For instance, in 2007, there were multiple sell-offs related to a weak real estate market and tons of bad subprime and regular loans. Anything that touched housing, mortgages or any kind of lending would have been considered a broken company.
Another thing that Cramer thinks is important to keep in mind is that a company does not break just because its stock goes lower. Investors saw this in 2012 when domestic companies were brought down just because of turmoil in Europe. How could a Mexican restaurant chain like Chipotle take a hit because of Italian bonds? It happened.
Stocks like Chipotle went down because all stocks were going down at the time, not because it had a connection to the sell-off.
"To put it another way, you don't want to buy the stocks that are leading the decline when you're looking for opportunity in a sell-off. You want to look for stocks in areas that are independent of what's ailing the market," Cramer said.
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Once a company breaks, it is very difficult to put it back together again. The same goes for sectors, which control half of a stock's movement.
That is why it is important to keep an eye on the stocks that cause a sell-off. Some stocks will have a clear reason for going lower, and others will just be sold off with everything else. The first stocks to be sold will be the broken companies — which Cramer says to avoid at all costs — and the second group will be broken stocks. Those are the stocks you will want to gobble up.