Self-critical, Cramer reveals big stock regret

Even Jim Cramer doesn't get it right all the time. And looking back at his investment decisions over the past five years, Cramer wants to kick himself for a particular mistake.

The "Mad Money" host hates that he didn't stick with some of his picks through a rough period, when homework suggested they were solid, long-term winners.

Of course, Cramer concedes a certain degree of skepticism is necessary to be an effective investor, but he's adamant too much skepticism can do more harm than good.

Dean Drobot | iStock | 360 | Getty Images

"This is not just my opinion. I can prove it to you empirically. See, as I was preparing to write my book "Get Rich Carefully," I went over the previous five years of trades made by my charitable trust. And as I reviewed those trades I noticed that far too often, my good judgment would be overcome by excessive skepticism."

That is, there were times when Cramer identified companies with solid balance sheets, good future potential and excellent management teams, yet he let skepticism prevail instead of trusting the research and his instincts.

Case in point: Walgreen.

In 2012, Cramer found himself intrigued by Walgreen's prospects, and after doing boatloads of research, he concluded around $40 the stock was a "buy."

"I thought it was a terrific value play with excellent management under the leadership of CEO Greg Wasson, especially after the company bought Duane Reade, the big New York City based drugstore chain, and beautifully refurbished those stores."

However, Walgreen became embroiled in a high profile dispute with Express Scripts and stopped filling prescriptions for those consumers. In turn, shares of Walgreen tumbled. Then, a short while later, Wasson dropped $6.7 billion for a controlling stake in Alliance Boots, a health and beauty retailer based in Europe.

"For me, that was the last straw," Cramer said.

Even though Wasson explained his strategy to Cramer personally, and even though Cramer still admired Wasson's abilities, he let broad skepticism color his thinking and he turned negative on the stock at $29.

"As it turned out, that was the exact bottom in Walgreen. Ultimately, Wasson settled the dispute with Express Scripts on terms that were wildly favorable to his company. He integrated Alliance Boots in a way that generated strong shareholder value. And he even announced another accretive deal, this one with AmerisourceBergen."

The moral of this story is that, all the while, Cramer still believed in Walgreen and the abilities of its CEO, but he allowed broad sentiment to color his thinking and he sold out of his position.

Cramer's actions came with a cost.

Ultimately shares bounced and then marched sharply higher. Had Cramer simply stood by his convictions, three years later he would have realized a gain of about 50 percent. (In August 2014, at the time this post was written, the stock was trading over $60.)

Read more from Mad Money with Jim Cramer
Can top S&P stocks keep climbing?
Despite new highs, Cramer spots a bargain stock
CSI Mad Money: Cramer's 5 stocks left for dead

Cramer says Walgreen was hardly the only time skepticism got the better of him. And he hates that he made this mistake. "In the case of Walgreen, I should have trusted my convictions. I didn't. What I know now is, sometimes, skepticism simply doesn't pay."

(Click for video of this Mad Money segment)

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

Contact Mad Money

  • Showtimes

    Monday - Friday 6p ET
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Mad Money Moments

Cramer's New Book