An investment, on the other hand, is a long-term trading thesis that is not driven by events. Cramer said investments are not an excuse to buy and forget, however. They can still go wrong. That's why he recommends one hour of homework a week for each stock in your portfolio. As long as your investment thesis is still intact, he said, investors can continue to own their investments.
"Never turn a trade into an investment," Cramer reminded viewers, even if that trade is a successful one.
Cramer's next item in the Wall Street dictionary is the dreaded "correction." Cramer said a correction is nothing more than a roaring market turning around and retreating, sometimes as much as 10%. He said corrections may feel like the end of the world, but panicking is always the wrong reaction.
Cramer explained that corrections are simply what happens when stocks go up too far, too fast. Investors should expect corrections, he said, and not beat themselves up if they fail to see one coming. "We don't have to like them," said Cramer, "but we do need to acknowledge that they happen."
Cramer's final word for the day: Execution. He said this is a tough one since it's largely subjective, but execution usually refers to management's ability to follow through on its plans. When you own a stocks, he said, you always run the risk of management screwing up and not producing what they promised.
Cramer said this is why it's always worth paying up for what he calls "best of breed" companies, those with proven track records and a management that consistently delivers what it says.
"You want companies with proven, seasoned management teams," he said, as they're less likely to drop the ball.
--Written by Scott Rutt in Washington, D.C.
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To watch replays of Cramer's video segments, visit the Mad Money page on CNBC