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Cramer stock picking secret, revealed!

(Click for video linked to a searchable transcript of this Mad Money segment!)

Looking back at the milestones in his life, Jim Cramer thinks he may have discovered a secret to stock picking. It's not often discussed but it should be.

And that is, when picking stocks, you may do best to pick a company that's involved in something you already know.

It's a lesson the "Mad Money" host learned the hard way.

"When I first started, I read a nifty article about American Agronomics, a terrific orange grower in Florida and it seemed to be compelling so I bought ten shares. A week later a frost hit, wiped out the crop, and my investment was cut in half. I was devastated," Cramer explained.

Hans Neleman | Stone | Getty Images

"Down but not out, I took the remaining capital and bought seven shares of Bobbie Brooks, a clothing outfit I had read about. Almost immediately the company reported bad earnings and my money halved again," Cramer said.

Never one to enjoy losing money, Cramer looked at those events reflectively and asked himself a few key questions.

"What did I know about growing oranges? Very little. What did I know about woman's fashion? Less than I knew about oranges."

It may sound simple but the concept had profound impact. Cramer realized he had invested in companies without really understanding their businesses.

Despite the losses, the Mad Money host was undeterred in his belief that the stock market presented substantial opportunity. And at the time Cramer was on the road quite a bit.

"I fell in love with the breakfast at Bob Evans Farms. And service was good."

Opportunity presented itself.

Now understanding that a smart investor was an informed investor Cramer went to the New York Public Library and devoured everything he could about the company including information which showed it had a long tradition of good service. And he knew the food was good.

"I realized I was onto something and I bought twenty shares. Stock went up immediately on a good quarter," said Cramer.

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Read More from Mad Money with Jim Cramer
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That lesson is something Cramer has carried with him across his career. That is, know what you own inside and out.

The best investment ideas come from what you know melded with information gleaned from public sources," Cramer said.

Call Cramer: 1-800-743-CNBC
Questions for Cramer? madmoney@cnbc.com
Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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