When examining the wealthiest people in the world, a striking trend emerges. According to the Forbes Real-Time Billionaires List, only a handful among the top 100 derive their wealth from trading or hedge fund investments. In fact, the richest trader ranks only 29th, and his fortune largely stems from an early investment in TikTok rather than frequent trading.
The majority of the world’s wealthiest individuals amassed their fortunes by building businesses that provide products or services—and, crucially, by holding onto their company stocks for decades. They are long-term investors who understand that wealth is not created through constant buying and selling, but through patience and belief in an asset’s future potential.
The Power of Holding for the Long Term
Consider this: if you had invested $1,000 in Amazon or Apple stock in the early 2000s and simply held it for 20 years, your investment would be worth between $700,000 today. The same principle applies in India—investments in Reliance Industries, Adani Enterprises, or Bajaj Finance have seen exponential growth over decades.
Yet, the question remains: would you have held onto your investment, or would you have sold it once it doubled, tripled, or even increased tenfold? The difference between modest returns and extraordinary wealth often lies in the ability to hold onto an asset longer term despite market fluctuations.
Warren Buffett, one of history’s greatest investors, does not engage in frequent trading. Instead, he buys businesses and stocks he understands, and holds them for the long run. He believes in the US market. Through this strategy, his firm, Berkshire Hathaway, has consistently outperformed the market—represented by the S&P 500 in the U.S.
The harsh reality of trading is that most retail traders lose money. Despite extensive research confirming this fact, many continue to trade, believing they can outsmart the market. Statistics show that only 1-2% of traders consistently beat the market over the long run, yet countless individuals still chase short-term gains.
Why? Psychology and emotions. Many traders experience a few early wins and convince themselves they have unlocked a formula for success. This false confidence leads them to trade more aggressively, believing they can replicate their initial victories. But when the inevitable losses come, the psychological trap deepens. Instead of walking away, they pour more money into the market, trying to recover what they’ve lost—often leading to even greater financial ruin. This cycle is so common that even professional hedge funds struggle to survive, with hundreds shutting down each year.
Unless you have insider information, you are trading on the same publicly available data as everyone else—meaning you have no real edge. Picking stocks or assets is not the problem; it’s what happens after. You will inevitably pick both winners and losers, but when you trade frequently, you face additional hidden costs that erode your profits.
Imagine you invested in Apple in the early 2000s, and your stock doubled in value within a short period. If you sold, you would owe capital gains taxes—as high as 50% in some cases. So, while your stock gained 100%, your actual after-tax profit would be significantly lower.
Now, suppose your next trade results in a 50% loss. In the U.S., tax laws limit how much you can deduct from taxable income—capped at $3,000 per year. Unlike your gains, which are taxed in full, your losses aren’t fully deductible, putting you at a significant disadvantage.
The Long-Term Math Works Against You: Over a 20-year period, assuming you have no insider edge, your winners and losers will likely balance out. However, if you frequently sell your winners and hold onto your losers, you will gradually erode your capital through taxes, poor timing, and emotional decision-making.
Another significant challenge is discipline. Sticking to a well-defined strategy and knowing when to cut losses—rather than clinging to an investment out of attachment—is incredibly difficult. The best traders are not necessarily those who pick the best stocks, but rather those who excel at managing risk and protecting their capital. Unfortunately, due to human nature and emotional biases, only a select few are able to master this skill.
When we look at Warren Buffett, Mukesh Ambani, Anand Mahindra, Bill Gates, Mark Zuckerberg or Elon Musk, what stands out about their strategy to have made them this wealthy? They don’t trade frequently or chase quick gains. Instead, they believe in their investment and hold concentrated stocks for decades, allowing their wealth to compound without incurring unnecessary taxes, brokerage fees, or trading costs. Their fortune grows simply because they stay invested for the long haul.
Always Understanding Your Investment Goal and Yourself
Before making an investment, ask yourself:
Am I investing to protect my wealth, or do I want my wealth to grow 10x or even 100x?
The Safe Approach: Preserving Wealth Through Diversification
If your primary concern is not losing money, then diversification is key. If you are anxious when your portfolio goes down 2% or 10% and whether you have ₹1 lakh, ₹10 lakh, or ₹1 crore, fear of loss guides your decisions, you should never put all your money into a single stock or even a single asset class. Every investment—stocks, bonds, commodities, or crypto—carries systemic risks that could cause significant drawdowns.
By diversifying and holding multiple assets, you reduce the impact of any single market downturn. If one asset class declines, another might remain stable or even rise, limiting your total losses. Over time, this strategy ensures slow but steady growth—akin to earning interest with minimal risk.
Think of it like Test cricket—your goal is to stay at the crease, taking singles and protecting your wicket. You want to be the “Wall” like Rahul Dravid, ensuring survival for the long game rather than taking unnecessary risks.
The Aggressive Approach: Swinging for Big Wins
If your goal is to grow your wealth by 10x or more in a short period of time, then playing it safe won’t get you there. You’ll need to take calculated risks—swinging for boundaries instead of settling for singles.
This is the Virender Sehwag style of investing—aggressive, high-risk, and high-reward. Just like in cricket, where Sehwag could smash triple centuries but also get out for a duck, high-risk investments come with the potential for extraordinary returns—but also the possibility of total loss.
Start-up investments operate on a similar principle. They are illiquid and volatile, but if successful, they can deliver 1000x returns. Holding Apple for 20 years could yield massive gains, but picking the wrong company—like Enron—could wipe out your investment completely.
Unlike a casino, where at least you get flashing lights, free drinks, food and some entertainment, in high-risk investing, you may not even realize you’ve lost everything until it’s all gone with even nothing to show for it.
I try to follow this strategy in my personal life. I set up a Robinhood brokerage account and handed it over to my son at an early age with just one rule: whatever he buys, he cannot sell for 20 years. He has complete freedom to choose stocks, bonds, or crypto, using any rationale—whether it’s fundamental metrics like the P/E ratio or simply his personal interests, like investing in gaming stocks because he loves gaming. But once he makes a purchase, it stays in the portfolio for the long haul.
My belief is simple: over time, the biggest winners—the ones that grow 100x or more—will define his portfolio’s success. By holding onto these mega-performers instead of selling early, he’ll experience the true power of long-term investing and compounding wealth and hopefully his portfolio would have grown enough to have financial freedom at a very early age.
One of the most compelling arguments for long-term passive investing comes from the work of Nobel Prize-winning economist Eugene Fama and a real-world bet made by Warren Buffett against a hedge fund manager. Both illustrate a fundamental truth about investing: in the long run, markets are efficient, and they tend to outperform active traders and fund managers.
Eugene Fama and the Efficient Market Hypothesis (EMH)
Eugene Fama, who won the Nobel Prize in Economic Sciences in 2013, is best known for developing the Efficient Market Hypothesis (EMH). His research suggests that all available information is already reflected in stock prices, meaning that no individual trader or fund manager can consistently outperform the market through active trading.
According to Fama:
- Stock prices move randomly and cannot be reliably predicted.
- Any short-term outperformance by active investors is likely due to luck rather than skill.
- Over time, the cost of trading fees, taxes, and incorrect market timing erodes the advantage of active management, making passive investing in broad market indices a more effective strategy.
Warren Buffett’s $1 Million Bet Against Hedge Funds
To prove this point in real-world investing, Warren Buffett made a famous bet in 2007. He wagered $1 million that a simple, low-cost S&P 500 index fund would outperform a group of hedge funds over a 10-year period. His challenger, Ted Seides, a hedge fund manager, selected five hedge funds to compete against Buffett’s passive investment.
The results were staggering:
- Buffett’s S&P 500 index fund gained 126% over the decade.
- The hedge funds, despite using active trading strategies and sophisticated analysis, averaged only 36% returns after fees.
- Buffett easily won the bet, reinforcing the idea that passive investing beats most active managers in the long run.
There are risks in this strategy.
While long-term investing has its advantages, there is always a risk in not selling a stock, even if the business appears viable. Companies can face unexpected bankruptcies, mismanagement, or regulatory crackdowns that drive their value to zero—Enron being a prime example. Stocks can also be wiped out due to broader market crashes or systemic events, leaving even fundamentally strong companies vulnerable.
On the other hand, commodities like gold do not face the same existential risk. While their prices can decline and remain depressed for long periods, they do not become worthless. Even if gold mining companies collapse due to financial mismanagement or industry downturns, the commodity itself retains value—miners and refiners may go bankrupt, but the underlying asset persists.
Bitcoin follows a similar pattern. Over the past 15 years, it has endured multiple price collapses of 80-90%, yet each time, it has rebounded to reach new highs within 2-3 years. However, during these downturns, many Bitcoin miners have gone bankrupt, and their stocks have been wiped out. Bitcoin itself, like gold, remains intact, but it does not generate cash flow, interest, or dividends.
This is why Warren Buffett avoids assets like gold and Bitcoin. He prefers investments that generate income, such as businesses with consistent cash flows. However, this does not mean that gold or Bitcoin are Ponzi schemes.
At their core, gold is a metal, and Bitcoin is a hash address stored across distributed networks—both representing forms of ownership without an intrinsic promise of income. Their value is determined by scarcity and collective belief rather than cash flow generation.
If one believes that Bitcoin can serve as a store of value, and that more people will join this belief network in the future. With more people joining and trying to have a bitcoin, its price can appreciate purely based on supply and demand dynamics. Like gold, Bitcoin’s value is shaped by the market’s perception of its role as a hedge against inflation and economic uncertainty.
Such belief is required to hold investments even when massive drawdowns happen and hold on to those investments or have what we call “Diamond hands”.
“Diamond hands” is a popular slang term in the Bitcoin and crypto investing community that refers to investors who hold onto their assets despite volatility, market crashes, or pressure to sell. It signifies strong conviction and resilience in the face of fear, uncertainty, and doubt (FUD). It requires unshakable beliefs; Investors with diamond hands strongly believe in the long-term value of Bitcoin, refusing to sell even during extreme price swings. You will have to resist market fear and ignore short-term market downturns, negative news, and panic selling. You need to commit to Long-Term Gains and the philosophy and the idea that Bitcoin, will become money or replace gold.
This is opposite of “Paper Hands” or “Weak Hands”– “Paper hands” refers to investors who panic-sell at the first sign of trouble.
Example of Diamond Hands in Action:
- Someone who bought Bitcoin at $20,000 in 2017 and held through the 2018 crash when BTC dropped to ~$3,000, later benefiting when Bitcoin surpassed $60,000 in 2021.
- Holders during the 2022 bear market who didn’t sell despite the market downturn all the way to 16,000$ got to see $110,000 by 2024.
- Same happened in 2013 when bitcoin crashed from 1,500 to 130$ and then in four years charging to 10,000$.
HODL is a popular term in the Bitcoin and cryptocurrency community that means holding onto your crypto assets instead of selling, regardless of price fluctuations. It originated from a 2013 Bitcoin forum post where a user misspelled “hold” as “HODL,” and the term became an inside joke and later an investment philosophy. He was asking everyone else to hold the line of defense by not selling maybe as the prices were crashing. HODL refers to Long-Term Holding, Resisting Panic Selling and believing in “The Philosophy”.
A Simple Investing Strategy for Everyday People
If you’re a retail investor—whether you’re putting money into stocks, gold, real estate, or Bitcoin—my advice is straightforward: don’t spend your time chasing small price movements or trying to time the market. Most of us already have full-time jobs, businesses, or responsibilities that demand our attention. That’s your primary source of income—your bread and butter. Instead of turning investing into a second job, focus on what you do best, and spend your free time with friends and family. That doesn’t mean you shouldn’t invest. You absolutely should—but do it systematically and simply.
Take time to Educate yourself: Understand the basics of what you’re investing in, whether it’s equities, real estate, or crypto. Know the world around you in finance. Invest regularly by Set aside a fixed amount each month and invest it in a broad market index like the NIFTY 50, if you believe in the long-term growth of the Indian economy.
Know yourself, your strengths, your weaknesses and your goal. If your aim is diversification and protection of wealth, a broad index helps you avoid disasters like Enron, Satyam, or Sahara—companies that collapsed and wiped out shareholder value. Be willing Accept the trade-off: You may miss the next Nvidia, but you’ll also avoid betting on a future Enron. The index smooths out those extremes.
Remember, investing is for a time when you cannot or do not want to work anymore. That’s when the seeds you sow today will support your lifestyle.
The same principle applies in the crypto world. While there isn’t yet a fully diversified crypto index, Bitcoin today represents the lion’s share of the market. If you believe in the future of digital assets, accumulating Bitcoin gradually, just like an index fund, could be a sensible long-term approach.
Stay focused on your career, automate your investments, and let time and discipline work in your favor. That’s how wealth is quietly and reliably built by investments. Life is a marathon and not a sprint same applies to your wealth.
Safe Investing Folks!
Nithin Eapen is a technologist and entrepreneur with a deep passion for finance, cryptocurrencies, prediction markets and technology. You can write to him at neapen@gmail.com
Disclaimer – The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.