Pain of Discipline
Trouble brews at Credit Suisse, Housing market drops further, and an Update on Bankroll Coffee
What’s up Graham, it’s guys here :-) Welcome to more than 1,200 members who joined us last week! If you would like to join us and never miss an update on the market, hit the subscribe button below. It only takes a second and it’s completely free.
“We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” - Jim Rohn
Let’s face it, now is a difficult time to be an investor. With the ~3% drop on Friday, the S&P500 is now nearly 25% down from its all-time highs. If there is one thing that financial markets hate, it is uncertainty - and right now, there is plenty on the horizon with a host of cascading issues threatening the economy.
The Russia-Ukraine crisis appears to be at an inflection point as President Biden grimly warned that the world has never been at a higher risk of nuclear warfare since the Cuban missile crisis in 1962. The conflict appears to show no signs of calming down as just yesterday, a key part of Russian infrastructure in Crimea was damaged in an explosion.
The latest jobs data showed the unemployment rate dropping to nearly 3.5% as the economy added a higher-than-expected 263,000 jobs last month. Economists are pointing to the low unemployment rate as one of the main reasons for inflation and with the recent report showing no signs of relief in inflation, investors are now betting on a 125-point rate hike over the next few meetings from the Federal reserve.
It’s easy to be fearful at this point as there is a lot of uncertainty in the market. To be able to hunker down and keep investing when your portfolio is down 20-30% is the pain of discipline that all long-term investors have to go through. It would be infinitely worse to pull out your investments in panic and then suffer the pain of regret.
Before I bring you guys up to speed, a quick word from our sponsor over at Fundrise
Real estate is really close to my heart and its performance is mainly driven by long-term macroeconomic trends. This is exactly why I agreed to partner up with Fundrise.
Fundrise’s $6B+ portfolio is well positioned to capture outperformance resulting from macroeconomic trends, like sky-high mortgage rates driving increased rental demand. Fundrise invests in built-for-rent communities, which means they’re adding brand new rental supply to the market.
In a world where we’re all wondering - Where can we invest when it seems like every asset class is losing money? In a world of high inflation, rising interest rates and volatile public markets, where can we look for a potential positive investment return?
One potential answer is alternative investments like private-market real estate with Fundrise. Real estate has been historically proven to outperform during inflationary periods. And Fundrise has the returns to back that up. In the first half of 2022, Fundrise outperformed the S&P 500 by 25% with a steady return of 5.5%.
For more information, including all relevant disclaimers check out the Fundrise Mid-Year Investor Letter
Why I Stopped Selling Coffee
This is a very personal topic for me, but a lot of you guys had been asking for an update on Bankroll Coffee. The entirety of my success is because of your support and I owe you guys a full explanation of what is going on with my company.
Bankroll Coffee started as a fun side project when I made a video about how you could make a million dollars extra over 55 years if you made coffee at home instead of having it at Starbucks.
So, when a subscriber reached out with the infrastructure and connections to start a high-quality, low-cost coffee company, it seemed like a natural extension of what I already do.
However, we ran into a few critical logistical issues
Sourcing - While we were already working on razor-thin margins, Arabica coffee prices increased by 76% in 2021 and went even higher in 2022. In fact, right now, coffee prices are among the highest they have been in the past decade. Because of this, we had to raise prices to stay profitable.
Supply Chain Constraints - This should be no surprise to most of you, but shipping has become a nightmare due to rising costs and increasing wait times. Very often we end up ordering more products than we need to ensure that we don’t run out of stuff and are unable to restock as orders come through.
Inflation - Simply put, everything else has become more expensive and price increases have affected every step of the process. For example, Coffee Bags have become 10 cents more expensive, packaging costs have gone up by 10%, and labor costs which used to be $1.85 per order have now become $2.45.
Running a business that delivers physical products that people use on a day-to-day basis has been an incredible learning experience for me and despite the challenges faced, we have successfully pivoted to other products and made the overall venture profitable.
I go into more detail regarding the new products in the video and how we did the pivot, so make sure to check it out. I know that many of you guys run small businesses and have faced similar challenges. How did you overcome them? What advice would you give to someone who is struggling to run their business due to supply chain and inflationary issues? Let me know in the comments below!
The Worst Economic Collapse Is Coming
Two of the biggest banks in the world, Credit Suisse and Deutsche bank are facing some serious existential threats. Their stocks have dropped more than 90% from their peak value and Credit Suisse’s CEO is trying to shore up confidence in his company through restructuring.
The recent interest in these companies started after ABC Australia reported that they had received credible information that a famous investment bank is on the brink. Although they didn’t specify names, the credit default swaps for Credit Suisse reached their highest levels since 2008 and investors are worried whether this will be another Lehman-like moment. My thread on Twitter on this topic went viral earlier this week and hit more than 8000 retweets - Be sure to check it out!
It Started: Home Prices Are Falling 50%
After a decade of near-unstoppable growth, home prices are finally starting to decline. Housing affordability has dropped as mortgage rates have crossed 7% - and consequently, home sales are down 20% Year-over-Year.
Another key indicator is the supply of housing inventory: right now, it would take nearly 8 months for the current supply to be sold out in comparison to 3.5 months at the start of the pandemic. Home prices did go up during the post-pandemic boom, but in the last 90 days, median home prices have dropped from $413,000 to $389,000.
A key difference between the housing market and other asset classes is that changes reflect a lot slower. Real estate is my bread and butter and in this video, I lay out all the nuances of the changing housing market landscape.
So that’s it for my Sunday round-up. For the new folks here: In this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.
See you next week with another bunch of exciting videos!
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nice 👏🤝