CNBC’s Jim Cramer on Wednesday issued a warning to retail investors who helped raise the price of so-called meme stocks last week.
The trading activity triggered on Reddit ignored traditional investment logic. This sparked an unprecedented brief squeeze on stocks like AMC Entertainment and GameStop that caught the attention of people inside and outside the investing community.
After a mixed day of stock trading on Wall Street, with the Dow Jones and S&P 500 indexes up slightly and the Nasdaq Composite down a few points, Cramer tried to convince the retail investors who had participated in last week’s buzz Introduce investment guidelines.
“If you’re part of this new roster of investors, I ask you to follow my seven new rules,” said the Mad Money host.
The new class of investors that Cramer is referring to are in large part the tens of millions of market participants introduced to stock investments through commission-free trading platforms such as Robinhood, who have come under attack for the way they handled high volume trading are in meme stocks last week.
Cramer said the Reddit revolution was at a crossroads as AMC stocks fell 56% from their highs and GameStop 80% from their highs last week. He advised viewers to follow accepted valuation principles like value for money to find stocks worth buying, pointing out that stocks like United Parcel Service, Abbvie, and Google Parent Alphabet are a more acceptable one Show price multiplier.
“There’s only one good reason to own stocks and that’s, of course, to make money,” Cramer said. “We are at a critical point in this market where the cheapest stocks are often the best and the most expensive stocks are often the worst.”
“I want to tackle the retail revolution … [and] Put it in context, because sometimes revolutions fall apart, “he said.” Sometimes you get a two-day junta, then things go back to normal. other times they might pick up the radio before the tanks roll in. “
Here are Cramer’s seven principles for new investors:
- Grow your capital with the stocks of companies that deserve to rise higher over time
- Don’t try to wipe out other investors
- Find ways to capitalize on stock movements driven by emotional trading
- Don’t rely on the government to introduce regulatory changes
- Don’t borrow money from brokers to buy stocks
- Keep a healthy head and follow the company’s earnings reports
- Invest in companies that are in good shape and ready to produce better results in the future
Disclosure: Cramer’s charitable foundation owns interests in Alphabet, AbbVie, and United Parcel Service.
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