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How to React to a Crisis

Friday, 23 Dec 2011 | 6:40 PM ET

Moments of crisis, like the riots in Egypt and the Japan tsunami, can make terrific buying opportunities in the right stocks, “Mad Money” host Jim Cramer said Friday.

Cramer: Questions to Ask Yourself in a Sell-Off
Investors cannot time their moves correctly, unless they know what they own, says Mad Money's Cramer. That's why it's important to ask yourself two questions in the event of a market sell-off: what impact does this have on the numbers; and is this event really bad for all the earnings out there?

So how do you go about weathering the crisis and finding the right names?

First, you must put the event in perspective.

“We have to ask ourselves, okay, the news is potentially tragic, potentially dangerous, potentially terrifying, but what effect does it have on the earnings per share, the numbers?” Cramer said.

He suggests making a list of names that are unaffected by the event, and be ready to buy them when a market-wide sell-off happens based on the crisis.

Step two, Cramer said, is to ask yourself if the event is really bad for all earnings out there.

For example, oil stocks—which benefited from higher oil prices—got knocked down when the Egyptians were demonstrating in early 2011. That was a tremendous buying opportunity, he said.

“There will never be a shortage of terrifying events around the world that bring down the whole market,” Cramer said. “The next time it happens, don't run away because there might well be an opportunity for you to make a very big profit.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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