What’s the right price to enter?

Great question since it forces us to think on 2 critical dimensions – How to value?, and How to think about the prices?

Your primary question focuses on the outcome. Hence, it is easy to answer: Buy at a price which will remain the least price among all the future quotations. But, I agree that’s impossible. So, I think a better question to contemplate would be: How to judge that dream price? To do so, it becomes imperative to focus on the process, which is very specific to every individual and needs continuous refinement. Here is my thinking that precedes the process/approach:

• Firstly, no silver bullet exists.
• Secondly, price TREND [of excessive optimism and pessimism] in the near-term follows the technical and prevailing psychological factors [supply-demand, narratives, recent performance compared to prior expectations and adjusted earnings expectations]. However, Price CAGR follows the evolving fundamentals [earnings performance] in the long-term.
• Thirdly, analyze fundamentals to develop conviction. Look for mispriced opportunity, basis fundamentals [earnings growth, optionalities, nature of the business(terminal value, B2B Vs B2C, type of product(need-want-wish), opportunity size, Cyclical Vs. Structural demand, reliability of the cash flows), capital allocation etc.] that are yet be priced in.
• Finally, bear in thoughts that future outcomes are uncertain [amount and the timing of the cash flows, financial shenanigans, unexpected economic shocks such as COVID, red sea tension] and valuation is not only subjective [Investment horizon, Expected Returns] but also relative [current market state (bullish/bearish), sectoral tailwinds, liquidity in the system, intangibles (competitive advantages, financial strength, management) of the business that are very important but can’t be counted in the mathematical models].

What’s my approach? I start with a price chart to judge the current trend. It helps on 2 aspects: Easier to turn many names in a short span of time compared to pure fundamental based approach, & Forces to focus on the opportunities that are likely to provide better return in the current market environment. Trend will be one among below three:

• Up: Analyze fundamentals. Story seems interesting but the price has already run up too much. Start tracking and wait for price pull back (continuation patterns). Take position as and when opportunity knocks.
• Down: Analyze fundamentals. Story seems interesting but ignored by the market participants due to XYZ reasons. Start tracking. Wait for the completion and confirmation of the base formation patterns. On pattern confirmation, take position if fundamentals are still in place.
• Rangebound: Analyze fundamentals. Story seems interesting but undergoing time correction. Start tracking. Wait for the completion and confirmation of the trend. On pattern confirmation, take position if fundamentals are still in place.

In a nutshell, I suggest analyzing both fundamentals and technicals to improve your ability of stock picking. Basing the decision on this hybrid approach reduces the uncertainty and helps to ride the uptrend with better confidence. However, even the above approach is not a silver bullet. Ultimately, one will attain the best path to follow if one continues to work on his/her process with enthusiasm.