Cramer's 'Mad Money' Recap for Aug. 7

During a selloff, Cramer stressed, "look at the companies that caused it. They're probably broken. ... If you're looking at a company that's part of the reason for a correction, you're in the wrong place."

Cramer also mentioned that some companies that were not directly responsible for the market turmoil should also be avoided, if whatever caused the selloff should also cause a decline in those companies.

The retailers are an example of stocks that should have been avoided during the 2007 credit crunch. Because the liquidity crisis hurt the consumer, retailers' sales got hit, and the stocks declined. "A company becomes broken when the reason you had for liking it goes away," Cramer said.

On the other hand, in the 2007 selloff, there were many great infrastructure stocks that went down with the financials, homebuilders and retailers. Their businesses weren't broken, but their stocks came down, Cramer said. The companies behind these stocks didn't have much connection to the broader selloff, but their prices decreased. "You want to look for stocks in areas that are independent of what's ailing the market," Cramer said.

In a down market, it's tempting to shop for a bottom, trying to get stocks at their cheapest as they rebound, but Cramer said "that's rarely a safe bet."

Cramer said it's most important to "avoid broken companies at all cost."

A Mega Sale on Stocks

"A correction is, in the end, just a mega sale on stocks," Cramer said. When you go shopping at the store, you don't say you made a bad purchase because you got something cheap. He said it's important to take a similar attitude when approaching a market downturn.