Kevin O’Leary hails GameStop Insanity as a “actual” lesson for novices regardless of the danger

Kevin O’Leary on Friday defended the right of retail investors to continue trading shares in GameStop, AMC Entertainment, and other stocks that have been hyped online.

In an interview on CNBC’s “Squawk Box,” the co-founder of O’Shares ETFs said investors can speculate freely, regardless of whether they are losing their own money or whether hedge funds and other short sellers are slammed.

“They’re learning about the risks of the market … We forgot to teach them in high school, so let them learn in the real world what’s even better,” said O’Leary, a businessman and investor at “Shark” Panzer. “” I think what’s going on is fantastic. Leave it alone. It’s a great thing that happens here. ”

The Reddit-sparked frenzy at GameStop and other stocks that has consumed Wall Street for the past few days is delivering lessons for people on both sides of the trade, according to O’Leary. He’s hoping that hedge funds and anyone shorting stocks will think twice, knowing they could be prone to an epic squeeze like the one at GameStop. The competitive video game retailer’s shares rose to $ 483 apiece this month. Around 6 US dollars were still being traded in September.

“You are now running a new risk that these effective social media vigilantes are after you and squeeze you as a short film,” said O’Leary, a reference to the popular Reddit forum WallStreetBets. “This will get a lot of hedge funds thinking a second time before trying to buy short stocks, which I think is great.”

Short selling is a strategy in which an investor sells borrowed stocks in the hopes of buying them back at a lower price in the future. You return the number of shares borrowed and pocket the price difference if the stock actually falls. If the opposite is the case, a short seller can try to limit his potential losses by buying the stock at the current higher prices.

Perhaps more importantly, O’Leary said the virality of GameStop trading – aided in part by no-commission brokerage apps like Robinhood – has sparked an interest in investing that otherwise might not have been there.

Some critics of the recent move have argued that better protection needs to be in place to prevent inexperienced investors from being burned if the stock price collapses. O’Leary acknowledged that newcomers to the market who join the speculative party may lose money, but said, “Every investor loses money.”

“The bottom line is if you damage money in the market, you risk it. Always will,” said O’Leary. “The definition of the market is speculation. If you buy a stock and stay long, you are speculating that the gains you hope will finally come will come and you take that risk,” he added.

Disclosure: CNBC owns the exclusive off-network cable rights to Shark Tank, which is co-hosted by Kevin O’Leary.

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