But in recent years, the markets have turned the notion of blue-chip upside down with such notable names as Lehman Brothers, Washington Mutual and General Motors (GM) all filing for bankruptcy.
Cramer said that much of the traditional investing advice ignores the human elements of investing, those which tell us that investing in stodgy stocks that don't do much will only cause many investors to stop doing their homework or pay attention at all. That's why having at least one speculative stock in your portfolio is so important.
Cramer said he advocates having no fewer than five stocks in a portfolio, but also no more than 10 since that's about all the time the average home-gamer will have to spend on their investments. But one of those stocks needs to be a speculative stock -- a high-risk, high reward company that will keep you interested and paying attention and one that just might provide massive returns.
One type of speculation involves those companies with shares prices in the single digits, Cramer explained. He said that sometimes, great companies fall onto hard times, as did Ford Motor (F), Bank of America (BAC), Pier 1 Imports (PIR) and Sprint (S).But when a share price falls below $10, many mutual funds and institutional investors simply cannot own them, said Cramer, which means that investors who can tell when a company's fundamentals have changed can buy in ahead of the big money for huge gains once shares regain double-digit status. That was certainly the case with all four of the names above, Cramer said. In each case, speculative investors could've played the "over $10" jump ahead of the big money players.
Go For GrowthThe next type of stock in a properly diversified portfolio is a growth stock, said Cramer. He said every stock needs a secular grower, one that's on the rise no matter what the economy is doing at the time. Stocks like Chipotle Mexican Grill (CMG), Apple (AAPL) and Panera Bread (PNRA) all fit into this type of stock.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts