Cramer's 'Mad Money' Recap: Stay in the Game

Expect Corrections, Prevent Losses

Something even worse than boredom is losing a lot of money, Cramer went on to say. But if he'd quit every time he lost money in a stock or every time his whole portfolio was down, he never would have gotten anywhere, he said.

Although Cramer said he doesn't have the magic formula to prevent market players from ever losing money in the market, and though most investors will likely lose a lot of money at some point, "it pays not to give up."

For damage control, Cramer gave his viewers two rules. The first rule, he said, is to expect corrections and not fear them. "A correction is when the market's been roaring, and then one day, boom, it gets crushed," he explained.

Taking a look at the S&P over the last year, Cramer said that after it had a "decent run," it fell into "a big fat correction" in May that continued through June. Consequently, the index fell and eventually bottomed in the first half of June. But from there on out it came "roaring back" all the way to December and went even higher than where it was before the correction, he said.

If people lost money in the market then, they might've been tempted to give up on stocks altogether, which, in light of where the market climbed, would've been a "pretty bad idea," Cramer said. Investors need to understand that sometimes stocks go down and keep going down. They need to be psychologically prepared for big corrections like the one that started in May so they'll develop a "superior attitude" and stay in the game, he said.

The next rule is about preventing losses, Cramer continued. One of the best ways to try to avoid losses is to "watch out for multiple contraction," which means that the market will start paying a lot less for the same amount of earnings, he said.

If players see a "marketwide nosedive" or a "big, ugly downturn," especially one that's caused by interest rate hikes, they should identify and sell their high-multiple stocks, as they are the only certain types of stocks that are "truly vulnerable" to multiple contraction, Cramer said.

As severe multiple contractions usually won't occur a stock until the company reports earnings, people should sell their high-multiple stocks before the companies report, unless they want "a world of pain," he advised.

Lastly, Cramer urged his viewers to place limit orders instead of market orders.

"Limit orders keep you in the driver's seat, they keep you from being totally ripped off, and they're really easy to execute, he said. "Please, if you listen to nothing else I say, use limit orders instead of market orders."