The Crash of '87 Corollary

This market reminds Cramer a lot of the 1987 crash. Fear, not fundamentals, ruled the day then, and that’s exactly what’s happening now.

Why do you think companies like Goldman Sachs and Morgan Stanley, both of which have outperformed their peers during this entire downturn, are getting hit so hard? It’s because in a lot of ways, this environment is actually worse than it was in 1987: AIG, Fannie and Freddie, Lehman Brothers and Bear Stearns. There’s been a lot of damage to the system, and investors are terrified, namely the hedge funds who are pulling their money from investment banks at an alarming rate. Many of them lost capital when Lehman Brothers went under, and they're making sure it won't happen again. This is the where all the panic is coming from, Cramer said.

There’s a good chance this sell-off isn’t over yet. But Cramer urged viewers to keep their heads in the game. The most actively traded major stocks the day before the crash of ’87 ended up making their owners a profit not too long after. Cramer didn’t say you should buy now. But you should be looking for strong, steady companies that you can snatch up on the cheap when the time is right. Look for firms with cash, little debt and the ability to make it through a recession, if need be (though Cramer said he doesn’t think we’ll have one now). Given the state of the market today, most likely you’ll be looking at stocks outside the financial sector.

Again, Cramer did not say to buy stocks – yet. He only wanted to impress upon viewers that the companies he bought during the crash of ’87 made him money six months later. So keep your eye out for what could be bargains of a lifetime.

“I am not saying we’re done going down,” Cramer said. “This reign of terror could last a while longer. I am saying don’t let your judgment be one of its victims. The opportunities were there in '87…and I think they'll probably come again sometime soon.”

Jim's charitable trust owns Goldman Sachs and Morgan Stanley.

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