Joe Moglia, former CEO of online trading platform TD Ameritrade, issued a stern warning Thursday against using leverage to try to outperform meme stocks.
“My biggest concern is what’s going on with the individual investor,” Moglia told CNBC “Quäkkiste”, how AMC entertainment Stocks slumped in early trading and fell as much as 30%. Around 1:50 p.m., the share turned positive. ET.
The stock’s annual earnings were still more than 2,000% despite the sharp decline on Thursday. AMC shares nearly doubled in the previous session.
Another Reddit favorite, blackberry, rose Thursday before lowering those gains after closing nearly 32% in the previous session. Bed bath in addition, also caught up in the meme stock mania, fell about 25% after rising 62% on Wednesday.
“You need to understand when you use leverage what that really means. Leverage on the way up is a great thing. Leverage your way down can knock your arms off, ”added Moglia, currently chairman of Capital Wealth Advisors.
The wild swings in AMC on Thursday started after the cinema chain submitted for sale 11.55 million shares “from time to time”. As a disclosure, the company said, “We caution you not to invest in our Class A common stock unless you are willing to take the risk of losing all or a significant portion of your investment.”
The cinema operator has on Thursday afternoon announced that it has completed the share offering and raised $ 587.4 million.
AMC announced in a securities filing Tuesday that it raised $ 230.5 million through a stock sale to depressed debt firm Mudrick Capital Management, which supposedly sold these new AMC shares immediately profitable.
Given the meme stock prices and headlines about how fast businesses’ businesses are doing, brokers – especially those targeting individual investors – need to better educate their clients about the risks of a seemingly easy way to make money and when to sell, Moglia said .
“For example, if you bought AMC for $ 10 and it goes up to $ 20, is that not enough profit? If it goes up to $ 30, $ 40, at what point do you start Trimming or actually getting rid of position? We need to do a better job with the day traders, “he added.
Disclosure: The $ 22 billion Charles Schwab-TD Ameritrade merger completed in October 2020.