Not everyone loves short sellers.
Sen. Elizabeth Warren (D-MA) and JPMorgan (JPM) -) CEO Jamie Dimon -- two people who rarely agree on anything -- have floated the idea of banning the practice of betting against a company through short selling.
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Bad actors who "are in collusion, or people going short and then making a tweet about a bank, they [the SEC] should go after them, and vigorously," Dimon said in a recent Bloomberg interview.
But just because some people don't like it, doesn't mean investors who look for seemingly weak companies to short shouldn't get advice from one of the loudest voices in finance.
“It’s simple: don’t short stocks that are already heavily shorted," Jim Cramer told Mad Money viewers on Tuesday.
Cramer sees some short sellers as people who "know the craft" of stock picking and can look at a company like used car seller Carvana (CVNA) -) and know that the company will have a tough time paying off its debt in a soft used car market with rising interest rates.
In other words, a potential prime candidate for short selling.
On the other hand, there is also a group of people who don't know the craft of stock picking, according to Cramer, like the meme stock buyers who made it their life's mission to crush the institutional investors who were shorting GameStop (GME) -) and AMC (AMC) -).
And these are the investors you have to keep in mind when you are shorting a stock.
“You’re not only betting against the company, you’re also betting that this won’t become a controlled situation controlled by the longs, the buyers, who know that the more they buy, the less likely the short sellers can come out ahead," Cramer said.
"Eventually, enough short sellers throw in the towel for new shorts to come in, but I don’t want to be on either side of this kind of trade at that point.”
Carvana shares are up nearly 17% on Wednesday as of 1pm ET.
