation.

By looking at the chart, it’s pretty evident that you should invest heavily in the market and “fughetta’ bout’ it.”

If it was only that simple.”

Hodl, “HODL” Finds Its Inevitable Flaw

While the average rate of return may have been 10% over the long term, the markets do not deliver 10% yearly. Let’s assume an investor wants to compound their returns by 10% a year over five years. We can do some basic math.