Jim Cramer explains how to take advantage of market declines

After stocks fell on Tuesday and the S&P 500 recorded its longest slide since August, CNBC’s Jim Cramer told investors how to make the most of broad market losses.

“In a market like this, my favorite move is to buy small something out of favor that’s way down from its highs,” he said. “Ideally something that just reported a stellar quarter and is getting zero credit for it.”

Investors can use sessions like Tuesday’s to “pick up stocks of high quality companies that are outside the blast zone of the data center,” Cramer said, adding that he doesn’t think the market-wide decline is necessarily over. He added that it’s ok to “tiptoe into the data center world” by investing companies whose stocks have taken a huge hit even though business is actually going well.

Cramer said Tuesday’s sell off presented solid entry points for a number of well-known stocks, including Alphabet and Apple. Wall Street doesn’t like that Alphabet is spending big on the data center, he said, but noted that many arms of the tech giant’s business are thriving, including its YouTube and cloud segments. Apple also declined with its peers on Tuesday, but Cramer pointed out that it posted strong earnings results last month, and he suggested its AI strategy might be a good one.

Cramer recommended investors exercise patience when buying on weakness and start small, as it’s wise to leave room for more buying if the stock declines further. He also reviewed some of his general portfolio guidelines — reminding investors to make sure they own a diverse group of stocks, including one speculative pick. He also suggested parking money outside of individual stocks.

“You should have some money in an index fund side-by-side, because index funds are good — they’re just not the be-all and end-all,” he said. “Index funds give you relative safety versus your individual stock portfolio, but the individual stock portfolio gives you the potential for much more upside.”

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Disclaimer The CMNC Investing Club Charitable Trust owns shares of Apple.