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Just as we must evolve with a changing world throughout the years, so does a portfolio. That means that the traditional method of diversification based on selecting stocks from each sector is not going to cut it anymore. A new world with snazzy algorithm trading machines requires new rules to play the market.

That is why Jim Cramer is focusing on how to put together a diversified portfolio using his new strategy, with stocks that will shield investors in any market while producing maximum benefit.

First up—speculation stocks. Cramer always talks about specs, but what exactly does he mean?

These are stocks that present higher risk but also offer higher reward. Something to keep you interested!

When compared to Cramer’s other strategy such as dividend yielders and growth stocks, a high risk stock hardly seems to make sense. Speculation always seems to be that dirty little word that investors are told to stay away from.

Not only is it okay for you to own those tempting, risky, broken-seeming stocks that trade in the single digits, it’s a necessity as long as you follow my rules and speculate wisely the Mad Money host added.

Everything has a place. There’s a place for stocks from the Dow Jones index. and there is a place for speculation.

Investors need something with a little pizzazz as a tonic against boredom. High-risk, high-reward spec stocks have an undeniable mystique, and, if owned with the right rules and discipline, they could also have a huge upside as well.

Did you know that in the 1980s, solid stocks like Home Depot and Comcast were considered speculative stocks? In fact, some of the biggest wins in Cramer’s career came from speculation.

So now on to the million dollar question: How do you pick the right speculation stocks?

Cramer recommended the overall goal for spec is to invest in tiny, largely unknown companies in sectors that could catch a turnaround. That way, as Wall Street warms to the company, you will benefit from the gains.

One way to identify these stocks is to look for companies that trade in the single digits. Money managers at financial institutions won’t touch the single digit stocks because they think they are too risky. Thus, investors benefit from classic mispricing created by pessimistic money managers.

So once the fundamentals of a company turn, Cramer thinks this is a great opportunity to buy stocks at a great price that the big boys won’t touch.

Read More from Mad Money with Jim Cramer

The key to speculation is that they tend to have a short lifespan. So the trick is to lock in profits as soon as you have them and avoid getting burned. Cramer also advised investors to cut their losses before they become too large.

So the next time the word speculation enters into an investment conversation, don’t cringe. Instead smile, knowing that with a little discipline this could be a great opportunity for a $3 stock to turn into a triple.