Cramer: Brutal selloff makes these more attractive

Jim Cramer has experienced countless market corrections in his 30-plus years of investing. That is why he decided to share his best tricks of the trade on how to navigate a selloff, even during the worst declines that would ordinarily leave the best investors in tears.

The first step to conquer a selloff is to circle the wagons around the stocks in your portfolio that you really like, and then leave the ones that don't inspire you in the dust. The "Mad Money" host thinks it is a good idea for investors to know the difference between a damaged stock and a damaged company when hunting for bargains during a selloff.

"A correction is just a megasale on stocks—no different than what you might find on all kinds of things at your Sam's Club any day of the week," Cramer said.

After those steps are covered, it's time to get into the nitty gritty of the specific types of stocks that Cramer scoops up during a downturn. And the good news is that the more brutal the selloff is, the more attractive these stocks will look.

First, Cramer likes to look for stocks that have pulled back from their highs during the selloff. The new high list is always a great place to start looking. But stocks on that list also tend to be expensive, which is exactly how a big decline helps.

Look for the stocks that were knocked off the new high list and are trading a couple of percentage points from their 52-week high because of the correction. Those will be the money magnets of the market. However, Cramer reminded investors that not all of it will be worth buying; some may come off the list because they are damaged goods. So, homework is still important.

The second kind of stock that Cramer looks for during a gigantic selloff is the type with dividends that become more attractive as their share prices go lower. So, just as the 52-week high list is useful for stocks on a downturn, also keep a shopping list of stocks you would buy if only their dividends were a little higher.

What does a market correction have to do with a dividend or yield?

When a market correction occurs, the price of the stock goes down and the yield goes up. Cramer loves it when sometimes a selloff is so severe that an "accidental high-yielder" is created. He refers to those stocks that didn't intend on being a dividend play, but have fallen so hard that the dividend yield has suddenly become meaningful or a way for the stock to have a quick bounce back.

"I know dividend investing isn't sexy, but believe me when I tell you that nobody ever woke up unhappy the next morning after bringing home a stock with a big dividend," Cramer said.

So if you get more conservative, the best bet is to go for stocks that will practically guarantee money in your pocket. That is exactly what a dividend does.

Ultimately, Cramer considers a selloff as an opportunity to buy some of the best stocks out there, especially those that have just pulled off their highs and stocks that have fat yields thanks to the decline. Those are the best places to bargain hunt in a decline.

Source:CNBC