Cramer's 'Mad Money' Recap: Surviving a Tough Market

Cramer said that investors need to be suspicious of any stock being held by a lot of hedge funds. He explained that in down markets, when hedge funds start losing big money, the resulting redemptions force selling that not only pushes that stock lower, but can often push the entire market lower.

While just one big hedge fund has enough firepower to take a stock lower, imagine what can happen if a stock is owned several, said Cramer. Money managers, he said, tend to think alike, and if one fund begins selling, the chance of others following suit is almost a given.

Hedge funds have the ability to roll back tremendous multiyear gains in just months, said Cramer, which is why it's so important to know who owns your stocks along with you.

Calling a Bottom

Cramer's final tip for investing in tough markets was to avoid calling a bottom. He said while it's always tempting to try and call a bottom, unless you're absolutely sure, you'll get burned.

Cramer said in order for a true bottom, and not a trading bottom, to occur a few things need to happen. And despite pundits of all kinds coming on TV and saying there's a bottom, unless these things actually happen, the bottom is not yet at hand.

First, said Cramer, things need to stop getting worse. "The bad news can't be priced into a stock if the bad news is still happening," he said.

Second, the markets need to see wholesale capitulation. Sentiment, he said, needs to be overwhelming negative. "You don't bottom with a lot of bulls out there; you bottom when most of the bulls are converted to bears," he said.