Jim Cramer explains how to take advantage of market declines

After stocks fell on Tuesday. S&P500 CNBC’s Jim Cramer tells investors how to make the most of market-wide losses.

“My favorite thing to do in a market like this is to buy popular small items that are way down from their highs,” he said. “Ideally, it’s something that just reported a great quarter and has zero ratings for it.”

Cramer said investors can use sessions like Tuesday’s to “pick up stocks in blue-chip companies outside of the data center explosion zone,” adding that he doesn’t think the overall market decline is necessarily over. He added that he doesn’t mind “sneaking into the data center world” by investing in companies whose stock prices have taken a big hit when their businesses are actually doing well.

Cramer said Tuesday’s decline was a solid entry point for many big-name stocks, including: alphabet and apple. He noted that while Wall Street doesn’t like that Alphabet is spending so much money on data centers, many parts of the tech giant’s business are thriving, including YouTube and its cloud division. Apple also bowed out along with its peers on Tuesday, but Cramer pointed to the company’s strong financial results last month and suggested its AI strategy may be a good one.

Cramer advised investors to be patient and start small when buying on the downside, as it would be wise to leave room for additional purchases if the stock falls further. He also reviewed some general portfolio guidelines and reminded investors to ensure they own a diverse group of stocks, including at least one speculative stock. He also suggested parking funds other than individual stocks.

“You should have some money alongside index funds, because index funds are good. Index funds are just not a panacea,” he said. “Index funds are relatively safe compared to individual stock portfolios, but individual stock portfolios have much more upside potential.”

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Disclaimer CMNC Investing Club Charitable Trust owns stock in Apple.