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"It's OK to sell stocks in a down market," Jim Cramer told viewers of his "Mad Money" TV show Tuesday. "Just don't sell everything," he said, as he outlined his rules for surviving a tough market.

Cramer told viewers that they should never be afraid to sell stocks when the market turns sour, but they need to use discipline, and never panic into selling everything. Over the last few months, he's been advocating that investors secure what money they may need in the next five years.

Cramer said if investors are buying a house, paying for tuition, or even buying a car over the next five years, it may be prudent to secure that money now. Take the money out of stocks, he said, and keep it in cash or equivalents so you can sleep comfortably at night.

But there's another reason to sell stocks, said Cramer, and that's to have money to buy them back cheaper. "The worst markets make the best buying opportunities," he said.

The chance to buy stocks at Dow 8,000 is a great opportunity that investors may never see again. Only by selling stocks into strength will investors have the money they need when the bargains reveal themselves.

For retirement savings, however, Cramer advised against selling. Retirement, he said, is for the long term, and that money should stay in stocks. "We go through bad spells," said Cramer, "it's happened before and it will happen again."

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What to Keep

After telling viewers what they should sell in a down market, Cramer then explained what investors should keep. He identified three types of stocks that can be owned, even in the worst of market conditions.

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First are the recession-resistant stocks. He said that any company that makes something you can eat, drink, smoke, wash with or use to cure diseases can all be owned during a downturn.

Next are stocks with good fundamentals that trade at or near their cash. Cramer called these companies the obvious choices, since the cash on the balance sheet provide a floor to prop up the stock price.

Last are stocks that he's dubbed the "accidental high-yielders," with traditionally low dividends that after enormous declines in their stock price are now yielding over 4%.

Cramer said he trusts the high yielders because many of them are industrial companies, like


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, with long histories of paying dividends and little risk of that dividend being cut. "The accidental high yielders are reliable," said Cramer.

Cramer also stressed the importance of reinvesting those dividends. He said while dividends may seem small, compounding over time can make investors plenty.

In an awful market, said Cramer, the way to buy the high yielders on a scale based on yield. He suggested buying a small position as a stock yields 4%, then buying more as it yields 5% and even more if its yield reaches 6%.

Buyer Beware

There's a dangerous word being tossed around the markets, said Cramer, and that word is "cheap." He told viewers to beware of anyone using the word cheap because cheap, he said, can get you killed.

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Cramer said that it's natural to assume stocks are cheap after the markets have fallen thousands of points in just weeks. But, he asked, "Do we want to own stocks that look cheap, or stocks that can go higher?" He said the worst reason to buy a stock during a downturn is because of valuation.

Cramer said in a bear market, and especially in a panicked market, the old equation of earnings times multiple equals price gets thrown out the window. Why? Because in a bad economy, no one knows what the earnings will be, he said. Without earnings, there can be no multiple, and without a multiple there is only free fall.

Cramer said this premise is especially true for cyclical stocks. These companies need a strong economy to make money, he explained. In a downturn however, these same companies can turn from a profit to a loss in the blink of an eye, all while the "estimates" are still way too high, making them look cheap. Think Bethlehem Steel in the 1980's, said Cramer.

The bottom line, said Cramer, when investors seem to be selling everything hand over fist, looks can be deceiving, and cheap can get even cheaper.

The Power of Hedge Funds

Cramer said another tip for owning stocks in a downturn is to "know thy fellow shareholders." He said in nasty environment, who owns a stock is almost as important as the stock itself. "Your fellow shareholders," he said, "can become your worst enemy."

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.

Cramer said a bottom will only come when there's no one left to sell, when everyone who was buying finally gives up and starts selling. That's when you get a genuine bottom, said Cramer, and not a false bottom.

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At the time of publication, Cramer was not long on any stock.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for, Inc., and CNBC, and a director and co-founder of All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.