Cramer explained that when you buy a stock as a trade, you're buying it for a specific short-term catalyst, some anticipated future event that will drive the stock higher.

This event may be a company's quarterly earnings, or it may news-driven, like a Food and Drug A drug approval. In either case, the plan is to buy a stock ahead of the catalyst and sell it afterwards. Once that window passes, however, investors must sell their trades, good or bad, Cramer said.

An investment, on the other hand, is a long-term trading thesis that is not event-driven. Cramer said investments are not an excuse to buy and forget because 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.

The Dreaded 'Correction'

Cramer's next item in the Wall Street dictionary: 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 stock, 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. "You want companies with proven, seasoned management teams," he said, because they're less likely to drop the ball.

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

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-- Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

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At the time of publication, Cramer's Action Alerts PLUS had no position in stocks mentioned.

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.

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