CNBC's Jim Cramer on Thursday said there is a place for speculation in one's portfolio — as long as investors are cautious with their moves and understand how much risk they're willing to take on.

"Owning a speculative name or two is perfectly fine, as long as you understand that you can lose a great deal of money when you're wrong," he said. "But if you speculate wisely, my exhaustive research shows that the good ones should more than make up for the losses."

Cramer defined speculative stocks as companies that don't necessarily turn much of a profit, but they have a high valuation — so they can be high-risk but high-reward investments. He encouraged younger investors in particular to speculate.

He advised maintaining a diverse portfolio, ideally buying only one or two speculative nam

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