Cramer's 'Mad Money' Recap: Invest Like a Pro

Moving on, the next mistake an amateur makes is that when he looks at a stock, he thinks about what his upside could be, Cramer said. Pros don't do that. They think about what their downside is. "If you take care of the downside then the upside takes care of itself," he said. "That means you need to spend a lot more time considering what you can lose in a stock than you do thinking about what you can gain."

Market players have to expect their stocks to go lower sometimes, Cramer said. Instead of clinging to their "bullish case for owning the stock," it's important for people to consider the potential downside and what protections are in place.

"A company with a big buyback is a company with a big cushion, because you know there will always be a buyer for the stock," he continued. "That limits your downside."

Dividends are so important, too. "We don't like dividends for the income they provide," he said. "The reason to be attracted to strong, increasing dividends is that they limit your downside and your downside is what you have to be thinking about."

When people are interested in buying a stock they already know the bull case for it. They know why the stock deserves to go higher and have a thesis of how that will actually happen. "There's no reason to think about upside beyond that," Cramer said. "Plenty of stocks have great upside potential, but far fewer have great downside protection."