Don't Get Sucked In by Bargain-Basement Stocks

Sometimes they're cheap for a reason. Instead, be tempted by the real bargains that are created by panic, fear and instant pessimism.
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The lure of low-priced stocks is so powerful that all of us at one time or another have been sucked into its peculiar vortex. This morning, a major firm reduced its rating on Hartmarx (HMX) from accumulate to neutral, and I found myself thinking how many of you out there will now be tempted to buy this stock because it is at 3.

Five years ago, my partner,

Jeff Berkowitz

, and I struggled with this exact same stock at this exact same price level. I thought its suits, while "old-mannish," were of high quality. It had some sort of golf line that people would like. It had a decent brand name. We bought a ton of it at the 5 level. It then announced that it had run into financial problems, and the company rapidly dropped to 3. We were calling every analyst to see if this was an overreaction. In each case, they said it was. We bought more.

We battled and we battled and we battled. Eventually we got out at our cost. It took an extremely long time to get back to even. During this period,

Gap Stores

(GPS) - Get Report

began its great run as casual clothing gained ground over the old soft-line manufacturers like Hartmarx. While I was wasting my time on Hartmarx, I should have been focused on growth.

Sometimes low-dollar merchandise can be sinful. You can't resist it. But sometimes it belongs there. Had we kept our Hartmarx position on during this greatest of all bull markets, we would have missed some amazing opportunities. Be tempted by real bargains created by panic and fear and instant pessimism.

Don't be tempted by dollar amounts.

Random musings:

Be careful:

Ralph Bloch

going out negative for the billionth time. Sure he can have impact. Anybody can have impact. But I say these days are incredibly screwed up. Nobody is around. Firms are staffed lightly. People are pushing stocks around as if they were featherweights. We are choosing to draw

no

conclusions from the action today or the action Friday. There just isn't much going on.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.