With Wall Street abuzz about Apple’s new product launch, which included a new, high-end iPhone model, CNBC’s Jim Cramer wanted to clear the air for those wondering if they should trade or invest in the tech giant’s stock.
“Investing and trading require two very different mindsets. When you invest, you’re going in for the long haul,” the “Mad Money” host said, reflecting on his 21 years as both an investor and a trader. “You don’t want to buy all at once. Instead, you buy gradually, in stages on the way down.”
Trading is totally different. It’s event-driven, meaning traders search for a catalyst in order to sell a given stock. Whether or not the catalyst works out in their favor, they end up selling the stock.
The second cardinal rule of trading is to not reach for a trade. Cramer called the traders who bought Apple in the days leading up to the launch “clowns” because they wrongly assumed one of three things would happen to the then-$162 stock.
First, they assumed that the iPhone X would be so great that it would shock people into buying the stock. Second, they assumed those people would buy them out of their positions. Third, they may have had no idea what they were doing.
“Any of those buyers are almost certain to be shaken out now, and that’s the worst thing you can do as a trader,” Cramer said. “You’re at the mercy of everyone else in the market. Many of these people are now thinking, ‘I’m an idiot, but you know what, I’ll just own Apple for the long haul.'”
But that’s the wrong strategy for a trader, because if Apple’s stock declines, that trader will inevitably lose money, Cramer said. Traders should focus on not being shaken out instead.