Mad Money

Is your homework incomplete?

If you're diversified and doing the same research or homework for each stock in your portfolio, your homework may be incomplete, or worse; it may be chock full of mistakes.

That's not to say, you shouldn't be doing research that overlaps. Jim Cramer says you should.

However, the "Mad Money" host also wants you to be familiar with special metrics that are unique to the industry in which the company operates.

Cramer feels that it's not only prudent to monitor these catalysts but warns they can be very powerful – sometimes more powerful than something far more conventional such as earnings.

Justin Paget | Photolibrary | Getty Images

"Let me give you a case study here. My charitable trust owned Devon Energy during a period where it repeatedly beat the earnings estimates. But, the company's production growth disappointed quarter after quarter. Devon just wasn't producing enough new oil. So even though it classically 'beat' Wall Street's estimates, the stock went down because of the production shortfalls."

That's because in the oil industry, production growth is key metric, Cramer explained, and in this case, it dragged the stock lower even when earnings were otherwise robust.

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The issue of critical metrics works both ways. That is, a positive key metric can power a stock higher when many other metrics appear negative.

"Let me give you an example of that too," Cramer said.

"I totally missed the bottom in Micron, the semiconductor company that makes memory chips, back in 2012, because I wasn't paying close enough attention to the key metric of average selling price. The company had reported lousy numbers for quite some time, so when Micron reported still one more terrible earnings number, I thought nothing of it. However, at the same time Micron's main semiconductor chip showed an increased in their average selling prices during the quarter," Cramer said.

Shares rallied shortly thereafter and since 2012 have never looked back.

For tech companies such as Micron, the average selling price of their products matters considerably, Cramer noted.

The lesson here is quite simple. Not only must you do homework but you must also be aware of critical metrics specific to your holdings. If your research is too generic, you risk overlooking catalysts that can otherwise move shares substantially.

*The investing concept outlined above is explored in far greater detail in Jim Cramer's book Get Rich Carefully.

Call Cramer: 1-800-743-CNBC

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