• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Jim Cramer

Jim Cramer: New Investors Are Driving This Rollercoaster

Young day traders have flocked to the market, and they don't know a balance sheet from a ball of yarn.
By JIM CRAMER Jun 11, 2020 | 07:12 AM EDT
Stocks quotes in this article: AMZN, GS, CCL, NCLH, ZM, M, AAL, APA, RCL

As we see parts of the market crumble, and crumble hard, we have to ask ourselves why was it so easy to gun so many sectors with so little capital? How were the day traders able to take certain stocks up so easily?

First, let's accept a couple of parameters. When you have millions of new investors coming into the market -- courtesy Robinhood, the younger-investor-focused brokerage house, but also because of zero commissions at other firms -- the money is going to go somewhere and it's not going into index funds. They aren't fun and they aren't get rich quick. And believe me, there were some get rich quick sectors.

Second, these new investors have no tolerance for high dollar amount stocks. The age of the split is over, because the big institutions pay by the share -- and if you divide Amazon (AMZN) by 10, you are going to pay 10x the commission that still owe. So, the big institutions have won on this issue, relegating these new investors to lower dollar amounts -- all the better to be able to push up with mass buying.

Third, the new investors only seem to know the equity side of the equation. I saw this when I first went to work at Goldman Sachs (GS) . I was working with Eddie Lampert -- yes he of Sears fame, but before that, of excellent arbitrage abilities -- and I remember one day he was dealing with a young hire and he told me that the person didn't know the difference between a stock and a bond. We laughed.

These neophytes don't know the difference between a stock and a bond.

Finally, they seem to be able to amass their buying power in the same names, which gave the stocks the impression of lasting moves. They weren't.

Notice, I am not talking about manipulation -- not that it would matter, because it's been years since the SEC brought those kinds of cases. I am talking about the desire to pick momentum stocks while they had momentum.

And where did they go?

First, they love stocks under $10. It's easy to see why. You can buy one hundred shares, the usual amount for the beginners until they taste victory.

Second, they loved the cruise lines. It makes sense if you don't know the bond side. There are only three of them: Carnival (CCL) , Norwegian (NCLH) and Royal Caribbean (RCL) . When you bet at the track, you are always looking for the trifecta. These stocks were per se trifectas, and given that they were all hammered down to low dollar amounts, they were ideal to gun. When they got to higher dollar amounts, real sellers surfaced, grateful for the opportunity, but then we saw the moves were based on quicksand and the stocks justifiably collapsed because of the burn rates of the cruise ships not being able to cruise.

They gunned the airlines for similar reasons. The companies raised equity. Their stocks were knocked down. They weren't reporting earnings. And institutions had cleared out. The stocks only ran out of steam when the institutions realized the travel numbers weren't coming back despite the re-opening of America. Business travelers had switched to Zoom (ZM) . Vacationers switched to cars and RVs. Not enough traffic. Bad numbers. Time for a fresh round of equity, so the institutions readied themselves for discounted created by natural selling and by neophyte fear.

Retailers fell to single digit levels. Again, attractive before the reopening. But now the reopening is upon them and we are going to see some awful numbers. The neophytes right now are running smack into real sellers, like those in Macy's (M) , who don't like the odds. Who can blame them? There's still suppliers and rent to pay. They come before the shareholder base.

Finally there were the oils, many of which had fallen to single digits because of the war of stupidity between the Saudis and the Russians that brought oil to minus $37. The long climb back created great opportunities for the young investors. Again, they lacked the discerning ability of those who can read a balance sheet.

Now the price of oil is coming down. Too much supply again, as the Permian got turned back on. This is the group that is most vulnerable right now.

So, a combination of low dollar amount, no knowledge of a balance sheet and the sheer thrill of it all led to the runs in the Norwegians, the Americans (AAL) , the Macy's and the Apaches (APA) .

Now it's over. What will they take up next?

If they borrowed money, probably nothing. If not, it's back to the remaining single digit stocks -- almost all of which make no sense at all, as no company chooses to have a single digit stock if it can avoid it. Most of these can't.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AMZN, GS.

TAGS: Millennial Finance | Fundamental Analysis | Investing | Markets | Stocks | Trading | Jim Cramer | U.S. Equity

More from Jim Cramer

Jim Cramer: I'll Put My Money With 'Boring but Lucrative' Any Day

Jim Cramer
Sep 29, 2021 1:28 PM EDT

Let's look at that recent downgrade of 'dull' Morgan Stanley and see why exciting is best left for the stadiums and amusement parks -- and not stocks.

Jim Cramer: America's Toughest Job? Finding Workers

Jim Cramer
Sep 28, 2021 12:17 PM EDT

It's the question of our time: Where are the people willing to take on these better paying gigs? Let's see what's going on and what we need to happen.

Jim Cramer: Here's How Analysts Can Be Off By a Wide Margin

Jim Cramer
Sep 24, 2021 12:02 PM EDT

Let's look at the reactions to Nike, Costco and Salesforce to see what happens when they're viewed from a real world perspective.

Jim Cramer: It's Pure Insanity That We Don't Make Chips Here in the U.S.

Jim Cramer
Sep 23, 2021 11:05 AM EDT

While the big guns meet at the White House about the global chip shortage, the president and these companies are approaching this all wrong.

Jim Cramer: Go Ahead, Have a Cow, but I Say Powell and Xi Are Bulls

Jim Cramer
Sep 22, 2021 3:51 PM EDT

We rallied, because China's President Xi and Fed Chair Powell made decisions that they knew would lead to rallies.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login