CNBC’s Jim Cramer on Thursday said investors should be taking a more cautious approach to the market now that stocks have put a lot of points on the board.
“I don’t know where the top will be, but I do know we’re a lot closer to the top than we were in March or April, when it felt like the sky was falling,” the “Mad Money” host said.
The comments come after a mixed day of trading on Wall Street where the S&P 500 widened the gap from its record trading highs from earlier this year. The benchmark index slipped 0.20% to 3,373.43 and the Dow Jones backpedaled 0.29%, or 80.12 points, to 27,896.72.
The tech-heavy Nasdaq Composite was the bright spot of the day, climbing 0.27% to 11,042.50.
Since the start of August, market players have watched the S&P 500 inch closer to levels not seen since February. The index is attempting a full recovery from all of the losses it endured from the marketwide meltdown that began before economic lockdown measures were put in place to slow the spread of coronavirus.
With the market near its highs, Cramer, who is very active on Twitter, sought to address the top mistakes he has seen investors make on Twitter.
“I see a lot of people making a lot of mistakes, mistakes that could really hurt you if this tape turns menacing,” said Cramer, who laid down the law on what he sees as seven deadly sins of investing.
“There’s a huge difference between blind speculation and informed speculation. You have to be informed because when this tape eventually turns down, the speculators who go in blind will be blown out faster than a snowshoe rabbit trying to escape from a big cat,” Cramer said. “Maybe you get out alive, but more likely you end up as some short seller’s lunch.”
“Cheerleading is for football,” Cramer said. “When you have a huge gain in a speculative stock, please don’t cheerlead. How about taking something off the table,” he said, adding that the mantra is “buy low, sell high. Not buy low, cheerlead high.”
“Take your profits when you have them and maybe go buy something nice for yourself on Amazon.”
Not knowing how a company makes money
“Before you buy something, try to write down what the company does and give three reasons why you like it beyond, ‘it’s going up.’ That way, if it goes down, you’ll know whether to buy more or cut your losses,” the host said. “Remember, stocks do go down and sometimes they go down through no fault of their own.”
Searching for the next Tesla
“Only one company has mastered the art of making electric vehicles anybody likes, and that’s Tesla,” he said. “So stop trying to find the next Tesla when you can just buy Tesla, especially after they give you a 5-for-1 split.”
Buying low-dollar stocks
“I know you want to speculate, I’m a big believer in informed speculation, but stocks don’t get to the single digits because management’s doing a good job,” Cramer said. “They get down there because management stinks.”
Buying penny stocks
“Big institutions typically can’t even or won’t buy stocks under $5. No CEO wants their stock that low,” the host said. “Often, they’re weighed down by massive amounts of debt that you can’t see, so you shouldn’t even think about owning a single-digit stock unless you know how to read a balance sheet.”
“I see them all over the place these days, and they’re usually pump-and-dump schemes. Don’t fall for it.”
Greedy for gains
“There’s always risk. None of us can predict the future, so please, when you’ve got a monster gain, sell something. Maybe take out your initial investment and let the rest run so you’re playing with the house’s money,” the host said. “Just remember: you haven’t made a dime until you” ring the register.
Heckling on Twitter
“Will you stop heckling me on Twitter? It’s not a strategy. I’m not going to push some stock because you ask me to,” Cramer said. “I’m here as your investing coach, my job is to find good companies and recommend their stocks when the price is right. Not when some random person badgers me on social media.”
Disclosure: Cramer’s charitable trust owns shares of Amazon.