This article is a website version of our weekly FREE Best Ideas Newsletter dispatched on 28.03.2023. Subscribe here to receive it in your inbox every Tuesday.

While planning this week’s acquisitions, a persistent thought emerged: What if I purchase now and the markets suddenly plummet? Have you ever pondered this scenario?

There are numerous uncertainties (like bank collapses) but also abundant opportunities. Let's say a lot can go right.

For instance:

• The remarkable resurgence of the Chinese economy post-COVID lockdowns
• Heightened capital investments due to the eco-friendly transformation, including subsidies
• Sustained robust consumer spending propelled by adjusted salaries to match inflation

The truth is, we cannot foresee what's on the horizon, no one can.

The world is akin to a sophisticated system with 7 billion individuals making decisions on a daily basis. How is it possible for you, me, or anyone else, to anticipate what might unfold?

I don't deal in overvalued obscurities

Another aspect that has facilitated my purchasing decisions is my aversion to acquiring unprofitable startups or cryptocurrencies.

All the entities on my list primarily stem from the newsletter. Each possesses meager debts, is undervalued, and exhibits an upward trajectory in stock price (positive momentum). I steer clear of plummeting stocks.

For example, one company recommended in the newsletter approximately a year ago. The company is still conspicuous on the majority of the screens that I peruse, is appreciably undervalued, and disburses a dividend just shy of 10%. It also carries latent growth potential due to its limited store count. Although tempted, I refrain from disclosing the name to maintain fairness for newsletter subscribers.

I'm also contemplating escalating my holdings in tobacco corporations since they have declined inexplicably in relation to earnings.

Despite the dip in oil and gas prices, I remain bullish on the sector as a consequence of escalating Chinese demand, the impending strategic energy reserve replenishment in the USA, and Europe's imperative gas resupply ahead of the ensuing winter. Additionally, a major German utility company has warned about Europe's vulnerability in the event of an extremely cold winter.

Having mentioned that, I'm yet to reach a conclusion as I've ceased several positions, particularly in gas companies. I'm retaining my oil ETFs, which have not yet approached their stop loss thresholds.

Remember to Factor in Dividends when Calculating Stop Loss

Upon reviewing my portfolio this week, two companies hovered near their trailing stop loss points. However, upon closer inspection, this was not the case.

Therefore, I emphasize the importance of considering dividends when evaluating stop loss levels, particularly for companies with substantial dividend yields.

As you are aware, when a company goes ex-dividend (trades sans the dividend), its stock price typically dips by the dividend amount. For instance, if you own a company trading at $1.00 and it pays a 10% or $0.10 dividend, the stock price will decrease by 10%.

Consequently, if the company was already teetering at a 10% trailing stop loss and declines by a further 10%, it might hit your 20% trailing stop loss threshold.

However, this is an inaccurate depiction because the dividend is normally disbursed around a month post the ex-dividend date. Thus, you must incorporate the pending dividend when computing the stop loss level.

Here's the formula: (Current stock price – highest stock price + dividend per share) / highest stock price. To put it differently, you add the awaited dividend to the drop in stock price from its all-time peak.

May your investment pursuits be lucrative, Your Analyst

PS Click here to discover exceptional companies that precisely align with your investment strategy.

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