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Cramer shares a no-brainer investing strategy

Key Points
  • "Mad Money" host Jim Cramer nails down the nuances of the phrase "stocks get cheaper when they go lower."
  • It might sound like a no-brainer, but it's easy to lose sight of stocks becoming inexpensive when they're also declining, Cramer says.
  • But some stocks, like Apple, can make you big money if you buy them when they go lower.
A no-brainer investing strategy

CNBC's Jim Cramer sees far too many investors ignoring a simple formula that has kept him level-headed during his years on Wall Street.

"Newsflash: stocks, by and large, do get cheaper when they go lower. Call me captain obvious for pointing it out, but I think this commonsense wisdom often gets ignored when we're analyzing stocks on a day-to-day basis," the "Mad Money" host said.

Cramer was reminded of the phrase on Tuesday, when Apple launched an array of new products, including a special-edition iPhone X for the 10th anniversary of the first iPhone release.

He was amazed that he kept hearing people asking each other if they would upgrade and being receptive to the new model instead of balking at the $999 price tag.

"I haven't heard anyone say, 'Nah, I just bought the [iPhone] 7.' I'm either hearing, 'Yes, I'll upgrade,' or 'I hope someone will buy it for me,'" Cramer said. "That's incredible. That's what I call consumer product amore. It's the most beloved device I can remember."

But it wasn't that long ago when Apple shares took a nosedive from $131 in May 2015 to $92 in May 2016, and CEO Tim Cook came on "Mad Money" to clear the air about the stock market's premature assumptions about what turned out to be a successful product transition.

"In short, this was a stock that got cheaper as it went down, and if you bought it in the $90s after Cook spoke to us, well, you made a ton of money," Cramer said.

Other examples of this theory abound. The stock of United Technologies is down to $109 from $120 as of Tuesday's close because the defense contractor will acquire Rockwell Collins, an airplane component maker.

While the $23 billion price of the cash-and-stock deal is higher than Wall Street would like, Cramer compared it to when United Technologies bought Goodrich six years ago for $18 billion. Back then, the stock shed about 10 basis points in response. This time, it also shed about 10 points.

"Is it wrong to ask if history could be repeating itself?" Cramer wondered. "Here's my theory about United Technologies: as its stock has come down, wouldn't you know it? It's gotten cheaper. You might think that's so self-evident it's not even worth mentioning, but because of the decline, investors are running away from the stock, not towards it, as if United Technologies has somehow gotten more expensive. It hasn't, and I think we'll look back on this as a great buying opportunity."

Unfortunately, not every stock is beholden to this commonality. The stock of Macy's failed to price in the massive decline in retail from when it cost $60 a share through its decline. At $22 a share, Cramer thinks Macy's shares have finally baked in the weakness.

"Here's the bottom line, though: don't sneer at every stock that goes lower. Sometimes there's more pain ahead as stocks get even cheaper because of fear or ignorance, but remember the winners," Cramer said. "I think when you do, you'll look back and recall 'buy low, sell high.' Great investment strategy. Who would've thunk it?"

WATCH: Cramer outlines a simple-yet-effective investing strategy

Cramer shares a no-brainer investing strategy

Disclosure: Cramer's charitable trust owns shares of Apple and General Electric.

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