My view is that the first and foremost thing is to select few stocks who's future cash flows are strong and growing. We have to look for 2-3 years beyond the current time horizon.
The next step is to see the value difference ie the real value based on the foreseeable cash flows and the current value. May be these companies are trading at a high or low PEs in todays context but will change significantly when other people start realizing the value.
Then you can decide the buying timing. I prefer to invest always in a down market because chances are that you will realise huge returns when a market turns upside from downside. Then the next question we face is what if the stock we invest comes down further as the market downturn continues. My answer to that is you have to adopt a scheduled-purchase approach with top-down pyramid. I'll explain this with an example. Suppose we have identified a stock with good future value called 'ABC' and the current market price is Rs10 and it has down from 15 a couple of months ago due to market downturn. Now suppose we have 50,000 to invest in this stock. We can split the total investment into three phases say 25%, 35% and 40%. Now as the 1st phase we spend 12,500 to buy 1250 shares of ABC. Then you have to study carefully the price pattern for some time. Suppose after a month the share drops to 8 and now you use another 17,500 to buy higher number of stocks of the same company. Now your average cost is below 10. Your observation continues and suppose the ABC share slump to 6 now. Now the total drop since your first purchase is 40%. No need to panic use the balance 20,000 to buy even a higher quantity of ABC stock. Now your average cost should be less than Rs8. The likely hood of the share going down further is very very small.
Next step is to observe the market development. If the company generates the cash flows as expected within the next couple of years you will see the ABC stock will move to reflect its correct value say 17. And you can assume the annual average return of your carefully planned investment.
Lets share your thoughts as well on this topic.Thanks