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Are you looking for the right investment advisory service? 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.
So, what is Motley Fool and what does it offer in terms of investment advice?
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 and are often interviewed on major financial news channel CNBC. 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 investment advisory services with two of its most popular stock advisory 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” from legendary investors Tom and David Gardner
- On the first Thursday of the month, you will receive Tom Gardner’s stock recommendation
- On the second Thursday, you will receive Tom’s 5 New Best Buys Now
- On the third Thursday, you will receive David Gardner’s stock recommendation
- and on the fourth Thursday, you will receive David’s 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 portfolios.)
Now, are Motley Fool stock picks good?
Can you really get a lot of value from Motley Fool Stock Advisor?
Okay, let’s take a look at their track record.
As of December 2020, average Motley Fool Stock Advisor recommendations have returned over 546% since inception while S&P 500 has returned 111.9%.
It has significantly better returns than the S&P 500 for the same time period.
Motley Fool Investment Strategy
So, what investment strategy does Motley Fool use to pick their 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 Rule Breaker
Now, you probably know about Rule Breaker which is the other popular stock picking service of Motley Fool.
So, what is the difference between Stock Advisor and Rule Breaker?
The key difference is that Rule Breaker specifically recommends growth stocks by David Gardner.
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 will lead to big fluctuation in your investment portfolio.
Both Stock Advisor and Rule Breaker recommended “Amazon”, but Rule Breaker picked up “Amazon” much earlier than Stock Advisor when Amazon was still in its early growth stage.
So, if their stock pick is right (because no stock advisor can be 100% right about their stock picks), you would achieve much higher returns with Rule Breaker.
But in the event that they are wrong (which is also possible), you would lose more with Rule Breaker.
I would say that Motley Fool Stock Advisor is more suitable for beginner investors as well as conservative investors while Rule Breaker 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 service (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 about its rating system, a 3-star rating means the stock is trading near the estimated fair value while 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 its 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 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 price.
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.
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 on mutual funds.
It tracks a huge number of mutual funds.
For each mutual fund, it assigns an analysts’ 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 CANNOT beat the stock market index return.
In other words, you are better off putting your money in a 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.
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 cost 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 cost 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
While both Motley Fool and Morningstar give investment advice to individual investors, there are a few key differences between them.
First of all, Motley Fool focuses ONLY on stock recommendations while Morningstar offers analysts’ ratings and analysis on stocks, bonds, and ETFs and mutual funds.
Every month, Motley Fool 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 only 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, so you still have to do your own research and make your own investment decision.
If you are interested to invest in funds or bonds, Morningstar gives you a list of recommended funds and bonds which Motley Fool does not.
Motley Fool Vs Morningstar: Performance
In terms of investment performance, Motley Fool has a proven track record with their stock picks outperforming the S&P 500 for the same time period since their inception.
As of December 2020, average Motley Fool Stock Advisor recommendations have returned over 546% since inception while S&P 500 has returned 111.9%.
What about the performance of the individual stock picks in Stock Advisor?
As of December 2020, Motley Fool Stock Advisor has had 183 stock recommendations with 100%+returns.
Here are just some of Stock Advisor’s best-performing stock picks:
- Amazon: it’s up 20,255%
- Netflix: it’s up 21,471%
- Walt Disney: it’s up 9,625%
- NVIDIA: it’s up 7,855%
- Shopify: it is up 3,173%
- United Health Group: it is up 2,637%
- Activision Blizzard, it’s up 2,584%
Just imagine that you actually found out about these great stocks way before everyone else did.
What would your investment portfolio be like today?
Now, let’s take a look at Motley Fool Rule Breakers.
As of December 2020, average Motley Fool Rule Breakers recommendations have returned over 334% since inception while S&P 500 has returned 96.6%.
In terms of individual stock performance, Rule Breakers has 163 stock recommendations with more than 100% returns, as of December 2020.
On the other hand, Morningstar does not give specific stock picks, so there’s no way to measure its performance.
Motley Fool Vs Morningstar: Pricing
In terms of pricing, both Morningstar and Motley Fool are quite affordable.
Both Motley Fool Stock Advisor and Morningstar Premium cost about $199 a year,
For Morningstar Premium, there is a 14-day FREE trial, which means you can test-drive its product and services risk-free for two weeks.
So, how much does Motley Fool Stock Advisor cost?
Its annual membership is only priced at $199 a year.
Right now, there’s a special discount of 50% OFF on the annual membership.
That means you could get the annual membership at $99 per year instead of the usual $199 per year when you click the link here to try it out for 30 days 100% risk-free.
So, for $99 a year- that’s just $1.90 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.
So, it’s 100% risk-free for you.
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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 specific stock recommendations and also leverages the investment expertise of experts with a proven track record, then I highly recommend Motley Fool Stock Advisor.
Personally, I have been a Stock Advisor subscriber for years.
Here are a few reasons why I prefer Stock Advisor to Morningstar.
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 of.
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.
Personally, I use Stock Rover to do my own fundamental analysis.
Lastly, Motley Fool is much more affordable at only $99 (i.e. $1.9 per week) if you are using this link to access the limited time 50% discount.
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