Jim Cramer’s biggest investing regret came from asking “how significantly can I lose?” on a cheap stock that appeared like a good deal. The answer, Cramer says, is that “you can drop it all.”
The host of CNBC’s “Mad Dollars” and Investing Club learned that lesson the difficult way in the 1990s by investing in an early Silicon Valley firm identified as Memorex Telex, which is now defunct, that Cramer describes as “the worst financial investment I have at any time created.”
The firm — which specialized in memory storage gadgets for computers — experienced a fantastic small business but way way too significantly credit card debt, Cramer tells CNBC Make It.
After the company emerged from a personal bankruptcy filing, Cramer acquired numerous hundred thousand shares at $2 when the stock begun trading once again.
“I was in touch with administration,” he claims. “I did all the do the job. I seemed at all the [company’s] filings. And I just held getting it and buying it and getting it, wondering, you know what? What is actually the worst that occurs?”
Within just a number of months, the inventory dropped to $1.
Memorex Telex was simply not doing. As Cramer afterwards recalled, the enterprise experienced a “compelling story” but its know-how “was merely outmoded and, in the close, there was practically nothing there.”
“I realized it was time to cease simply because it was going to zero and I wanted to be ready to get some kind of capital out of it right before it went to zero,” claims Cramer, who cashed out his holdings for a fraction of the original obtain price.
Later, in 1996, Memorex Telex’s stock price was completely wiped out when the enterprise went back again into personal bankruptcy a 2nd time. What was left was then bought in parts to subsidiaries of other organizations. “It was the worst share reduction I have ever experienced,” suggests Cramer.
As Cramer has penned prior to, the Memorex Telex knowledge taught him a useful lesson: “When you have a small-priced stock, will not consider to your self, ‘How much far more can I get rid of?’ You can however eliminate all the things.”
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