Keep a diverse portfolio if you want to own speculative stocks, Jim Cramer says

After stocks slid during Thursday’s session, CNBC’s Jim Cramer advised investors who choose speculative stocks that it’s unwise to take such risks without also maintaining a diverse portfolio.

“Even though I am the only person I know who comes on TV and actually recommends speculation, albeit in an informed way, I urge you to diversify your portfolio beyond speculative stocks, because these things all trade together,” he said.

The averages faltered Thursday as a weak forecast from retail giant Walmart stirred investors’ worries about the broader economy. The Dow Jones Industrial Average shed 1.01%, while the Nasdaq Composite lost 0.47% and after closing at a record high for two consecutive days, the S&P 500 dipped 0.43%. Cramer noted that a lot of speculative stocks — ones that are risky but have the potential for high rewards — were hit harder than the indexes. These stocks are in a category of their own, regardless of their individual sector, he suggested, and if one speculative name takes a hit, the others can follow suit.

The kind of major losses that can come with speculative investments scare many investors out of the market completely, Cramer continued. This is why it’s important to “think twice before you pile all of your money into the most volatile stocks out there,” he said, as it’s discouraging to watch a large portion of one’s portfolio take a major hit.

Cramer named a few popular speculative names that saw losses on Thursday, including Palantir, Carvana and Applovin. To Cramer, taking a chance on speculative stocks like these can be worthwhile. He noted that some current high performers were considered more speculative and overvalued at one time, including Netflix, Amazon and Tesla. But, he reiterated, investors need to be fully aware of the risk involved with these investments. He encouraged buying just one or two names, because “if they don’t work, you’ll be up speculation creek…without a paddle.”

“If you believe in these companies and you can stomach dicey balance sheets, you should by, by all means own a couple of speculative stocks,” Cramer said. “Keep in mind, many of your fellow shareholders will want to cut and run when they see all their stocks clobbered.”

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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Amazon.