If you want to invest in individual stocks, you have to be ready to do your homework, CNBC's Jim Cramer said on his show Thursday.
The "Mad Money" host told a story from his childhood about how his father, "Pops," began buying stocks of National Video through a tip that he received from his brother. Pops, he said, eventually put a large chunk of his life savings into the equity as the price was rising. Once the stock began falling, Pops, like many people, had no idea what to do besides asking his brother to fetch another tip from his friend, Cramer said.
The tip was to keep buying National Video and the only thing that Pops knew to do was continue buying the stock, which means he was at the "mercy" of the stock's movement, he said.
"One of the precepts of 'Mad Money' is to know how to invest in an individual stock if you are going to do so," Cramer said. "Tips, as I like to say, are for waiters ... You must do homework if you are going to own individual stocks ... [and] if you can't do homework then own an index fund."
But if you fear losing money, "don't own stocks at all," he said.
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