CNBC’s Jim Cramer on Thursday warned young investors about the potential pitfalls of daytrading in speculative stocks, especially the really cheap ones.
“It’s a little disheartening to see all the $1 to $3 stocks that people are gunning,” Cramer said on “Squawk on the Street.” ”If you want to try and make money and it’s legal, that’s fine. But it’s not investing.”
Online brokers have reported a flurry of new activity from younger clients during the coronavirus pandemic. Some believe the dramatic sell-off in stocks, combined with more time at home due to business restrictions, has helped spur new interest in the stock market.
Cramer noted that the rise of zero-commission trading has made it easier to flip stocks, a major shift from when the “Mad Money” host and former hedge fund manager began his investing career decades ago.
“When I got in, trading cost a fortune and you would never want to flip anything because you wouldn’t make any money. Now trading costs nothing,” said Cramer, who as a TV personality now does not buy and sell stocks.
Cramer has previously said younger investors have the ability to take more risks. ”I always tell you to own at least one speculative stock, and the younger you are, the more speculative you can be,” he said April 21 on “Mad Money.”
At the time, he was referencing Inovio Pharmaceuticals while offering his thoughts on some of the most sought-after stocks on Robinhood, a millennial-favored stock trading app.
Shares of San Diego-based Inovio were trading around $12.50 each on Thursday, up nearly 300% year-to-date.
But similarly to his remarks Thursday, Cramer then warned against trading in penny stocks, saying they are “penny stocks for a reason.” Penny stocks generally trade for less than $5 per share, according to the Securities and Exchange Commission.
Cramer’s comments on Thursday came in response to a CNBC report that online broker Charles Schwab was granted Justice Department approval for its acquisition of rival TD Ameritrade. In November, Schwab said it would buy TD Ameritrade in the all-stock deal valued at $26 billion.
Cramer said he believes the DOJ is “on the mark” with its reported approval, arguing the prevalence of zero-commission trading reduces concerns that consumers would be hurt by the deal. “This is a heavily competitive industry,” he said. “It is cheaper than it’s ever been to trade in history.”