Jim Cramer’s biggest investment regret came from asking “how much can I lose?” on a cheap stock that looked like a bargain. The answer, says Cramer, is “you can lose it all.”
The host of CNBC’s “Mad Money” and Investing Club learned that lesson the hard way in the 1990s by investing in an early Silicon Valley company called Memorex Telex, which is now defunct, which Cramer describes as “the worst investment I have ever made”. “
The company – which specializes in memory storage devices for computers – had a great business but way too much debt, Cramer told CNBC Make It.
After the company emerged from a bankruptcy filing, Cramer bought several hundred thousand shares at $2 when the stock resumed trading.
“I was in touch with management,” he says. “I did all the work. I watched all the [company’s] deposits. And I kept buying it and buying it and buying it, thinking, you know what? What’s worse?
Within months, the stock fell to $1.
Memorex Telex just wasn’t performing. As Cramer later recalled, the company had a “compelling story” but its technology “was just outdated and, in the end, there was nothing there.”
“I realized it was time to quit because it was going to zero and I wanted to be able to get some kind of capital out of it before it hit zero,” says Cramer, who cashed in his holdings for a fraction of the original amount. Buying price.
Later, in 1996, the value of Memorex Telex shares was completely wiped out when the company went bankrupt for a second time. What was left was then sold in pieces to subsidiaries of other companies. “It was the worst loss percentage I’ve ever had,” Cramer said.
As Cramer once wrote, the Memorex Telex experience taught him a valuable lesson: “When you have a low-priced stock, don’t think, ‘How much more can I lose?’ You can always lose everything.”
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