Simple rule to follow:
“Be fearful when others are greedy, and be greedy when others are fearful.” Warren Buffett
You may aim to avoid buying stocks at the wrong time. You may use the Fear & Greed Index to figure out where we stand in the market cycle.
Below is the Simple Equity Allocation Framework for your reference.
Scenario 1: Reduce
if valuation is expensive and equity allocation > 50%
Scenario 2: Stay Invested
if valuation is fair or cheap and equity allocation > 50%
Scenario 3: Invest
if valuation is fair or cheap and equity allocation < 90%
Invest lumpsum or staggered:
50% lump sum and 50% staggered if valuation is fair
100% lump sum if valuation is cheap
Margin of Safety:
The margin of safety is the difference between estimated fair value and buy price. Margin of safety limits the size of losses in case there are errors in your fair value estimate or assumption.
Buffett believes the margin of safety principle to be the cornerstone of investment success.