CNBC's Jim Cramer warned investors Tuesday not to try and short stocks that have already been heavily shorted.
"It's simple: don't short stocks that are already heavily shorted," Cramer said. "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. 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."
Cramer highlighted used car seller Carvana as an example of a company with a "balance sheet from hell" that is a perfect breeding ground for shorting. To Cramer, short selling in general is "one-sided and unfair," because it's easy for sellers to get stuck selling at a loss if tons of a company's shorts get bought up before they can profit.
Cramer's bottom line? Try to stay out of shorting unless you really know what you're doing and buy stock based on a company's intrinsic value.
"I'm not going to start making wagers on the buyers and sellers. I make informed decisions on the companies themselves," he said. "I want no part of that, because it's not the craft I have been taught, and I don't want to recommend the strategy of short busting because you never know how much fire power or not either side has."
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