When I come out to teach every night, I am acutely conscious that my enthusiasm for some companies is infectious. People want to own stocks, and they want to own them in the worst way. Now, with the market taking a breather, I want to talk about the worst way, because that's what I see happening, and I want to offer some suggestions that can make you a better investor at a time when the market has run dramatically and you can't possibly think you are near the bottom. By nature, wherever the top is, you are closer to it than the abyss of March, when the world collapsed because of the novel coronavirus.
Now, before I get started, I want to thank Twitter (TWTR) for alerting me to the worst ways of buying, trading and owning stocks. We all are, except the foolish and the already bitten, in our own little worlds, talking to the same people each day, ending each conversation with stay safe. It's pretty darned static.
That's not the case, though, with my Twitter followers or with the members of the Action Alerts PLUS club where I gave a call Thursday that was in response to members' questions. The members, by nature, tend to be followers of the stocks we own for the charitable trust, which are rarely speculative and are often household names.
Ahh, but the Twitteratti? Look out. They will buy anything and they will be sure that I know about it by pushing it in my feed.
So, without further ado, let me tell you, as we have moved up a great deal, what you might be doing wrong that could, in the end, hurt you, if not wipe you out if this tape turns menacing. Here's the seven deadly stock Tweet sins.
First, stop cheerleading. It won't help. If football ever allows fans and you get invited to my box, I expect you to wear Eagles green and cheer your darned, fool head off, so the other side, the enemy, can't hear a thing.
It doesn't work with stocks. Right now, in my feeds there are some Sorrento (SRNE) -maniacs, people who want the stock of Sorrento Therapeutics to be the net Novavax (NVAX) , the anti-Covid vaccine company, that they can barely contain themselves. Some of them simply spell it out in capital letters. Others are simply saying, Go Sorrento, with a host of exclamation points. They can't seem to get that it doesn't impact the stock. In fact, worse, it has attracted a short-seller who has done everything in his power to try to bring Sorrento back to earth. We have had them on "Mad Money" a couple of times, when the stock was lower and we did say we thought the stock would go higher. It has gone much higher, higher to the point it hit $19, a far cry from the $4 level we identified as being investible. I find these chanters way too emotional. These are pieces of paper. Don't worship them. Don't cheer for them. In fact, I have a better idea, when they go higher, take some or all of your shares off the table and go buy yourself something nice from Amazon (AMZN) , a switch from the day when my mom said I should take the winnings and go buy a cashmere sweater. I am not going to do that by e-com. Don't root. It won't help.
Second, would it be that terrible to ask if you know what the company does? It's so easy to pull the trigger these days now that there are no commissions, that people buy stocks without the faintest idea of what the companies do. So let me make a suggestion. Try to write down what the company does and three reasons why you want to buy it, beyond "it's going up." That way, heaven forbid, if it goes down, you will know whether to buy more instead of cutting and running, because you don't even know what it does. Oh, and remember, your stock can go down for no fault of its own. The cohort, the market, bonds, the president, you name it, can drive your stock lower. Don't be aggrieved. Don't take it personally. It's the nature of the game.
Third, I love electric vehicles as much as anyone. I like their accoutrements, too. But when it comes to electric vehicles, only one company has mastered the art of the game, and that's Tesla (TSLA) . I say stop trying to find the next Tesla and just, after the split, go buy Tesla. It would be great to wait for a down day, so you can get a bargain, but this hunt for the next Tesla will almost always end in tears.
Fourth, don't make a habit of buying low-dollar stocks. They aren't there because management wants you to be able to buy more. They are there because their businesses are bad and usually getting worse. Elsewhere I will chastise CEOs for making their stocks inaccessible to individuals by letting the dollar amounts get too high. Too low, though, has real peril. Institutions usually can't buy stocks below $5. No chief executive wants his or her stock that low. So it means, per se, you are buying low quality stocks. Be very careful, because it is usually debt that takes a stock that low and if you can't read a balance sheet and you are buying that low dollar stock, take a hard pass.
Fifth, penny stocks are for suckers. They are usually pump and dump schemes and I see them all over the place these days. There are promoters out there who want nothing other than to own a stock and then pump it and then dump it on you. Please do not be the prey. I did a study of how many penny stocks ever went on to become big stocks over the course of the first decade of "Mad Money" and I could only find one. One. Those are terrible odds. You are simply playing a game of three card monte and you are going to lose.
Sixth, understand that you don't have a gain until you take it. I get the sense that so many of you are thrilled to be in on the action, thrilled to the point that you think it is sin when you hear something negative about your stock. Hey, grow up. Sorrento may not have the winning saliva test. Nikola (NKLA) may not sell as many trucks as you think. Plug Power (PLUG) could disappoint. The company that I won't mention that has airport testing centers may not pan out no matter how many times you push it. So sell some. Maybe even take your capital out and let the rest run. But always remember that as long as you own that stock, the gain is not yours, until it is realized.
Finally, seven, stop heckling me. It won't work; I am not going to push some stock, because you ask me to. I am always happy in the Lightning Round to offer some suggestions about what I think of a stock. But I am not going to retweet a post about a stock, because you beg me to do so. Also, I don't care how many times you do beg or how many people you get to praise it. My goal is not to move your stock up. My goal is to find good companies and recommend their stocks if they are less expensive than they should be and nothing more.
Unlike almost everyone who opines on stocks, I am willing to bless speculation. But never forget it must be informed speculation. Otherwise when this tape turns down, I promise you that you will be blown out faster than a snowshoe rabbit trying to escape from a big cat. Maybe, sometimes, you may even get out alive.