Paper Hands: Meaning And Origin
Paper hands is a slang term used to refer to investors who sell investments too early, often because they are risk averse.
Paper hands investors are thought to panic sell at the first sign of pressure or volatility. The use of the term 'paper' is because they are said to fold too quickly.
What Does 'Paper Hands' Mean?
A paper hands investor is someone who sells too soon because they are risk-averse or afraid of losing money. They are said to fold like paper when they feel the slightest pressure and sell investments before giving them the time to turn around. Typically used as an insult or to tease fellow traders in online forums, paper hand investors' early exits might save them from losing more money on stocks that are falling in value even though they might miss potential bounces or turnarounds. That means that their unwillingness to take risks could cause them to lose money over the long term.
The term is used primarily in online trading communities. For example, if an investor buys a stock that goes down in price by 2%, a paper hands trade might immediately sell it even though it could just be a temporary market dip. Whether the paper hands investor made the right choice will depend on how the investment performs. However, over the long-term, paper hands could lose out on potential investment returns by exiting positions too quickly and not holding over the long-term. They also potentially rack up considerable transaction fees by entering and exiting positions too often.
Tip: Sometimes the term paper hands is used in online trading communities to encourage people to remain in volatile stocks or investments others in the community are also invested in. It's important for investors to do their own research and make informed choices about when to exit a position.
Paper Hands vs. Diamond Hands
Paper hands and diamond hands investors are considered opposites. Paper hands investors are traders who are afraid of portfolio losses and will sell a stock or investment at the first sign of volatility or decline in price. Paper hands investors often successfully minimize their losses but they potentially miss out on stock increases or bounces. Paper hands is almost always used in a negative sense.
In contrast, diamond hands investors are retail investors who are stubborn or resolved in their investment choices. They take the old investment advice to 'buy and hold' to heart and don't sell even in the face of intense market volatility. This term can be used in either a positive sense, to compliment someone who can withstand market volatility, or in a negative sense, to suggest that an investor is stubborn. Diamond hands investors might be resolved, but they could lose significantly by not minimizing their losses.
Takeaway: Diamond hands investors aren't necessarily successful investors. They could outperform the market if their investment rebounds but they could lose a significant amount of money if their investment does not rebound.
'Paper Hands' Origin
The term paper hands was coined in the r/WallStreetBets subreddit on Reddit. Like the term diamond hands, paper hands is often used by those investing in highly volatile meme stocks or cryptocurrencies. The r/WallStreetBets subreddit has made several slang terms popular including 'FOMO,' which refers to the fear of missing out on stock opportunities.
The term paper hands gained popularity in 2021 when the forum promoted a bunch of meme stocks like GameStop. The term is also used by cryptocurrency traders as they also trade in a highly volatile sector that requires investors be able to withstand market volatility.
Paper hands has an emoji shorthand that investors use to write it. It features a toilet paper roll and the open hands emoji.
The term 'paper hands' refers to investors who are risk-averse and exit positions at the slightest sign of volatility. While minimizing losses when investing is key, selling an investment too early might mean an investor misses out on significant gains.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.