Cramer's 'Mad Money' Recap: A Time to Atone

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Editor's note: This is a recap of a show that was first broadcast on Oct. 13, 2005.

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Bad trades are going to happen, but if you can learn from the people who've been there, chances improve that you can learn how to spot the true winners and how to limit your losses.

That was the message Jim Cramer offered on his "Mad Money" television show. Billing the show as a "day of atonement," Cramer said he wanted to own up to his biggest mistakes, with the hope that others not be destined to repeat them.

What traders and investors need at the outset, he said, is discipline, because most mistakes come about either from being too hopeful or from plain arrogance.

He started his cautionary tale by going back seven years to a time he owned paper that would prove to be problematic -- the common stock of Cendant (CD).

In 1998, he bought shares in the new company that was created by the merger of CUC International and HFS. The trouble began when past accounting irregularities were revealed at the old CUC. Cendant's stock dropped. But Cramer, still working for the hedge fund Cramer Berkowitz at the time, was in "hope mode." He saw the decline as a buying opportunity, and he picked up 200,000 more shares, taking his total to 1 million.

That only made the pain that was coming that much worse. Cendant's stock got cut in half. And Cramer's partner at the fund had to call him while he was on vacation to let him know they were down $17 million on the Cendant position.