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Cramer's Rule: Why Price Matters

Friday, 17 Aug 2012 | 7:17 PM ET

Jim Cramer devoted Friday's "Mad Money" to highlighting his five rules to help you make money in any environment.

Rule No. 1:"Don't dig in your heels when you're wrong"

Rule No. 2: "Price matters"

Price is so important, that if it could go low enough, investors are willing to buy stocks of companies they don't even like that much.

Stock Price Matters
Mad Money host Jim Cramer explains why price matters, and that when a stock drops low enough, it could be time to buy.

Cramer will never recommend a stock when he thinks the fundamentals of the underlying company are deteriorating, and normally there's a lot of space between a "best of breed" company and one that's uninvestable.

In normal circumstances then, if a lowly company's stock falls to a certain level that makes it just too darned cheap to pass up, Cramer thinks it's perfectly OK to buy when you merely have a low opinion of the underlying company. That's when price matters.

So how do you know when the price is right for a stock you wouldn't otherwise buy?

It's a sliding scale, Cramer said, where the better the company, the more you should be willing to pay.

If speculating, he recommends looking for companies that have been left for dead, even though they still have a pulse upon closer inspection. Just be sure that bankruptcy is not on the table, he added.

So long as bankruptcy is not on the radar, then buying an unattractive company at an attractive price could make a lot of sense.

Read on for Rule No. 3

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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