Mad Money

Cramer: Four Rules to Keep You in the Game

Surviving a Chaotic Market

We’re right in the teeth of this recession, Cramer told Mad Money viewers Wednesday, and everything that could go wrong seems to be going wrong. We’ve been here before, though. The savings-and-loan crisis of 1990 saw ailing banks, increased oil prices, inflation and an oncoming war. The only rallies came from short covering. And the dot-com bust of 2000 delivered the same mix of despair and panic. But we survived then, and we’ll get through this, too.

That’s why Cramer doesn’t want investors cashing out. There’s plenty wrong with the market – Congress calling for dividend cuts, no financing for banks, rising unemployment, continuing home foreclosures – and that’s why he recommended taking profits to cover any near-term costs. But those who are still building a nest egg, or buying stocks as a way to reach some longer-term goal, can’t afford to miss the market turn. And investors shouldn’t think they can predict when that will happen. Warren Buffett can’t, and neither can Fidelity’s Peter Lynch, so how could you?

You gotta be in it to win, which, understandably, is no easy task these days. So Cramer offered four rules for dealing with this chaotic market.

Diversify. Make sure your portfolio is a mix of stocks, cash, gold and bonds. Some will rise as the others fall given which way the market’s headed. But that’s what you want. This strategy’s a hedge against risk, used to balance out any possible losses incurred. Gold, in particular, offers some protection against market volatility, which is why that precious metal jumped $24 Wednesday. Cramer said he likes Freeport-McMoRan for gold exposure.

Buy consumer staples like Coca-Cola, Pepsico , General Mills and Kellogg . These are classic recession-resistant plays because consumers will continue eating and drinking whether the economy’s tanking or not. And even if the market drops, these stocks drop less.

Look for dividends. A stock that goes nowhere but still pays a 5% dividend yield will double your money in 14 years, thanks to that payout. And dividends offer yet another hedge against a crazy market. Cramer highlighted VF Corp. on Wednesday, so that’s worth a look. Just be careful when you’re choosing these stocks because a lot of companies are cutting dividends to preserve capital. Make sure that dividend is safe before buying.

Lastly, speculate. It keeps things interesting, Cramer said, and that should keep you in the game. He likes high-quality biotech stocks for speculation right now.

Cramer's charitable trust owns Freeport-McMoRan, General Mills and Pepsico.

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