I am sure the editor of Fool.com.au will be choking on his Weetbix this morning as he reads the title of my story. The reason being that as long-term value-driven investors, the “Fools” (capital ‘F’) are all about time in the market rather than trying to time the market. So before he hits the delete button on my musings, I should clarify.

I am not talking about timing through some candlestick pattern or SMA (Simple Moving  Average) such as a chartist may use. I am talking about the very best method to time your entry point into the market: patience.

As ordinary investors, we may not be blessed with the stock-picking ability of Warren Buffett, but in my opinion, we do not need to be. What we do need to possess is extreme patience. We must wait for the market to come to us and when it does, we then need the courage of our convictions.

Here are my three golden rules for timing the market.

  1. Only invest in strong growing companies with low debt and the proven ability to pay dividends
  2. Only invest in companies with strong economic tailwinds
  3. Only invest when the share price has fallen 40% or more below its all-time high

While all three points are important, point three is the key to contrarian investing success. In short, you are looking for companies which have undergone their own stock market crash.

I know what you are thinking, if the price has fallen by over 40% there must be something wrong with the company right? Well not necessarily, its price may just have run ahead of its valuation or market sentiment may have turned against the sector or company, but the fundamentals remained intact. Walter Schloss perhaps one of the greatest investors to ever live preferred to buy companies at three-year lows. Did I mention patience is the key?

Still not convinced? How about Bellamy’s Australia Ltd (ASX: BAL), everyone’s favourite baby formula provider that fell over 40% from its all-time high in December 2015, but has since risen by over 40%? Or perhaps the Australia and New Zealand Banking Group (ASX: ANZ) which declined over 40% from its all-time highs in March 2015 only to rebound around 25% today.

Now let me be clear. I am not advocating that anyone invests simply because a company has fallen in price, but I see too many investors who base their investing decisions on share price movements rather than basing investments on fundamental research. Investors should become excited as a price falls for the opportunities it may bring rather than running in fear.

To finish, I would like to suggest three companies which have declined close to or over 40%, which I believe investors should start to research more carefully. In my opinion, each company still has sound fundamentals and perhaps market sentiment has taken hold rather than facts. The companies are Blackmores Limited (ASX: BKL), Aconex Ltd (ASX: ACX), and Vocus Communications Limited (ASX: VOC).

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Motley Fool contributor Alan Edmunds owns shares of Australia & New Zealand Banking Group Limited, Bellamy's Australia, Blackmores Limited, and Vocus Communications Limited. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.