Personally, I recommend that you look for domains using the following four-step process:

Step #1: Define Your Portfolio Objectives

Before you begin looking for domains to purchase, start by defining your portfolio objectives. For instance, you might decide that you want to add another category of sites to an existing portfolio. Perhaps you want to add 4 mid-sized domains that fall under the “natural medicine” category.

On the contrary, you may decide that you want to purchase several dozen inexpensive, country-code domains because you expect that demand for that country code, in general, will pick in the upcoming year.

Whatever your objective is, make sure you clearly define it before you begin buying. Otherwise, you could end up getting caught up in the moment (as buyers often do in auctions); and could end up with a number of poor additions to your current portfolio.

Step #2: Browsing Sites on Auction in the Marketplace

Use the search criteria to hone in on sites that match your portfolio objectives in the marketplace. Once you do this, begin working through them sequentially. Pay careful attention to the ending dates and times, as well as whether or not the site has reached the reserve price.

Remember to use the “analyze the domain” feature to check its backlinks, Alexa rating, DMOZ status, and status. In addition to the domain having a useful and attractive URL, it is also helpful if it is already generating traffic and has a web presence; and this is exactly what this feature will tell you.

In addition to this, you should add all promising domains to your watch list. You should also consider contacting the seller if you deem it necessary (i.e. if you need to obtain proof about traffic or revenue claims).

Step #3: Develop a Bidding Strategy and Execute

Before you go forward and purchase the sites on your watch list, you should develop a bidding strategy. For instance, you should decide exactly how many domains you want to purchase; and how much you want to pay for them at most.

If you don’t do this in advance, there’s a strong possibility that you’ll get carried away in a bidding war; and end up forking out much more than you had intended to originally. Additionally, you may end up with a set of sites that would be good individually, but are not a high-quality addition to your portfolio as a group.

After you form your strategy, execute it as planned. If prices exceed your maximum pre-planned bid, don’t chase after the high bidder. Let the sites go; and move ahead with your plan.

Step #4: Learn from the Process

Portfolio construction is a dynamic process that involves learning. After you spend hours reading descriptions of domains for sale, you should no doubt end up with a better understanding of what goes into coming up with a good domain name idea. You may be surprised that others are coming up with ideas and searching in categories that you never would have thought to consider originally.

In order to make sure that you learn and adapt based on what you observe, take some time to jot down notes during and after your first buying experience. Comment on what went well, what went wrong, and what might be improved in the next round of buying.

Additionally, consider how you should change your portfolio objectives based on your first search. For instance, should you change the original categories that you selected? Or should you focus more on country code domains? Or is there some entirely different dimension that you hadn’t considered promising originally, but which now looks good?

All of this is important to observe, internalize, and use for future purchases.