Mad Money

Cramer urges preparation for stock declines

Cramer explains pullback strategy
Cramer explains pullback strategy

(Click for video linked to a searchable transcript of this Mad Money segment)

On Tuesday, the , again, closed at an all-time high. But what goes up often comes down.

And Jim Cramer wants you to be ready. Now make no mistake, the "Mad Money" host doesn't view preparation as running for cover—quite the contrary.

"The vast majority of declines since 2009 have been buying opportunities," Cramer said. "When you're dealing with the stocks of high quality companies that simply aren't very expensive, then any weakness is generally a buying opportunity."

Nicholas Monu | Photodisc | Getty Images

And Cramer doesn't just talk the talk, he walks the walks.

For example, on Tuesday "I bought some United Technologies for my charitable trust," he said.

Cramer's move was triggered by a broad decline in the aerospace sector, a decline that he didn't feel was warranted because largely Cramer's homework shows that business in the sector is good.

In fact, Cramer felt his outlook was confirmed by HD Supply when the company reported earnings in the morning and said business had steadily improved throughout the quarter. "Plus, architectural billings, another good judge of construction, have stayed strong. Also, China cut its reserve requirement ratio last night, which could give their economy a boost."

As he bounced ideas for the decline off colleagues, none of the reasons really presented any fundamental shift.

Therefore, Cramer concluded that United Technologies should not have fallen broadly with the sector, and he pulled the trigger. "I just didn't think it should have declined by a buck and change given that non-residential construction and heating ventilation and air conditioning are finally turning around."

Why does this exercise matter?

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"Because these days, I see the opposite happening in this market," Cramer said. That is, with the market at all-time highs, individual investors fear buying weakness. Instead, Cramer says, individuals are chasing stocks, buying as the market goes higher.

Cramer says that's a mistake.

"I use the same logic that I outlined with United Technologies pretty much every day in this market. I look for price breaks in good companies and run toward them, not away from them during a decline," he said. "Do the homework, develop a fundamental thesis and stick with it. The market tends to overreact. Often the sellers are wrong."

Call Cramer: 1-800-743-CNBC

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