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There’s a peculiar religion in modern investing where suffering is celebrated as virtue. Hold through the crash. Never sell. Diamond hands forever. The faithful wear their unrealized losses like badges of honor, proof of their commitment to the cause. Meanwhile, their portfolios drift further from any coherent strategy, weighted increasingly toward whatever happened to go up most recently.
The irony is delicious. In trying to be steadfast investors, the diamond hands crowd has accidentally become the most passive participants in their own financial lives. They’ve confused inaction with discipline, and stubbornness with conviction. Worse, they’ve abandoned one of the few free lunches in investing: the simple act of rebalancing.
The Theology of Doing Nothing
Every religion needs its heresies, and in the church of diamond hands, rebalancing is the ultimate sin. Selling winners to buy losers? That’s betrayal. Taking profits? You’re weak. The true believer holds through drawdowns of 50%, 70%, even 90%, secure in the knowledge that holding is always right and selling is always wrong.
This makes for great memes but terrible investing. Because what the diamond hands philosophy actually creates is a portfolio that’s constantly becoming more concentrated in whatever performed well recently. It’s the investment equivalent of letting your garden grow wild and calling it a strategy. Sure, some plants thrive. Others die. But you’ve stopped being a gardener and become a spectator.
Consider what happens when you never rebalance. You start with a sensible allocation: maybe 60% stocks, 40% bonds. Then stocks have a great run. Suddenly you’re 75% stocks without having made a conscious decision to take more risk. Your portfolio’s risk profile has changed dramatically, but you congratulate yourself for doing nothing. This is discipline?
The deeper confusion is about what holding actually means. The diamond hands crowd thinks they’re being patient and long term focused. But patience toward what end? They’ve mistaken a tactic for a strategy. Holding is not itself an investment thesis. It’s just inertia with better marketing.
The Mathematics of Taking Profits
Here’s where it gets interesting. Rebalancing forces you to do something that feels completely wrong but is mathematically elegant: sell things that went up to buy things that went down. This sounds like the advice of a madman. Why would you sell your winners?
Because your winners aren’t winning anymore. They already won. That’s the whole point.
Think about what prices represent. When an asset’s price rises significantly, it’s incorporating expectations of future growth. At some point, much of the good news is already priced in. The asymmetric opportunity has diminished. Meanwhile, the asset that declined may now offer better forward returns precisely because expectations have been lowered.
This is not market timing. You’re not predicting tops and bottoms. You’re simply acknowledging that risk and reward exist on a continuum, and that continuum shifts as prices change. The expensive asset carries more risk for less potential reward than it did before. The cheap asset carries less risk for more potential reward. Rebalancing is just navigating this reality systematically.
The math gets better. Rebalancing creates something called the “rebalancing bonus,” a slight return enhancement that comes from the volatility itself. When two assets with similar expected returns but uncorrelated movements are rebalanced, the portfolio actually earns more than a static allocation to the same assets. You’re harvesting volatility. It’s beautiful.
But you only get this if you’re willing to do something. The diamond hands approach leaves this return on the table because it’s philosophically opposed to action.
The False Wisdom of Legendary Investors
The diamond hands crowd loves to quote Warren Buffett: “Our favorite holding period is forever.” They conveniently ignore that Berkshire Hathaway is constantly buying and selling. Buffett’s portfolio has churned significantly over the decades. His forever holding period applies to wonderful businesses bought at fair prices, not to whatever random collection of assets you happened to accumulate.
The confusion runs deeper. When investors like Buffett talk about holding forever, they mean something specific: they’ve done deep analysis, they understand the business, and they believe in the long term value creation story. That’s conviction based on analysis. Diamond hands, by contrast, is often conviction based on nothing more than having bought something. The holding period is selected first, then retrofitted with a justification.
This is backwards. The question isn’t “should I hold or sell?” The question is “does this asset still deserve this allocation in my portfolio?” Sometimes the answer is yes, hold forever. But sometimes the answer changes. The business deteriorates. The valuation becomes absurd. Your personal circumstances shift. Blindly holding through these changes isn’t wisdom. It’s stubbornness masquerading as strategy.
Even the forever holding period is misleading. Buffett himself has said that if you’re not willing to hold a stock for ten years, don’t hold it for ten minutes. But notice what he’s actually saying: your conviction should be strong enough to justify a long hold. He’s not saying conviction can never change. He’s saying don’t buy things you haven’t thoroughly evaluated.
What Rebalancing Actually Teaches You
Here’s the really useful thing about rebalancing: it forces you to confront your actual beliefs about assets. When you sit down to rebalance, you can’t hide behind inaction. You have to decide what you think each position should be worth in your portfolio right now.
This is uncomfortable. It’s much easier to do nothing and let the market decide for you. But that discomfort is valuable. It makes you think. Should technology stocks really be 45% of my portfolio? Do I actually want that much exposure? Or did I just never bother to ask?
Rebalancing converts vague feelings into specific decisions. You might realize you don’t believe in an investment as much as you thought. Or you might realize you believe in it more and should increase the position. Either way, you’re engaging with your portfolio instead of just watching it.
There’s also a psychological benefit that’s underappreciated. Rebalancing gives you something to do during market extremes. When everything is crashing, you can buy more of your chosen assets at better prices. When everything is soaring, you can lock in gains and reduce risk. This activity is not just mechanically beneficial. It channels your natural urge to act into productive behavior rather than panic selling or euphoric overbuying.
The diamond hands approach, by contrast, offers no script for extremes except “hold and suffer.” This works for some people, but many investors find it psychologically untenable. They end up breaking their discipline at exactly the wrong time because they have no intermediate actions available. It’s all or nothing, hold or capitulate.
The Garden vs The Wilderness
Think of portfolio management like tending a garden. You plant deliberately. You water. You prune. You thin out plants that are crowding others. You don’t just throw seeds randomly and then refuse to ever touch the garden again because that would be “interfering with nature.”
The diamond hands philosophy is the wilderness approach. Let it all grow wild. Don’t interfere. Whatever survives deserves to survive. This has a certain naturalistic appeal, but it’s worth noting that wilderness and gardens produce different results. Wilderness is diverse and resilient but inefficient and sometimes hostile. Gardens are optimized for specific outcomes.
Your portfolio isn’t wilderness. It’s not a natural ecosystem. It’s an artificial construct you created to serve specific goals. It should be managed accordingly. This doesn’t mean constant tinkering or trying to outsmart the market. It means maintaining alignment between the portfolio and its purpose.
Rebalancing is just gardening. You’re not trying to pick which plants will grow fastest. You’re maintaining a deliberate structure. When the tomatoes overtake the lettuce, you don’t conclude that your garden should become all tomatoes. You restore balance so the garden continues serving your needs.
The Difference Between Conviction and Stubbornness
Here’s a useful test: if you can’t articulate why an investment should remain in your portfolio beyond “I already own it,” you’re being stubborn, not convicted.
Conviction is when you understand an asset’s role in your portfolio, believe in its expected return profile, and have considered alternatives. Conviction means you’d buy more of it today if you had new money to deploy. Conviction can handle being questioned because it’s based on reasoning.
Stubbornness is when you hold something because selling would feel like admitting a mistake. Or because you bought it at a higher price and won’t sell until you “break even.” Or because holding is what serious long term investors do and you want to be a serious long term investor. These are emotional positions dressed up as strategy.
The diamond hands movement traffics in stubbornness but brands it as conviction. The community reinforces this confusion through shared suffering. When everyone is losing money together and insisting they’ll never sell, it feels like solidarity and strength. But it might just be collective stubbornness.
True conviction is actually compatible with rebalancing. If you’re truly convicted about an asset class or strategy, you should want to maintain your allocation to it. When it rises beyond its target, you sell some. When it falls below, you buy more. Your conviction stays constant even as your actions vary. This is coherent.
The Rebalancing Schedule
The practical question becomes: how often should you rebalance? This is where the approach stops being ideology and becomes engineering. You’re balancing transaction costs and tax considerations against the benefits of maintaining your target allocation.
The research suggests that annual or semi-annual rebalancing captures most of the benefit without excessive trading costs. Some investors prefer threshold-based rebalancing, acting only when an allocation drifts by a certain percentage from its target. Both approaches work. The key is having a system and following it.
This is different from market timing. You’re not predicting anything. You’re just maintaining a consistent strategy through changing conditions. It’s mechanical, not prophetic.
The beauty of a schedule is that it removes discretion at the exact moment discretion is most dangerous. When markets are euphoric, your schedule forces you to sell. When they’re despairing, it forces you to buy. You’re systematically positioned against the mood of the market without having to be a contrarian hero. The system makes you disciplined.
What Diamond Hands Gets Right
To be fair, the diamond hands philosophy isn’t entirely wrong. It gets one crucial thing right: most investors would benefit from trading less. The average investor does poorly because they buy high and sell low, driven by emotion and market noise. For these investors, doing nothing is better than doing something stupid.
The problem is that diamond hands overcorrects. It mistakes “trade less” for “never trade.” It confuses avoiding impulsive reactions with rejecting all portfolio management. This is like solving your overeating problem by never eating. Sure, you’ve eliminated the problem behavior, but you’ve created a different problem.
The goal should be to trade deliberately and systematically, not to avoid trading entirely. Rebalancing accomplishes this. It’s infrequent enough to avoid overtrading costs and emotional churn. It’s systematic enough to remove discretionary mistakes. It’s active enough to maintain your intended strategy.
There’s also something valuable in the diamond hands emphasis on long term thinking and patience. Markets are volatile. Good investments go through difficult periods. Selling everything at the first sign of trouble is indeed foolish. Where diamond hands fails is in extending this reasonable caution into an absolute prohibition on all portfolio changes.
The Paradox of Control
Here’s the strange thing: by refusing to rebalance, diamond hands investors are actually ceding control to the market. They think they’re in control because they’re “doing nothing,” but the composition of their portfolio is being determined entirely by market movements. They’ve become completely reactive.
Rebalancing restores control. You decide what your portfolio should look like. You maintain that structure regardless of what the market does in the short term. This is genuinely active management, even though it involves relatively few transactions.
The paradox is that the passive approach is actually passive, while the systematic approach is actually active. Diamond hands is passive in the worst sense: you’ve stopped managing your portfolio and are just along for the ride. Rebalancing is active in the best sense: you’re maintaining a deliberate strategy without trying to outsmart the market.
This flips the usual narrative. The diamond hands crowd thinks of themselves as disciplined long term investors and views rebalancers as market timers or speculators. But it’s actually the opposite. Rebalancers are maintaining a consistent strategy. Diamond hands holders are letting their strategy drift with market whims.
Beyond Finance
The diamond hands mentality shows up in other areas of life, always with similar results. People who never reassess their careers often end up stuck in industries or roles that no longer serve them. They confuse the sunk cost of past time investment with a reason to keep investing more time.
Relationships can suffer from the same thinking. “I’ve been with this person for five years” becomes the reason to stay, even when the relationship has changed or isn’t working. The time invested becomes the justification for more time invested. This is diamond hands applied to romance.
The better approach in any domain is periodic reassessment. Not constant second guessing, but regular checkpoints where you ask: does this still make sense? Does this still serve my goals? Am I here out of conviction or inertia?
These reassessments don’t always lead to change. Often you’ll confirm that yes, you’re on the right path. But sometimes you’ll discover drift. Your goals have evolved. The situation has changed. What made sense years ago needs adjustment. The reassessment itself is valuable even when it leads to staying the course, because now you’re staying the course deliberately rather than accidentally.
This is what rebalancing does for portfolios. It’s not constant meddling. It’s not market timing. It’s periodic reassessment and realignment. Most of the time, the adjustments are minor. But those minor adjustments compound over time into substantially better outcomes.
The Mediocrity of Maximum Conviction
The ultimate irony of diamond hands is that maximum conviction in any single position is almost certainly wrong. The future is uncertain. Your analysis is imperfect. The best investments can fail. The worst can succeed. Absolute confidence is almost always misplaced.
A diversified portfolio with regular rebalancing is actually an expression of appropriate humility. You’re saying: “I don’t know exactly what will perform best, so I’ll maintain exposure to multiple things and systematically buy more of what gets cheaper.” This is modest and intelligent.
Diamond hands, despite its bravado, is often an expression of either overconfidence or surrender. Overconfidence if you truly believe your concentrated positions are guaranteed winners. Surrender if you’ve just given up on active management and decided to let the chips fall where they may.
The mediocre returns come from both failure modes. The overconfident investor ends up concentrated in assets that eventually mean revert. The surrender investor ends up with a drifting portfolio that no longer matches any coherent strategy. Both would have done better with less conviction and more system.
Conclusion: The Discipline of Action
The diamond hands movement got one thing backwards: discipline is not about refusing to act. Discipline is about acting according to a system even when your emotions resist.
Sometimes discipline means holding through volatility because your analysis hasn’t changed. But sometimes discipline means selling a winner that’s become overvalued or buying a loser that’s become cheap. The disciplined investor doesn’t decide based on ease or comfort. They decide based on strategy.
Rebalancing is disciplined action. It’s doing something that feels wrong because your system tells you it’s right. It’s selling euphoria and buying despair. It’s maintaining your chosen strategy regardless of market conditions or popular opinion.
The truly long term investor isn’t someone who never sells. It’s someone who makes decisions based on decades, not days. Someone who maintains a consistent allocation over time rather than letting short term returns determine their portfolio’s shape. Someone who gardens rather than watches the wilderness grow.
Your portfolio deserves this care. Not constant meddling. Not paralyzed inaction. Just regular, systematic maintenance that keeps your investments aligned with your goals. That’s not betraying your convictions. It’s honoring them.
The diamond hands crowd will call this weak or impatient or too active. Let them. While they’re holding their increasingly concentrated portfolios through their next 70% drawdown, you’ll be systematically buying low and selling high without even trying to time the market. And over the decades, the difference compounds into something undeniable.
Discipline looks boring. It looks like spreadsheets and calendar reminders and small adjustments. It doesn’t make good memes. But it makes good returns. And in the end, that’s rather the point.
