Mad Money

Speculating on Single-Digit Stocks

Let’s face it, a $3 or $4 share price can be rather enticing. At first glance, it looks inexpensive, leading many of us to think we can buy more than usual and boost our profits.

Of course, this is often an illusion. Stocks that trade that low usually do so for a reason. And there’s nothing preventing that share price from dropping the rest of the way to zero. So “cheap” investment or not, Cramer said, you could lose your shirt.

That’s why he has often warned viewers away from these single-digit names. If only because he’s made the same mistake himself. Cramer’s charitable trust once lost $130,000 on Charter Communications . Watch the video to find out why most of the reasons offered for buying these stocks are wrong, what the “multiply by 10 test” is and how you can avoid these pitfalls.

Call Cramer: 1-800-743-CNBC

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