In recent weeks, a group of retail traders on Reddit forum r/WallStreetBets rallied together to invest in GameStop after a few Wall Street hedge funds bet against the video game retailer. Along with it, other shorted stocks, like AMC Entertainment and BlackBerry, were targeted too.
Still some billionaire investors, like Mark Cuban and Chamath Palihapitiya, defend and cheer on the individual traders “taking on” the hedge funds. Among that group is “Shark Tank” star Kevin O’Leary.
“The bottom line is, we’ve got millions of new players in the market, and that’s always better,” O’Leary tells CNBC Make It.
But O’Leary warns that those new players should still hedge their bets, because it’s easy to lose a lot of money day trading, especially in such an unpredictable economy.
“Even while you’re trading like a banshee on the side, never risk your nest egg. Always keep that protected,” he says.
In O’Leary’s opinion, “there’s nothing wrong with day trading,” he says, but he cautions that day trading “isn’t investing.” Investing is “putting money into the market with a long view,” says O’Leary, while day trading is more like gambling.
“So, I suggest to anybody that’s doing that [day trading], take 10% of any position that makes you money and it set aside for your long-term retirement in a different account that buys an index of funds or an index of stocks in an ETF,” says O’Leary, who is chairman of O’Shares ETFs.
“Even the most sophisticated hedge fund managers put money aside for themselves in a low risk environment,” says O’Leary.
“Start putting 10% aside – try $100 a week, and don’t mess with that,” he says. “Don’t trade with it. Keep it safe.”
That way, “you’ll end up with [money] sitting in a retirement account while you’re day trading. Keep those two accounts separate and invest in yourself. I think doing both is just fine.”
Throughout the pandemic, day trading has become extremely popular, especially among young people who, in most cases, have never invested in the stock market before. But many experts warn that it can end badly with potentially big losses, as it is difficult to pick individual winners and losers in the market.
“Always remember that you’re going to need some cash when you hit 65,” O’Leary says. “The scariest thing in the world is ending up there with no money. That would be horrible. You can avoid that problem.”
Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank.”