Stocks that trade under $10 can sometimes be too attractive. We think we can buy more, thus increasing our returns. In addition, there’s the idea that a stock that cheap has less downside risk, which minimizes losses. But these ideas are dead wrong, Cramer said. Cramer explained that stocks drop $10 for bad reasons. He said he once overlooked Charter Communications (CHTR) massive debt when the stock was trading at $4. He bought the stock and it proceeded to drop 50% to $2. Cramer advised investors to use the “multiply by 10″ test for stocks under $10. If Charter were at $40 and it had the same issues it does at $4 would you still want to own it? Most likely not. Cramer suggested that investors use this rule before buying any stock under $10.
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