Why Cramer Isn't A Fan Of Buffett's Advice To Retail Investors On Not Owning Individual Stocks

CNBC host Jim Cramer has rejected Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) chairman Warren Buffett’s advice to new retail investors to invest in index funds rather than individual stocks.

What Happened: The “Mad Money” host said he does not share Buffett’s views and advised individual investors to adopt a hybrid investing model, adding that he favors the investment philosophy of Peter Lynch.

“I respect Warren Buffett, but I’ll always be a Peter Lynch guy,” Cramer said.

Lynch is a legendary investor known for his management of the Magellan Fund at Fidelity Investments between 1977 and 1990. His books "One Up on Wall Street" and "Beating the Street" have been big bestsellers and are considered investing classics.

Lynch’s philosophy is based on an investor leveraging their ability to observe, study and act on a stock.

Cramer also recommended a list of stock ideas for investors to test Lynch’s principles. The list includes Walmart Inc. WMT, Costco Wholesale Corporation COST and Gap Inc. GPS.

According to Cramer, one or two of these reopening plays will do well with an index fund in an investor’s retirement account.

See Also: 9 Takeaways From Berkshire Hathaway's Annual Shareholder Meeting

Why It Matters: At Berkshire’s annual meeting on Monday, Buffett had highlighted the importance of having a well-diversified portfolio that includes index funds, citing the uncertainty around individual stocks.

The billionaire investor and his long-time business partner Charlie Munger also criticized popular trading app Robinhood for encouraging a casino-like atmosphere and likened the inexperienced retail investors who joined into the stock market over the past year to gamblers.

The higher personal savings levels and stimulus checks from the government encouraged amateur investors to dabble in the stock markets and has helped accelerate the retail trading boom.

Shares of heavily shorted stocks such as GameStop Corp. GME and AMC Entertainment Holdings Inc. AMC have seen extreme volatility this year as retail traders belonging to the Reddit Investor forum r/WallStreetBets bid up the stocks to create a short squeeze.

Robinhood and other brokerages such as Fidelity, E-Trade, and TD Ameritrade continued to see elevated app downloads in February following the GameStop trading frenzy earlier this year.

Price Action: Berkshire Hathaway Class A shares closed 1.8% higher on Monday at $420,000. On the same day, the Class B shares closed 1.5% higher at $279.18.

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