CNBC’s Jim Cramer said Wednesday that trading meme stocks is more like gambling than investing.
“It’s exciting. It’s fun, and it’s real,” Cramer said on “Squawk Box.” However, he added, “If you’re going to play it, I think that you can, I don’t know, go to the casino. These should be offered at the casino. … Why are they offered at the New York Stock Exchange?”
The “Mad Money” host’s comments came as shares of new meme-trader target Clover Health soared again in Wednesday’s premarket, and popped nearly 30% at the open, extending the recent wild ride for the insurance company that offers Medicare Advantage plans. However, the Reddit-fueled enthusiasm waned in early trading, and Clover turned negative on the session. It closed down more than 23%.
The trading frenzy that began in January with GameStop as its most prominent target has returned to focus recently. AMC Entertainment in particular has been a favorite of Reddit traders. Other meme stocks that have seen varying levels of interest include Bed Bath & Beyond and BlackBerry — and a new one Wednesday, Clean Energy Fuels, which jumped more than 30%.
Reddit traders have flocked to stocks that have larger-than-normal short positions, which creates the potential for a so-called short squeeze if shares are pushed higher. Short-selling is a bearish strategy in which investors can profit when a stock declines in price. If the stocks rise, short sellers must buy back their borrowed shares at a higher-than-intended price, raising the value of the company.
“They’re going for anything. … You have to try to figure out which one is next,” said Cramer, who has previously criticized short-sellers betting against GameStop and AMC.
Interactive Brokers founder and Chairman Thomas Peterffy on Monday also warned shorts about the risks of being involved with meme stocks, saying they can soar to “unimaginable highs” before coming back to Earth. But he added that, in the meantime, traders might have to cover their bets at big losses.
While newcomers to the stock market are welcome, Cramer said, he hopes young people focus on investing based on fundamentals. He pushed back against the notion that the best way to learn about the markets is by getting burned on trades.
“We’ve got young people coming into the market. We’ve got 10 million people and Reddit. They need to be educated. That’s the solution,” Cramer said. “I know that it’s old fashioned, but I think it would really help because I know some people feel a lot of money has to be lost. I like people to make money, as long as they understand that it’s not a game.”