But I also know that caution is king… especially when you are trying to build wealth over the long term… that is why in Stay Mad For Life I created a new rule… a rule is always based on, yes, mistakes that I have made that has lost me, or my charitable trust, a lot of money… it is rule 11, uninformed low dollar amount speculation unequivocally can wipe you out… anybody who bought Citigroup on the way down as it went from an under $10 name to a penny stock because the financials were under perpetual seige from the short sellers, knows exactly what I am talking about… if you watch this show for any amount of time, you will understand the value of speculation.

Tonight I want to talk to you about the risk of speculating… I want to tell you the story about the biggest single loss I have ever taken for my charitable trust, ActionAlertsPlus.com, which is all for charity… this is a stock that caused me to not be able to contribute $130,000 to charity…

And the name of the stock is Charter Communications Inc.…

I bought this debt-laden cable company at $4... way back when I first started my charitable trust… it was going to be the speculative pick in my portfolio… but everything about my decision making process when I bought this stock was messed up… it was distorted, and that was all for one reason… the mystique of the under $10 stock… now I won’t regale you of the tell of how I dug in my heels with this one… for 18 months… because I have always felt that 18 months is how long it takes a good investment idea to pan out… I held onto Charter as the stock sank lower and lower…. eventually selling it for $2... I just want to explain where I went wrong when I decided to buy the stock so you won’t do it… because it should have been clear from the beginning that Charter wasn’t worth owning.

When we look at a stock with a share price that is under $10... we get taken in by that mystique of the single digit stock… what does that mean… you look at a $4 stock and you think to yourself, it is already down to $4, how could I possibly lose… yes, I know that that is irrational… but that is part of the attraction, isn’t it… you have to know that just because the price is a low dollar amount that that doesn’t mean that you can’t lose a fortune… remember how much I lost for my charitable trust…. as I learned, it is easy for a $4 stock to become a $2 stock… and not with a stock split… and that 50% loss is the same as if we were talking about a $40 stock going to $20... multiply it by 10... there are a lot of stocks out there, stocks that have been crushed… that trade in the single digits… some of them deserve their new low dollar volume amounts… they have got their new $2 amount homes… right, we now some of them do.

Some of them don’t… but never believe that just because they trade in the single digits they can’t give you huge losses… here is another mistake that people make when they look at these stocks… one that I made with Charter… you think that just because the share price is a low dollar amount, because it looks small… that it is more likely to get taken over… irrational behavior… again this is irrational because the companies that might buy these stocks know the same things that we do… they do not care about the share price… they care about the price to earnings multiple… which is the stocks true price… they care about the enterprise value… it is like a trick of the eye… it is a mistake that you will make unless you know to watch for it… that is why you always have to apply test whenever you speculate with a low dollar amount stock… I want you to multiply it by ten… if the price was $40 and not $4, and everything else about the stock of the company was the same, would you still like it… if I had done this with Charter, which was drowning under its weight with debt… I never would have bought the thing in the first place… and taken the biggest loss in the history of my charitable trust.

You have to do this because believe me no matter how experienced you are, you will be drawn in by that mystique of these stocks that are under $10... it is bad… with the under $5 stocks being the worst… if an experienced hand like me can get taken in by the mystique surrounding these stocks than anyone can… trust me…. now, always remember when you are speculating with these low dollar amount stocks… that no company stock ever falls below $5 because it wants to be there… companies don’t end up with stock prices in the single digits by doing well… sometimes they end up there because the market is a harsh mistress, that takes broken stocks, takes them all the way down… broken stocks, broken companies, alike… but you have to make sure that you are going after the stock because you like the underlying company… not because you are attracted by that low dollar amount.

Here is the bottom line…