Jim Cramer can’t guarantee that following any particular financial strategy will give you a secure retirement, but he believes there are some strategies that won’t.
In the foreword to his book, How to Make Money in Any Market, Kramer offers several warnings about building long-term wealth. For one thing, if you’re looking to rely on Social Security to fund your retirement, that confidence “could be misplaced.” The other thing is that betting on the outcome of basketball games is not a solid investment strategy.
“Third, and perhaps worst of all, trolling the internet for ‘meme’ stocks like GameStop or chasing short-term wins in hopes of long-term financial stability is an easy path to disaster,” he wrote.
“Meme stocks” are stocks that suddenly become popular on the Internet and cause their prices to soar. Cramer warned investors about such investments during GameStop’s Reddit-fueled trading spree in 2021, during which GameStop shares rose from less than $1 a share to a split-adjusted intraday high of $120.75.
Mr. Kramer said he hired private security after intense opposition from some investors. However, many investors who did not heed his warnings were badly burned. By 2024, GameStop stock was trading around $10 per share. It is currently trading at around $20.
Cramer’s warning against GameStop and other meme stocks comes down to what investment professionals call the “Big Fool” theory. Investors buy overvalued assets in hopes of selling them to others at a higher price, even though they know they won’t be winners in the long run.
Kramer has another analogy for investing in meme stocks. “When you buy a stock like GameStop, it’s quite literally a game of musical chairs,” he told CNBC Make It. “I’m against musical chairs and I’m for investing.”
In other words, if you dabble in risky short-term trading, you may be left out when the music stops and lose a lot of money.
Avoid trading in favor of investment
That’s not to say Kramer doesn’t want you to guess. He does. Kramer recommends devoting a small portion of your portfolio to stocks that you think have the potential for big gains, even at the risk of big losses. But he wants it to be a fundamentally strong company that you intend to own for the long term.
Meme stocks, which investors tend to hold solely on the hope that the price will rise rather than based on fundamentals, are unlikely to fit the bill, Cramer said.
“I want you to join, and if it’s a really good company, you’ll stay,” he says. “But GameStop wasn’t a good company. They were just people chasing after them.”
When thinking about future investments, Kramer suggests asking yourself whether you are envisioning a trade with a beginning and an end.
“If it has a beginning and an end, I say don’t own it, because I want to own it. I don’t want to trade it,” Kramer said. “Trading is for people like me who have been trading professionally for 20 years.”
To build wealth, he says, it’s better to choose investments that offer consistent growth over decades. Such companies should have positive long-term prospects, supported by increasing revenues, innovative products and services, and durable competitive advantages over their peers.
“My style of investing may not give you instant short-term ‘wins,’ but it will eventually come crashing down,” Kramer writes in his book. “But buying and holding stocks in the best companies can grow your money in amazing ways over time.”
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