Bank of America confirms the high profitability of the HODL strategy

New research from an international investment bank confirms what many of us have known all this time – investors should never try to market timing.

Investing in financial markets is not an easy thing: panic selling often leads to missed opportunities, and the anticipation of a recession can rob you of the most profitable period for holding a certain asset. These are the general findings of a comprehensive survey of the S&P 500 by Bank of America.

Using the period from 1930 to the present, Bank of America strategists found that the total return on a simple retention strategy (HODL) would have been as much as 17,715%. On the other hand, if investors tried to apply market timing, they might be missing out on better trading days. Skipping just ten of the best trading days in the S&P 500 in each decade would drop the overall return by up to 28%.

For many investors, especially inexperienced ones, selling after a severe downturn is a natural impulse. But in its research, Bank of America found that the best days of the market often come after the worst periods. Panic selling when the market is down can cause investors to miss out on better trading days.

Savita Subramanian, Head of Investment and Quantitative Strategy at Bank of America, explained:

Holding on to an investment during turbulent times can help you recoup losses after a bear market, as it usually takes about 1,100 trading days on average.

Cryptocurrency investors, and especially bitcoin (BTC) holders, are known for their unassuming timing. According to industry data, over 60% of Bitcoin’s circulating supply has remained intact for a year or more, reflecting the growing confidence in the digital asset. Even during the last price spike in the last six months, only 36% of the Bitcoin supply moved.

Experienced cryptocurrency holders, who are called HODLers because of a meme that arose in 2013 thanks to the bitcointalk forum (whose user confused the letters in the word HOLD) when talking about BTC, are used to the fact that market timing can be expensive them in the long run.

As with stocks, Bitcoin’s top ten trading days are responsible for much of the gain. During the 2017 bull market, the price of BTC rose by an incredible 1136% in the best ten days of the year.

Some entrepreneurs are trying to apply innovations in artificial intelligence and machine learning to help traders manage their emotions. One such example is Stock Cards, a browser extension that helps investors predict and prevent FOMO (fear of missing out) and panic.

Long-term bitcoin investors are reaping the rewards of their HODL strategy, as the 2021 rally could make thousands of people BTC millionaires.

Leave a comment