Is it wrong to be idealistic and live the good life?

If we should be able to do something we love and be paid well for it, we are very lucky indeed.

Now, if we should be given two choices of 

1. a job that pays us well but we do not enjoy 

and 

2. a job that doesn't pay well but we enjoy, 

which one should we choose?




Which option we choose might depend on whether we are a pragmatist or an idealist.

However, I also believe that which one we choose will depend on how comfortable (or uncomfortable) we are financially.

My breakfast. Cute?

I know young people who are very idealistic and many can afford to be so because they already have a roof over their heads, they get a generous amount of pocket money from their parents and the labour market is generally quite tight. 

So, they can afford to be picky.


Is there anything wrong with this? 




Well, as long as they and their parents are able to sustain that kind of an arrangement almost indefinitely, I don't think so. 

There are families which have enough old money to last them a few generations, for example. 

Lucky people.






However, if we are talking about a regular middle class family, then, I think that such an arrangement could be a problem. 

It could be a problem also because it could become a problem for society at large.





"We can afford this lifestyle. What is your problem, AK?"

Yes, for how long? 

Have they ever asked that question?





"We have a plan. Don't be so nosey, AK!"

Oh, ok, that is good. 

I am so sorry for being a big kay poh.




Bad AK! Bad AK!

(I hope the plan does not include a "RETURN OUR CPF" protest in Hong Lim Park.)

Related posts:
1. Why a wealthy nation cannot afford to retire?
2. Two questions that help us build wealth.
3. Are you a millennial? (30 years old or younger.)
"Millennials' general attitude towards work is a result of having doting parents, structured lives and a high level of connection with others through information technology."

How much to invest? Nibbles, gobbles, values and prices.

I have blogged about my nibbles and gobbles in the stock market before and although it might be quite intuitive to us, what exactly is a nibble in terms of numbers? 

I received an email from a reader asking if I could blog about this in greater detail. 

So, this is my attempt to give some notable form to the concept of nibbling in the stock market.





When I have identified a business I would like to invest in, I should also decide how much money I want to invest in it. 

Now, how do I do this? 

Hint: Remember the pyramid? 

Cannot remember? Go to related post number 1 at the end of this blog post.

So, based on my own unique pyramid, I would be able to estimate (yes, it is always an estimate for me) how much I want to invest in the business. 





Example 1:
If it was an investment for income and growth and if I had allocated, say, $200,000 for that kind of investments in my portfolio and if there should be $50,000 left in unused funds earmarked for the same, then, that should be the upper limit of my investment in the business.

Of course, we can have variations. 

Example 2:
If I had decided that no single investment in this layer of the pyramid (i.e. my portfolio) should exceed $25,000 in size, then, that $50,000 left in unused funds for this layer would have had to find at least two businesses to invest in, not one.






Now, let us say that I had decided that $50,000 was a good amount to invest in a business I had researched that had a PE ratio of 12x under more normalised circumstances and generated a dividend yield of 3% based on a pay out ratio of about 35%, I might start nibbling at a PE ratio of 12x. 

Pay a fair price for a wonderful business? I can accept that.

To me, a nibble should be a single digit percentage of the total amount earmarked for the investment. So, in this case, it would be under $5,000.





When do we stop nibbling? My take? 

When we have already invested a third or so of the funds earmarked for the purpose.

Then, what about the rest of the money? 

The rest of the money is reserved for gobbling. 

What is a gobble? 

A gobble is bigger than a nibble. 

50% bigger? 100% bigger? 

Well, I am not prescriptive.

One instance in which I would gobble is when I feel that the stock has become undervalued.

So, for example, if a stock which usually traded at a PE ratio of 11x to 13x should be offered by Mr. Market at a price that translated to a PE ratio of under 10x, to me, that would be undervalued. 





The closer the PE ratio declines to crisis valuation, the more undervalued the stock becomes, all else remaining equal.

Now, this is just me talking to myself. Definitely, there is nothing sacred about the numbers. They are just examples. 

The philosophy that is the foundation of this blog post is, however, quite timeless. 

I hope this blog post has thrown some light on the matter of nibbles and gobbles.




Specific numbers and percentages? 

You know your circumstances best. 

That is your job.

Related posts:
1. Investing and position sizing.
2. AK went shopping in the (stock) market. (Nibble.)
3. Saizen REIT: Why did I buy? Buy more? (Gobble.)