CNBC’s Jim Cramer said investors should understand Wall Street jargon, including terms such as correction, rotation and execution.
Cramer said a correction can occur when the market, or just an individual stock, has been roaring but then suddenly sees a steep decline. He said he knows corrections can seem like the end of the world, but he emphasized that stocks can usually bounce back, especially coming off a particularly high run.
“Sell-offs are a natural feature of the stock market landscape. We don’t have to like them — I don’t — but we do need to acknowledge that they will happen no matter what, so you shouldn’t get flustered, or worse, panic when they inevitably smack you right in the face,” he said.
Cramer also defined rotation, which is when money flows out of one sector and into another. He suggested minimizing losses due to rotations by having a diverse portfolio. This way, when one sector falls out of favor, investors won’t get completely annihilated.
Last, Cramer explained the term execution, which refers to a company’s ability to follow through with its plans. He said owning a stock comes with many risks around execution, as investors can see declines if management messes up a merger or product launch or implements poor cost controls. Cramer recommended paying up for what he calls “best of breed” stocks, or companies with leadership who have proven their abilities.
“Don’t be afraid of rotations and corrections; don’t be intimidated by people who use the words,” he said. “And remember, even though it’s hard to quantify, execution is a crucial factor when it comes to picking stocks — you want companies with proven, seasoned management teams that are less likely to drop the ball.”
