Earlier this year the shenanigans of Reddit users launched shares of GameStop (GME) into the stratosphere, and suddenly everybody was talking about investing.
GameStop’s stock price still hasn’t gotten off the roller coaster — in early June it topped $300 for the first time since January — and investors new and old are trying to sort out what it all means so they can use the lessons to make some money in the future.
As investing apps like Robinhood democratize the market and make it easier for everyday Americans to break into the world of stock trading, CNBC’s Mad Money host Jim Cramer has some important advice for the newcomers.
Take a look at Cramer’s list of rules for today’s fresh crop of app-armed investors.
Only one good reason to invest
Cramer, one of the most famous stock-market commentators in the world, used a segment on his show to address the Reddit investors at the center of the GameStop situation.
“When things get Biblical, you gotta get careful,” Cramer said.
“Right now, we’re hearing a lot about David versus Goliath, how newer investors have taken on the hedge fund behemoths, armed with commission-free trading and more knowledge than ever — the people united will never be defeated,” he sarcastically exclaimed before pressing a button that called up a photo of the Wall Street bull.
Cramer acknowledged that Robinhood has revolutionized the investing world.
“They used a terrific app and commission-free trading to attract 17 million investors. Most of whom are new to the game,” he says. “Even if they don’t stick with Robinhood in particular, they love stocks. And they’re learning how to be better investors and I think that’s terrific.”
But Cramer urged the mass of new investors to re-evaluate their motivations for investing.
“I recognize the appeal of that story, but this is not a morality play,” he said. “You’re not sticking it to the man when you buy GameStop or AMC Entertainment. There’s only one good reason to own stocks — and that, of course, is to make money.”
Cramer’s 7 rules for new investors
Cramer’s skepticism toward what he saw as vigilante investing proved prophetic: As prices on the meme stocks tumbled, newbie investors from Reddit lost millions of dollars from their accounts.
He said we are now facing a possible retail revolution in the investing world — but he warned that revolutions often fall apart and the old regime sticks around.
So what does he advise? Putting down the slingshot and picking up his rulebook.
Here are his 7 “rules for revolutionaries”:
Put your money in the stocks of companies that deserve to go higher over time.
Don’t try to wipe out other investors.
Find opportunities to capitalize on stock moves driven by emotional trading.
Don’t depend on the government to introduce regulatory changes.
Don’t borrow money from brokers to buy stocks.
Keep calm, use your head and follow corporate earnings reports.
Invest in companies that are doing well but poised to do better in the future.
Learning to be a better investor
Essentially, Cramer’s message to observers of the Reddit/GameStop schmozzle was that, even though the stock market is now more accessible than ever, thanks to the new generation of apps, you still have to do your homework if you want to see real, steady wealth gains out of your portfolio.
But Cramer didn’t deny that beginners have plenty of advantageous options in the investing app arena. Robinhood is just the beginning.
Whether it’s a trading app that allows you to buy fractional shares in big-name companies with as little as $5, or a micro-investing platform that can automatically invest spare change from your credit or debit card purchases, these tools can help you learn the fundamentals of investing without unnecessary risk.
They might not make you millions of dollars in a week, but it also means you won’t immediately lose your gains (and potentially a lot more). Instead, you can expect to see steady growth in your investments over the long term.
Before long, you’ll have what Cramer calls the “very high-quality problem” of high returns — even while sticking to your revolutionary principles.