Jim Cramer's biggest investing regret came from asking "how much can I lose?" on a cheap stock that looked like a good deal. The answer, Cramer says, is that "you can lose it all."
The host of CNBC's "Mad Money" and Investing Club learned that lesson the hard way in the 1990s by investing in an early Silicon Valley company called Memorex Telex, which is now defunct, that Cramer describes as "the worst investment I have ever made."
The company — which specialized in memory storage devices for computers — had a terrific business but way too much debt, Cramer tells CNBC Make It.
After the company emerged from a bankruptcy filing, Cramer bought several hundred thousand shares at $2 when the stock started trading again.
"I was in touch with management," he says. "I did all the work. I looked at all the [company's] filings. And I just kept buying it and buying it and buying it, thinking, you know what? What's the worst that happens?"
Within a few months, the stock dropped to $1.
Memorex Telex was simply not performing. As Cramer later recalled, the company had a "compelling story" but its technology "was simply outmoded and, in the end, there was nothing there."
"I realized it was time to stop because it was going to zero and I wanted to be able to get some sort of capital out of it before it went to zero," says Cramer, who cashed out his holdings for a fraction of the initial purchase price.
Later, in 1996, Memorex Telex's stock value was completely wiped out when the company went back into bankruptcy a second time. What was left was then sold in pieces to subsidiaries of other companies. "It was the worst percentage loss I've ever had," says Cramer.
As Cramer has written before, the Memorex Telex experience taught him a valuable lesson: "When you have a low-priced stock, don't think to yourself, 'How much more can I lose?' You can still lose everything."
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