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Which is more suitable for you, Motley Fool or Morningstar?
Also, are there any other better alternatives?
In this article, I am going to do a very detailed comparison between Motley Fool and Morningstar to help you make an informed decision.
Motley Fool has been around for almost 30 years and is one of the leading stock research and analysis websites in the world.
It was founded by David Gardner and Tom Gardner who have decades of experience in stock investing.
Also, they wrote quite a few best-selling investment books:
“The Motley Fool Million Dollar Portfolio: How to Build and Grow a Panic-Proof Investment Portfolio”
“The Motley Fools Rule Breakers Rule Makers: The Foolish Guide To Picking Stocks”
“The Motley Fool Investment Guide: How The Fool Beats Wall Street’s Wise Men and How You Can Too ”
“You Have More than You Think: The Motley Fool Guide to Investing What You Have”
Motley Fool offers a wide range of services with two of its most popular stock-picking services being “Motley Fool Stock Advisor” and ” Motley Fool Rule Breakers”.
Motley Fool Stock Advisor
So, what is Motley Fool Stock Advisor?
Motley Fool Stock Advisor is a stock-picking service that offers the following to its subscribers:
- You will receive two stock recommendations every month, as well as their monthly “Best Buys Now”:
- On the first Thursday of the month, you will receive a new stock recommendation
- On the second Thursday, you will receive 5 New Best Buys Now
- On the third Thursday, you will receive another new stock recommendation
- and on the fourth Thursday, you will receive another 5 New Best Buys Now
- You will receive timely updates on all the stock picks as well as a real-time email notification when it’s time to sell, so you are never left wondering what to do
- You gain instant access to all past Motley Fool’s Stock Advisor recommendations
- You gain instant access to all of their stock reports
- The Motley Fool’s Top 10 Best Stock to Buy Right Now (which features some of their recent picks that still offer the best potential return).
- The Motley Fool’s Top 5 Starter Stock (which features the ideal stocks that should be the foundation of any new investor’s portfolio.)
Now, are Motley Fool Stock Advisor’s stock picks good?
Can you really get a lot of value from Motley Fool Stock Advisor?
Let’s first look at their track record.
As of Jun 2022, average Motley Fool Stock Advisor recommendations have returned over 357% since inception while S&P 500 has returned 123%.
In other words, it beat the S&P 500 roughly 3:1 for the same time period.
Motley Fool Investment Strategy
So, what investment strategy does Motley Fool use to pick stocks?
To put it simply, they “invest in great businesses, not stock tickers”, especially great businesses that have huge growth potential and are poised to be the market leader in the future.
And they only want to invest in businesses that they think will do well in the next three to five years and beyond.
Here are just some of the criteria they look at:
- Competitive advantage
- Market Opportunity
- Strength of leadership
This is quite similar to Warren Buffet’s value investing strategy, but Motley Fool places more emphasis on the growth potential of the businesses.
So, essentially, Motley Fool’s stock recommendations are mostly value stocks with great growth potential, for example, Netflix, Amazon & Zoom.
Motley Fool Stock Advisor Vs Motley Fool Rule Breaker
Motley Fool Stock Advisor and Motley Fool Rule Breakers are the two most popular stock-picking services offered by Motley Fool.
So, what is the difference between them?
The key difference is that Motley Fool Rule Breakers specifically recommends high-growth stocks.
These stock picks are for more aggressive investors with a moderate-to-high risk profile.
Although it might offer you greater potential returns, the stock prices are more volatile which could lead to big fluctuations in your investment portfolio.
Let me illustrate the key difference between Motley Fool Stock Advisor and Motley Fool Rule Breakers.
Both Motley Fool Stock Advisor and Motley Fool Rule Breakers recommended “Amazon”, but Motley Fool Rule Breakers picked up “Amazon” much earlier than Motley Fool Stock Advisor when Amazon was still in its early growth stage.
So, if their stock pick was right (because no stock-picking service can be 100% right about their stock picks), you would achieve much higher returns with Motley Fool Rule Breakers with regards to that particular stock pick.
But, in the event that they are wrong (which is also possible), you would lose more with Motley Fool Rule Breakers.
I would say that Motley Fool Stock Advisor is more suitable for beginner investors as well as conservative investors while Motley Fool Rule Breakers is more for investors with extra money for risky stock investments.
Further Reading: Is Motley Fool Stock Advisor Worth It?
Now, what about Morningstar?
Morningstar has been around since 1984, and it’s a well-known investment research company that performs analysis on stocks, bonds, exchange-traded funds, and mutual funds.
Its business not only consists of providing investment advisory services (i.e. stock, bonds, and funds ratings and analysis) to individual investors but also software and research reports to financial advisors and institutional clients.
For individual investors, you have to subscribe to “Morningstar Premium” to get access to all its analysts’ ratings and research reports on stocks, bonds, and funds.
So, what exactly do you get when you upgrade from a free user to a Morningstar Premium subscriber?
This is a list of stocks that are rated 5 stars.
To get rated 5 stars, the stock must be trading meaningfully below the estimated fair value that is calculated by Morningstar’s analysts.
To help you understand better its rating system, a 3-star rating means the stock is trading near the estimated fair value while a 1- and 2-star rating means the stocks are trading meaningfully above the estimated fair value.
You will also get access to its list of wide-moat stocks.
So, what is considered “wide-moat stocks”?
Only companies that have competitive advantages over their competitors will fall under this category.
What Is Economic Moat?
Economic moat refers to a business’s ability to have a sustainable competitive advantage over its competitors.
So, it will enjoy higher profits over its competitors in the long term.
A typical example of a competitive advantage is a low-cost advantage.
Due to its size and retailer strength, Walmart can undercut most of its competitors by offering a wide selection and low prices.
Companies can develop a competitive advantage through product/service differentiation as well.
This can happen only when the company has a value and unique offering that its customers want and cannot get it from somewhere else.
For example, Rolex differentiates itself by having a value brand.
And Amazon Prime uses speed as its competitive advantage.
Inside “Morningstar Premium“, you will see a rating on the economic moat of all the stocks it covers:
- Wide Moat (highest)
- Narrow Moat
- None (lowest)
So, companies with the highest moat rating have the most sustainable competitive advantages, thus the greatest potential for future price appreciation.
Try Morningstar Premium For 7 Days Free
With Morningstar Premium, you will also get access to a list of “Medalist ETFs” which are Morningstar’s top-rated ETFs with the lowest cost.
Morningstar gives an ETF one of the following ratings:
However, take note that Morningstar rates the ETFs only based on their performance against its peer group and also how tightly it tracks its underlying index.
So, what you are getting is NOT a recommendation based on analysts’ own opinions and analysis.
Medalist Mutual Funds
Morningstar is well known for its research and analysis of mutual funds.
It tracks a huge number of mutual funds.
For each mutual fund, it assigns an analyst’s rating based on the analyst’s conviction in the fund’s ability to perform better than similar funds over the long term.
It assigns the ratings on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, a Neutral rating; and a Negative rating.
If a fund receives a Gold, Silver, or Bronze rating, that means they expect the fund to perform better than similar funds in the next five years at least.
However, I would recommend you STAY AWAY FROM mutual funds.
Mutual funds are generally professionally managed by fund managers.
And research has shown that more than 90% of fund managers CAN NOT beat the stock market index return.
In other words, you are better off putting your money in passively managed index ETFs that closely tracks the stock market index return.
What’s more, is that mutual funds charge higher fees (typically 1 to 1.5%)
Compared to mutual funds, ETFs have much cheaper fees which are less than 0.5%.
That’s only about a 1% difference in fees, BUT this small 1% can significantly reduce your returns over the years.
Here’s a study done by SEC on how fees and expenses can affect your investment portfolios.
Assuming that you invest $100,000 with an investment fund for 20 years with a 4% annual return, let’s see how much a small percentage increase in annual fees can reduce your portfolio value.
0.5% annual fees reduce your portfolio value by $10,000 compared to a portfolio with a 0.25% annual fee.
Let’s put this in perspective.
$10,000 is 10% of your total investment value.
So, a 0.25% increase in annual fees costs you a 10% decrease in your investment portfolio.
1% annual fees reduce your portfolio value by nearly $30,000, compared to a portfolio with only 0.25% annual fees.
$30,000 is 30% of your total investment value.
Let’s put this in perspective, too
So, a 0.75% increase in annual fees costs you a 30% decrease in your investment portfolio.
If you want to invest in funds, then my advice for you is that STAY AWAY from mutual funds and only invest in stock market index ETFs with very low all-in annual fees (i.e. expense ratios)
Motley Fool Vs Morningstar: Product
What are the key differences between the Motley Fool Stock Advisor and Morningstar Premium?
First of all, Motley Fool Stock Advisor focuses on stock recommendations while Morningstar offers analysts’ ratings and analysis on stocks, bonds, ETFs, and mutual funds.
Every month, Motley Fool Stock Advisor would give two stock recommendations and also their “Best Buys Now” stock picks.
All their stock picks come with a detailed analysis of why they are optimistic about the stock and also point out the potential risks.
Also, you will get real-time alerts on when to sell if they think the stock is no longer a good stock to hold in your portfolio.
For all their past stock recommendations, they will send out the updates and their latest take on them if there is any news or abnormal price movement.
So, you won’t be left wondering when to sell or what to do whenever there is news on the stock.
On the other hand, Morningstar updates and maintains a list of stocks whenever there is a change in analysts’ ratings.
They don’t give you specific recommendations on exactly what stocks to buy and when to buy and when to sell, but you can use their “Undervalued Stocks With Wide Moat” to help you make investment decisions.
Since they give you an estimated fair value for every stock, then it’s reasonable to assume that it would give you a good margin of safety as long as the current share price is below the estimated fair value.
Lastly, if you are interested to invest in funds or bonds, Morningstar gives you a list of recommended funds and bonds that the Motley Fool does not.
Motley Fool Vs Morningstar: Performance
In terms of the past performance of stock recommendations, Motley Fool Stock Advisor has a proven track record with its stock picks outperforming the S&P 500 for the same time period since its inception.
Below is the performance comparison between Motley Fool Stock Advisor and S&P 500 between 2002 and 2nd June 2022.
As of 2nd June 2022, average Motley Fool Stock Advisor recommendations have returned over 357% since inception while S&P 500 has returned 123%.
In short, the Motley Fool Stock Advisor has outperformed the market 3 to 1.
But, what about its individual stock picks?
This metric is important because I might not be buying every single stock recommendation made by Motley Fool Stock Advisor.
Below is a table that shows the performance of individual stock picks over the years.
As of May 2022, Motley Fool Stock Advisor has had 171 stock recommendations with 100%+returns.
Here are just some of their best-performing stock picks:
- Amazon: it’s up 19,806%*
- Netflix: it’s up 23,901%*
- Walt Disney: it’s up 632%*
- NVIDIA: it’s up 16,423%*
- Shopify: it is up 4,107%*
- United Health Group: it is up 2,338 %*
[*Returns as of 31st Dec 2021. Past performance is no guarantee of future results. Individual investment results may vary. All investing involves risk of loss.]
On the other hand, Morningstar does not give stock picks, so there’s no way to measure its performance.
Will the Motley Fool Stock Advisor always be right about their stock recommendations?
No, because no one can be right about their stock picks 100% of the time.
Let me sidetrack a bit here.
If any stock picking service tells you that they have a close to 100% success rate on their stock picks and can guarantee you high investment returns, you should definitely stay away.
Even Warren Buffet has loss-making stocks in his portfolio, but he still achieves above-average returns because a few big gainers in the portfolio can make up for the under-performers.
What I like about the Motley Fool Stock Advisor is that they are very open and transparent about their bad investments.
As a member, I can see the performance of ALL its past and current stock recommendations (even for closed positions).
For some other stock-picking services that I’ve tried, they don’t publish the performance of all their past and current stock recommendations, so it’s not easy for you to find out their true track record.
For example, the year 2022 has not been good for high-growth stocks because of rising interest rates and high inflation.
So, you can see a lot of Motley Fool Stock Advisor’s stock recommendations are not doing very well.
The truth is that other stock-picking services are not doing well either because of the stock market crash.
Do I still think it’s worth subscribing to the Motley Fool Stock Advisor?
My answer is yes.
The stock market goes up and down all the time.
Every few years, there is a bear market.
According to Peter Lynch who is a legendary fund manager, far more money has been lost by investors trying to anticipate correction than lost in corrections themselves.
In fact, I think the bear market is the BEST time to start investing in the stock market.
During a bear market, it’s more likely to find great businesses selling at very cheap prices because people are just selling out of fear when the business is still fundamentally sound.
A market crash is a time when huge wealth transfers from irrational and emotional investors to patient and rational investors.
So, if you are thinking of getting into stock investing, I highly recommend the Motley Fool Stock Advisor because I think there are a lot of well-researched stock recommendations with long-term growth potential.
Motley Fool Vs Morningstar: Pricing
In terms of pricing, both Morningstar Premium and Motley Fool Stock Advisor are quite affordable.
Both Motley Fool Stock Advisor and Morningstar Premium cost about $199 a year,
For Morningstar Premium, there is a 7-day FREE trial, which means you can test-drive its product and services risk-free for one week.
So, how much does Motley Fool Stock Advisor cost?
Usually, its annual subscription is $199.
Right now, there’s a special limited-time $89 offer* for new members for the first year when you click the link here to try it out. (*Billed annually. Introductory price for the first year for new members only. First-year bills at $89 and renews at $199)
So, for $89 a year- that’s just $1.70 a week – you can gain unlimited access to their library of expert stock recommendations which are carefully selected to help you grow your wealth.
What’s more, you are protected by The Motley Fool‘s 30-day membership fee-back guarantee.
What this means is that if you decide Motley Fool Stock Advisor isn’t for you, simply cancel your 1-year subscription within the first 30 days (it’s quick and easy to cancel), and you’ll be promptly refunded 100% of your membership fee with no questions asked.
What’s more, everything you see during those 30 days – the expert stock picks, the best buys now, the premium research and reports – are yours to save and keep.
Limited Time: Special $89 Stock Advisor Introductory Offer For New Members
Which One Is Right For You?
So, which one is right for you, Motley Fool or Morningstar?
That really depends on what type of investor you are.
If you are a very hands-on investor and prefer to do your own fundamental analysis, then Morningstar might be a better option for you.
But, if you are a beginner or experienced investor who wants stock recommendations and wants to leverage the expertise and experience of a team of stock analysts, then I highly recommend Motley Fool Stock Advisor.
Personally, I have been a Motley Fool Stock Advisor member for years.
Here are a few reasons why I subscribed to Motley Fool Stock Advisor.
First of all, there are thousands of stocks listed on the stock market.
It’s impossible for me to research and monitor every single one of them.
Secondly, there are many different industries such as technology, healthcare, financials, real estate, travel, and retail.
Yes, I might know one or two industries well enough to help me pick the right investments.
But, I don’t have the industry knowledge and expertise for every single industry.
That’s why I want to leverage the knowledge of Motley Fool’s team of investment experts, so I don’t miss out on some great investment opportunities in the emerging industry as well as industries that I am not familiar with.
Thirdly, I don’t invest in mutual funds because the fees are simply ridiculous and the majority of the mutual funds have been consistently underperforming the market.
So, I don’t have much use for Morningstar’s research and analysis tools of the mutual funds.
As for Morningstar’s stock research and analysis tools, I think there are much better alternatives.
Lastly, the Motley Fool Stock Advisor is much more affordable at only $89 (usual price $199/year) if you are using this link to access the limited-time special offer for NEW members.
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