- New investors taking part in the Reddit-sparked frenzy need to be aware of the financial risks, rapper Ja Rule told CNBC Monday.
- "There has been some people that have made money on those stocks, of course, but be very careful," said the Grammy-nominated artist who has invested through Robinhood since 2014.
- "There's been a lot of people that's also lost money on those stocks," he said.
Rapper Ja Rule told CNBC on Monday that new investors drawn to the stock market during the Reddit-sparked GameStop frenzy need to be mindful of the financial risks.
"The stock market is a very fun place for young millennials. They're on there shaking things up a little bit, but I would advise people to be careful," Ja Rule, whose real name is Jeffrey Atkins, said in an interview on "Squawk Alley." He has been investing through brokerage app Robinhood since 2014.
Shares of GameStop, AMC Entertainment and a few other companies spiked last week after receiving hype online from forums like Reddit's WallStreetBets. Retail investors began to plow into those heavily shorted names and pushed the stock higher. That set off what's known as a short squeeze.
Hedge funds and other investors who had shorted those stocks — essentially, a bet they would fall in price — scrambled to minimize their losses by purchasing shares at the current higher price. For example, on Wednesday alone, AMC's stock soared 301% as retail investors snatched up shares and shorts sought to cover. The movie theater stock closed at $19.90 per share that day. But as of intraday Monday, the stock was trading at nearly $14.
GameStop shares traded as high as $483 on Thursday, but were around $237 each Monday.
Ja Rule said he understands and respects the investing moves by retail investors on Reddit over the past week that have squeezed hedge funds that bet big against names including GameStop and AMC. "There has been some people that have made money on those stocks, of course, but be very careful," the Grammy-nominated artist said. "There's been a lot of people that's also lost money on those stocks."
Robinhood and other retail brokerages on Thursday placed trading limitations on GameStop and some additional stocks that saw massive rallies and volatility. Ja Rule weighed in on Twitter after Robinhood temporarily allowed users to only sell 13 stocks, including GameStop. The rapper blasted Robinhood's decision and told his followers "DO NOT SELL!!! HOLD THE LINE."
Offering an explanation for his tweet, Ja Rule told CNBC he was not arguing GameStop was trading at a sustainable valuation and therefore investors should hold onto it long term. Rather, he said his tweet was specifically about what people should do immediately in response to Robinhood's decision, which he felt unfairly hurt small investors and benefited hedge funds. He noted he did not invest in GameStop.
"The way the stock was being played with, it felt like if we hold, these guys would have to get on our side of it and buy the stock ... so they don't lose money on the short," Ja Rule said. "That was my thinking on it — not so much of, 'hold it forever, and this is going to be a stock that grows in time.' I wouldn't advise that."
Robinhood, which pioneered zero-commission trading, has defended the various restrictions it's implemented during the retail trading frenzy. Last week, CEO Vlad Tenev told CNBC's Andrew Ross Sorkin it was done to "protect the firm and protect our customers," noting there are capital requirements it had to comply with. Tenev has strongly rejected claims that Robinhood's decisions were made at the direction of any market makers or hedge funds.
During Monday's session, Robinhood altered its trading limits on GameStop, allowing users to purchase up to 20 shares instead of a single share. The brokerage also raised limits on AMC, the retailer Express and few of the other eight restricted stocks.
Ja Rule said he has believed in Robinhood's mission to empower individual investors but thinks its reputation was dented by the trading restrictions. "I love what they represent, putting basically the stock market in your pocket," said Ja Rule, whose personal stock portfolio includes Apple, Nike, Tesla and Workhorse Group. "Robinhood got to let them trade. You've got to let people trade, man," he added.