Low-Dollar Stocks

Cramer's second rule of thumb is to avoid speculating in cheap, low-dollar stocks. He said his single biggest loss ever in his Acton Alerts Plus charitable trust was in Charter Communications(CHTR Quote), which he bought for $4 and ultimately cost him $130,000, when he had to eventually sell it at $2.

"When we look at a stock with a share price that's under $10, we get taken in by that mystique of the single-digit stock," he said.

Cramer said the best way to deal with the situation is to apply his "multiply-by-10" test. "If the stock price were $40, and not $4, and everything else about the stock and the company was the same, would you still like the stock?"

"If I had done that with Charter, which was drowning under the weight of its debt, I would've never bought the thing in the first place," he said.

Cramer advised viewers not to be seduced by single-digit stocks. They're that low for a reason. "It's those very same low prices that attract us to stocks we otherwise wouldn't be buying."

Love at First Sight

Cramer told viewers not to go overboard on a new product. He made that mistake in 2006 when he fell in love with a stock called Citrix systems(CTXS Quote). Some experts had told him the company had come up with a brand new product called "Go To My PC."

Enthused by the product's potential, he jumped in and bought it for his charitable trust in the spring of 2006.

Little did he know that the product had been around for three years when he bought the stock. The end result: He had to sell the stock 10 points lower.

Cramer advised viewers to be careful of so-called new product offerings. "If it's been around for a long time, you're jumping on a bandwagon that's about to go over a cliff."

Mutual Funds

Cramer said he gets a lot of requests for people who want him to talk more about mutual funds.

Personally, he thinks home gamers would be better off spending the time doing the homework necessary to pick individual stocks.

However, for those who don't have the time for stock picking, he recommends getting into a "cheap" index fund that mirrors the S&P, with low fees.

When you invest in a fund, he says, check out the performance of the manager, especially his long-term performance. "Any schmoe can make money in a bull market," he said.

Retirement Plans

Cramer says most investors think of 401K plans and IRAs as boring investments.

But for people who want to live well in their golden years, these investments are important because of their tax savings, he said.

That's because you don't pay taxes on the money that goes in; you don't pay taxes on dividends and capital gains as long as you keep them in the 401K or IRA; and you get taxed only once on the money as ordinary income when it's distributed in your retirement years, he said.

He said investments in REIT stocks and royalty trusts are especially attractive because there aren't any taxes on their dividend yields.

Check out the latest edition of "Cramer's Take on Top-Searched Stocks" on Stockpickr.

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