Cramer's 'Mad Money' Recap: Investing Mistakes to Avoid

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."