CNBC's Jim Cramer on Thursday said investors can speculate as long as they're cautious.
"Owning a speculative name or two is perfectly fine, as long as you understand that you can lose a great deal of money when you're wrong," he said.on Thursday said there is a place for speculation in one's portfolio — as long as investors are cautious with their moves and understand how much risk they're willing to take on.
"Owning a speculative name or two is perfectly fine, as long as you understand that you can lose a great deal of money when you're wrong," he said. "But if you speculate wisely, my exhaustive research shows that the good ones should more than make up for the losses." Cramer defined speculative stocks as companies that don't necessarily turn much of a profit, but they have a high valuation — so they can be high-risk but high-reward investments. He encouraged younger investors in particular to speculate. He advised maintaining a diverse portfolio, ideally buying only one or two speculative names. It's also important to handle speculative stocks' wins carefully, he continued. If one's high-risk investment sees immense gains, he said it's prudent to "scale out of it gradually until you're playing with the house's money."There are a few types of speculative stocks, Cramer said, including companies that are profitable, but have an extremely high price-to-earnings multiple, such asThere are also "thesis stocks," he continued, which fit into the hottest themes on the market and have seen their shares climb quickly. He pinpointed names in the energy, aerospace and quantum computing sectors.The current market has been "supercharged by speculation," Cramer said. But he suggested that doesn't necessarily mean the market as a whole is dangerous. "If you buy the high-risk stocks I just mentioned, you need to understand that they've all already had remarkable runs," Cramer said. "But you could've said the same thing six months ago and you would've missed a great rally."
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