What is the right course of action?

You answered correctly. At a stop sign, you must always stop at the stop line before proceeding. After stopping, you must give way to all cross traffic, including the cyclist on the left and the bus on the main road. The stop sign requires a full stop and yielding to anyone with priority. This means you need to: stop at the line, let the cyclist and the bus go first, and only then can you proceed. This is the correct way to handle such intersections in Germany.