Jim Cramer’s guide to investing: What do you do with a hot stock?
Sooner or later, virtually all hot stocks implode, said CNBC’s Jim Cramer. And according to him, it’s important for investors to know when to cash in before that happens.
By hot stocks, Cramer means speculative companies with relatively low market capitalization that are risky, but have the potential for high reward. At first, these stocks may receive little attention on Wall Street. When analysts begin to take notice, Cramer said, the stocks’ popularity will likely lose steam.
“Once a red-hot speculative stock get too much attention, it means the rally’s likely on its last legs, because there are only so many people who’re willing to buy these things and eventually the bulls run out of firepower, Cramer said.”
It’s rare for a speculative winner to keep gaining once it becomes successful, Cramer said. These hot stocks can come out of nowhere, attract more and more attention, but will eventually get tapped out once all of the interested investors have bought shares, he added.
“Eventually everyone who wants a piece of the stock has a piece of it,” he said. “When that happens, the run’s over and it’s time to go home.”
